New directives, new laws, new regulations, new reports, regulation is not at rest, especially to meet green goals. As if that were not enough, geopolitics has not been this challenging for a long time: wars, conflicts, threats, the closing of shipping routes. On top of that, natural disasters are occurring, the planet is warming at an unprecedented rate, and the climates of entire continents are changing. Furthermore, artificial intelligence is developing. Adapting and aligning has never been so challenging, especially for entrepreneurs and companies that must employ compliance experts (compliance). If you ask them about the situation, they will say it is indeed complex, but that everyone is systematically and diligently addressing it. Even when it comes to force majeure.
Systematic Approach
The compliance officer at Hrvatski Telekom (compliance officer) Vinko Berković stated that, from a compliance perspective, the regulatory framework is indeed complex and constantly evolving in line with the environment and business requirements, especially considering the rapid development of technology and the increasing focus on sustainability.
– As a compliance officer, it is challenging yet crucial for me to stay updated with these changes. We continuously monitor regulations from relevant sources for our business and collaborate with both external and international experts to ensure full compliance. It is a dynamic environment, but with a systematic approach and the right resources, we can effectively manage regulatory compliance risk. Evidence of this is the fact that Ethisphere recognized Hrvatski Telekom as one of the world’s most ethical companies this year. This is the second time HT has been recognized globally for applying the highest standards of ethics, compliance, and corporate governance, and it is the only Croatian company ever included in the ranking list, Berković said.
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Regular risk assessments, scenario planning, and contingency planning are part of the risk management framework that large companies are trying to adapt to changes
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In response to Lider’s question about what is more challenging to monitor and align, ESG, AI, or geopolitics, he replied that the three areas of ESG (environmental, social, governance), artificial intelligence, and geopolitical risks are unique challenges and are important for the business of Hrvatski Telekom, and the company addresses all of them simultaneously and systematically.
– We strive to address not only current issues but also to look at the bigger picture and potential risks in the long term. However, prioritization depends on the specific context, moment, and potential impact on our business. For example, if a new regulation on artificial intelligence is being adopted that could significantly affect our business processes, we would prioritize understanding and complying with that regulation. Similarly, if a major geopolitical event occurs that could disrupt our supply chain, that would take precedence at that moment. It is often necessary to reconcile seemingly unrelated tasks and align processes with multiple demands simultaneously, Berković explained, adding that they systematically monitor industry trends and discussions about regulations at both local and regulatory levels, from which some tendencies can be identified, and consequently potential changes, even before they are formalized into regulations.
– In the HT Group, we have established a solid risk management framework for adapting to changes. This includes regular risk assessments, scenario planning, and contingency planning. We also invest in continuous learning and development of our employees to ensure everyone is prepared to respond to changes, and as part of a large international group, we are familiar with best practice examples and international trends that we strive to implement in our business and raise standards to an even higher level, Berković emphasized.
Force Strikes
As companies align, one way to protect themselves in contractual relationships with suppliers and partners is the concept of force majeure, which, as we learn, is used more frequently today than ever because such forces are indispensable in business. For instance, at the beginning of the year, all global shippers invoked force majeure when the Suez Canal was closed due to Houthi attacks on commercial vessels in the Red Sea, and all previous quarterly and semi-annual transportation price contracts were nullified with a stroke of a pen.
– Shippers and receivers who had long-term contracts with low prices agreed upon last year were disappointed when shippers canceled those contracts due to force majeure, as war and the impassability through Suez are certainly force majeure. Now shippers are offering us freight forwarders and our clients to enter into long-term contracts, but, of course, at current prices or slightly lower than those on the spot market. However, no one wants to commit to those high prices now; everyone expects that the crisis in the Red Sea will eventually be resolved, said Petar Šimić, the general director of Primacošped.
Consultant Vedran Antoljak, a partner at Best Advisory, states that the concept of force majeure has been used in various contracts for over 25 years and means a temporary or long-term interruption in fulfilling contractual obligations, which can jeopardize business operations and financial stability.
– A force majeure situation can cause significant financial losses due to non-fulfillment of contracts, production interruptions, loss of revenue, or additional recovery costs; there can be a disruption in the supply chain that can cause delays in production and distribution, which can affect the entire industry. Therefore, including force majeure clauses in contracts is extremely important as it helps define procedures and responsibilities in the event of unforeseen events. This ensures a clearer legal framework for addressing consequences and can help preserve business relationships during and after crisis situations, Antoljak advises.
Contract Termination
Invoking force majeure in a legal context has several key consequences, especially in fulfilling contractual obligations. For example, a party invoking force majeure may be temporarily relieved from fulfilling contractual obligations while the force majeure circumstances persist. This means that the party is not considered responsible for delays or inability to fulfill the contract. In some cases, such as when it comes to container shipping prices, force majeure circumstances may lead to negotiations to amend contract terms to adapt to the new circumstances. Furthermore, parties to the contract will usually not be liable for damages resulting from force majeure, provided they have taken all reasonable steps to minimize the damage.
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So-called business interruption insurance or political risk insurance can also cover losses incurred due to unforeseen events and those beyond our control
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However, there is also an option where fulfilling the contract, due to force majeure circumstances, is impossible or unnecessary. In such cases, the contract can be terminated without penalties.
– Typically, as with all legal disputes, the contractual party invoking force majeure usually bears the burden of proof that the circumstances met the criteria for force majeure and that they were directly prevented from fulfilling their obligations due to those circumstances. It is important to timely notify the other party of the circumstances and, if possible, provide evidence supporting their case. Even when invoking force majeure, the party is usually obliged to take reasonable steps to minimize damage and consequences for the other party. It is important to note that specific legal consequences will depend on the jurisdiction and the exact provisions of the contract. Therefore, it is advisable to consult a lawyer, Antoljak explained, adding that it is therefore important to define situations considered force majeure in contracts as it provides clarity and legal certainty to the contracting parties.
– Whether it is a contract for the procurement of resources from China or a contract for financing from EU funds, key provisions that should be included in force majeure clauses should precisely define what is considered force majeure, including specific examples such as natural disasters, wars, epidemics, terrorist attacks, significant economic changes, government decisions, etc. It is also important to include the obligation to provide evidence supporting claims of force majeure, such as official reports, media reports, or statements from authorities, Antoljak concluded.
Of course, there is insurance that covers force majeure situations. It is usually referred to as business interruption insurance or political risk insurance, and it can cover losses incurred due to unforeseen events and those beyond our control.
