The News of the World phone hacking scandal, which caused major retailers including Sainsbury’s and The Co-operative Group to withdraw their advertising support and other retailers to stop selling the newspaper before it folded, clearly highlights the risks of a retail brand being damaged by association.

Reputational damage can be fatal for a retail business and this scandal highlights the importance of retailers having provisions in their supplier contracts that allow them to extricate themselves from a damaging relationship.

Clauses that allow retailers to terminate a commercial relationship without liability are not critical to the efficacy of most commercial agreements and have been treated all too often as a “nice to have” addition.

Proving that a brand has been damaged by association can be difficult as it is usually a subjective, qualitative value assessment by the brand owner. However, clauses can be drafted widely and in such a way as to give the retailer the right to terminate if in the retailer’s reasonable opinion there is the potential for damage to its brand because of association with the supplier.

In light of recent events, retailers may wish to check that their commercial agreements are robust enough to withstand the potential for damage by association, particularly if this scandal widens.

Perran Jervis, head of retail, TLT

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