How will Brexit affect your commercial contracts?
The controversy surrounding the Government’s publication of the internal market bill on 9 September 2020 brings Brexit back into the spotlight with now less than 4 months to go until the end of the transition period – a timely reminder to businesses of the need to know how their contracts may be affected by the United Kingdom’s exit from the European Union.
While the outcome of the trade negotiations with the EU are still very uncertain it seems likely that the UK will be leaving the customs union and EU law will no longer have supremacy over domestic legislation.
Departure from the customs union may impact on the operation and profitability of contracts affected by the imposition of tariffs and changing exchange rates. If you haven’t done so already, we suggest that you review key contracts which might be affected by the UK’s departure from the customs union, for example looking at issues such as:
- What is the length of the contract and what are the rights to terminate (in particular termination for convenience)?
- What currency are prices in?
- What delivery terms apply – is the buyer or the seller responsible for the payment of customs duties?
- What mechanisms are there to adjust or review prices?
- What impact might any delays at ports have, for example if products being imported are perishable or have other storage requirements or if the delay impacts on a supplier’s ability to deliver goods and/or services in accordance with a contractual timetable?
- Are there any specific Brexit clauses in the contract?
- Does the force majeure clause provide any assistance? This may be unlikely but is always worth checking.
- What remedies for delay does the contract contain (extensions of time, liquidated damages, suspension, termination, etc)?
- What change control mechanisms does the contract contain?
- If a dispute was to arise, what resolution mechanisms are there in the contract?
It is important to remember that when interpreting wording in contracts the Courts of England and Wales will focus on the specific wording set out in the contract and the circumstances in which common law allows the Courts to deviate away from the natural wording of the contracts are rare – even for those contracts which may be adversely affected by Brexit.
Another area to look at is references in contracts to the EU and jurisdiction clauses although for many businesses this may be less important from a commercial (as opposed to legal) perspective.
If your review suggests that changes to any of your contracts are needed, you may need to look at renegotiation, or possibly even termination, to help your business remain profitable under the new rules and regulations. While it is undoubtedly difficult to agree changes in this time of uncertainty but any amended and new contracts should actively deal (as far as you can) with the possible regime post-31 December 2020.
Following Brexit, the UK will implement pieces of EU law to ensure that the UK has a full statutory framework. However, the UK will be at liberty to change this legislation unilaterally. Many pieces of legislation stemming from EU law are deeply entrenched in UK contract law and it is likely that the UK would decide not to implement massive reforms in the early days of our life outside of the EU but it will be important to keep on top of developments moving forwards.
At FSP we are continually monitoring changes and if you have any questions about issues raised by this article, or on contract law more generally, please do not hesitate to contact us by emailing email@example.com.