Ready for Brexit?
The Brexit debate has taken central stage in the UK for much of the last 3 years and there has been much speculation about businesses relocating to other parts of the EU but for those businesses intending to stay – what are you actually doing about it?
The one thing most businesses seem agreed on is that the current uncertainty surrounding Brexit is bad news because it makes planning so difficult.
The strictly legal effects of Brexit on contracts will, in most cases, be minimal because contract law comes mainly from English case law. However the commercial impact of a “no-deal” Brexit should be prompting businesses to assess their risks even if at this stage they don’t want to take immediate action.
The most obvious effect of a no-deal Brexit is likely to be in terms of costs – if imported goods attract increased tariffs these will increase the costs of those importing goods and they in turn will seek to pass these down the supply chain. Similarly adverse exchange rate fluctuations will make imported goods more expensive. Those who may be affected by increased costs should be considering their contractual arrangements:
Are you tied into long term contracts and is there any way out?
The recent trend is for the courts to take an increasingly literal approach when interpreting contracts so if, thanks to Brexit, you find yourself with a bad deal, the courts are unlikely to intervene. Even a loosely worded force majeure clause may not assist – force majeure usually only works as a get-out where an obligation becomes impossible to perform (as opposed to financially undesirable). If renegotiation isn’t an option, look carefully at the termination provisions so that you understand exactly when you can exit, and what notice needs to be given (when and how).
Do your contracts may appear to give you greater flexibility?
For example, they may not include minimum volume purchase commitments or they allow you to terminate at short notice – so you may decide to stick with them for now and see how Brexit unfolds. However even if you have a contract which protects you in this way, your other options may be limited should you decide to exit: if you leave one supplier because it wants to increase its prices you may find that the other suppliers in the relevant market are trying to pass on cost increases too.
Where a price renegotiation becomes necessary, timing can be all-important. Do you try to push for changes now, while there is still uncertainty or wait until the position crystallises? Do you have the bargaining power to take a tough stance or will it be better to adopt a collaborative “we’re all in the same boat” approach?
When it comes to negotiating price increases, thinking creatively might help. For example:
- Only increasing prices if costs increase by a certain percentage.
- Limiting the increases to certain types of products.
- Making phased increases.
- Looking at other areas where costs could be trimmed to offset the increases.
- Increasing purchase volumes to support overall margins.
- Giving the buyer the option to exit if, on a periodic review of prices, the increase exceeds a certain threshold.
Other issues to think about
As well as the impact of Brexit on the financially viability of your trading arrangements, consider also if a no-deal Brexit might affect your business in any of the following ways:
- Would customs checks on goods and materials coming into the UK affect your ability to perform contracts on time and what impact will that have? Does the contract allow for liquidated damages for delay? Could your customer terminate the contract?
- Is it feasible to source more of your supplies from within the UK?
- Would your business be vulnerable if the UK introduces new restrictions on labour movement?
- Are any of your customers or suppliers relocating (or considering relocating) from the UK and how would that impact your business?
- If your trade marks are registered only in the EU, should you be filing for UK trade marks?
- Does your business receive personal data from the EU and what safeguards will you rely on to ensure it can continue to do so once the UK acquires “third country” status?
- Longer term you could be affected by other issues, for example if the UK elects to diverge from EU regulation. If you export to the EU you will need to continue to keep abreast of EU regulations The UK may also look to change those parts of UK law which have been imported from the EU. Although there seems to be a commitment for the UK, post-Brexit, to adhere to the privacy standards introduced by the GDPR in 2018, the UK might look at changes to the protection given via TUPE and the Commercial Agents Regulations.