Brexit Impact on Commercial Contracts

As the final outcome of the Government’s negotiations in relation to the Brexit deal continue to be uncertain, many in our SME client network are becoming increasingly worried about how to ‘Brexit-Proof’ their business to the best degree possible. Commercial contracts are one of the very important elements of business that could be significantly impacted upon by Brexit. With all options appearing to be still on the table as things stand today and as we commented on our recent blog article, this is causing major concern for the UK’s business population due to the uncertainty.

 Brexit-Proof Your Contracts

Contracts is one area which we have identified, here at LawBite, where some definitive actions can be taken to provide you with some security. If you haven’t already, you may want to consider what impact Brexit will have on the contracts you have with customers, suppliers and other parties.

An effective risk management approach is to review your key existing contracts and future-proof new key contracts to prepare (as far as possible) for what Brexit may bring, deal or no deal!

To help you to do this, set out below are some questions to ask yourself when looking at contracts and some actions to consider taking:

 Is this a key contract? Is it a high value, high risk, long term or strategically important contract to your business?

Does it have an EU element? Are goods and/or services going to/from the EU, customers or suppliers based in the EU or is there a heavy reliance on any EU legislation?

Is there a Brexit impact? Will Brexit make it more difficult to perform obligations and/or services or make the contract less profitable?

Is there a financial impact? Is there likely to be imposition of tariffs applied to goods or services provided to and from the EU, or outside the EU or changes to treatment of VAT? Will there be additional costs and delays of customs checks? Will my business be affected by any restriction of freedom of movement of people that could increase costs of labour or lead to labour shortages? Should I consider changing the currency denomination used in pricing? Which party bears the risk of currency fluctuations?

Is the contract wording clear? Is it clear about what is to happen and what each party’s rights and obligations are in certain circumstances post Brexit? Are there references to “the EU” or “EU law” and are these clearly defined? What law governs the contract and what courts have jurisdiction? UK courts and EU courts will most likely continue to respect the choice of governing law regardless of Brexit, so if you would have chosen English or Scottish law then best to stick with it. However, the applicable law will most likely be interpreted as the law in force “from time to time” so post Brexit, if there is a key piece of EU law that needs to apply to your contract, then it would be worth making that clear.

Am I sufficiently protected? Does the contract provide sufficient protection for your business for any risks you have identified? Are the termination rights in the contract clear for Brexit related events? Unless the contract has express provisions setting out what is to happen, it is unlikely that the contract will allow for any relief. Relying on a force majeure clause is a long shot as it requires events to be unforeseen. Using a material adverse change clause or claiming that the contract has become “frustrated” (incapable of being performed) is similarly risky and will turn on the facts of the particular case. It is unlikely these will trigger a right of termination just based on financial hardship or difficulty in performance.

Difficulty enforcing? Might you need to enforce the contract in an EU member state post Brexit? Do you foresee any difficulty with this? You may want to consider taking local advice on how to enforce in that member state or consider agreeing with the other party to use arbitration rather than courts.

Amending/renegotiating? Look at amending or renegotiating contracts or specific clauses to give better protection for your business, amend the pricing to account for additional costs, expressly state the grounds for termination or to simply clarify the contract terms in light of Brexit. This may not always be possible however, if the consent of the other party is required to amend the terms of the contract.

Mitigating/practical actions? Are there any steps or actions that can practically be taken to mitigate the effect on your business?

 The end of the story?

You may also want to consider while you are reviewing contractual situations, the potential impact should Brexit lead to further change. Do you need to consider future proofing against other member states potentially leaving the EU, a 2nd independence referendum in Scotland potentially leading to a break up of the UK? There was a time when Brexit wasn’t in the pipeline, so who knows what the future may bring.

 S.O.S….

Whether you just need some armbands or a full lifeboat rescue, at LawBite we can help. Our LawBriefs can assist with planning your review of contracts, reviewing your contract terms or drafting and negotiating more Brexit appropriate contract terms. At LawBite, we can review your contracts, ensure they are compliant with any changes in law that you might not be aware of (including GDPR) and help you get things in order.

For further business legal advice, you can contact the author of this article LawBrief, Jennifer Cowan. For expert business legal advice, please enter an enquiry or call us today on 020 7148 1066to speak to a member of our friendly Client Care Team.

Journey further…

7 Brexit-Proofing Tips 

Brexit Deal – Impact on SMEs