Mona Patel Partner
Are your commercial contracts ready for Brexit?
As the end of the Transition Period looms, businesses of all sizes are running out of time to prepare for Brexit. While most businesses are likely to have already undertaken extensive planning, many will have no doubt had to divert their time and resources to dealing with the more immediate issues created by the COVID-19 pandemic.
This checklist sets out a non-exhaustive list of points to consider when reviewing existing, and negotiating new, business-to-business commercial contracts.
- Financial Hardship: consider whether there are (or should be) any provisions which address who should bear the burden of increases in costs of supply, fluctuations in interest rates or exchange rates, and other price changes. Absent express provisions, there will be limited relief for financial hardship arising from a bad bargain or the adverse effects of Brexit.
- Price: are prices/fees payable under the contract inclusive or exclusive of any import/export taxes or tariffs? Whose responsibility is it to pay for import/export tax?
- Delivery: is time for delivery of the essence? Are any liquidated damages payable for delay? It may be necessary to allow for a longer lead-in delivery time if transport and/or customs delays are anticipated.
- Force Majeure: while it will depend on the wording, it is unlikely that a force majeure clause would be trigged by Brexit. To avoid any ambiguity, parties can specifically provide that Brexit and related factors will (or will not) be deemed to be a force majeure event.
- References to EU Law: check boilerplate provisions for references to EU legislation, which depending on the type of arrangement, may need to clarify that "EU law" and/or regulators include replacement laws/regulators in the UK.
- Geographical Scope & definitions of “Territories”: contracts often contain definitions of “Territory”, which may include references to the “EU”. Consider whether definitions should continue to include the UK. This could be particularly important in commercial arrangements such as intellectual property licences and distribution agreements where rights are typically granted for specific jurisdictions only. If the contract applies to the “EU” (as comprised from time to time), parties may find themselves to have inadvertently excluded the UK.
- Licences: does the agreement specify whose obligation it is to obtain any import/export licences and customs clearances? UK businesses exporting/importing goods to and from the EU after the end of the Transition Period will need an EORI (UK-issued Economic Operator Registration Identification) number or required to register for simpler import procedures.
- Termination clauses: can either party terminate for convenience? Where the impact of Brexit is more uncertain for a particular contract, the parties may wish to consider increased flexibility by entering into contracts with a shorter duration and/or including a termination for convenience provision. Parties can also include contract specific termination triggers (e.g. where products are being supplied, the introduction of trade tariffs above a particular financial threshold).
- Change Control: commercial contracts often contain “change control” provisions, which detail the pre-agreed procedure the parties should adhere to where one (or both) parties wants to request an amendment to the agreement. Existing contracts should be reviewed to see whether any such provisions might apply to any changes necessitated as a result of Brexit. When entering into new arrangements, consider including provisions of this type so the parties have a clear expectation of how any potential variations to the contract are to be managed.
- Data protection: we consider the data protection implications of Brexit further here.
- Jurisdiction Clauses: should the recast Brussels Regulation cease to apply, the enforcement of judgments of the English courts in EU member states will become less streamlined (and subject to local procedural laws). Where a counterparty to the contract is not based in the UK, and it is envisaged that an English judgment may require enforcement in the EU, best practice would be to obtain local law advice on how an English law judgment could be enforced in the relevant jurisdiction. Alternatively, consider opting for arbitration as arbitral awards should continue to be enforceable within the EU pursuant to the New York Convention.
By taking the time to appropriately allocate Brexit related risk and expectations at the outset, parties will be able to have more control over how their potential exposure is managed. Should you have any queries or would be interested in us undertaking a health-check on your T&Cs/contracts or considering the impact on your supply chain arrangements , please do not hesitate to contact the authors of this article.
The above does not constitute legal advice nor does it consider a complete list of issues to consider in the context of Brexit and commercial agreements.
- Getting ready for Brexit - Data protection
- Data Protection: The Implications of Schrems II for International Data Transfers
- Covid-19: Are your terms and conditions ready for trade post-lockdown?
- Brexit Q&A: Corporate
- COVID 19: Impact on BREXIT