Brexit: The Impact on Commercial Contracts

posted by KeithDaniel

The UK is no longer a member of the European Union. Brexit has at last, taken effect (albeit not fully).

Many aspects of UK law and regulation, particularly in respect to trade, have been underpinned by that of the EU and, consequently, many organisations will be concerned about the impact of Brexit on their commercial contracts.

The UK left the EU with a withdrawal agreement and has now entered an 11-month transition period scheduled to end on 31st December 2020, before Brexit will take full effect.

Organisations can therefore take some comfort in knowing that little will change for them until 31st December 2020. In the interim, whilst we are still entering the relatively unknown, businesses can attempt to prepare and take the necessary steps in relation to their commercial contracts, in readiness of the eventual full impact of Brexit.  

Dan Dowen, a Commercial Contracts Associate Solicitor at Berry Smith, considers some of the main things to look out for in your commercial agreements:

  • Territory: many of your commercial contracts are likely to include a definition of the term ‘Territory’. Review your contract and check whether it refers to the ‘European Union’. If so, then you can presume that the UK is included in this and as such, the agreement may need to be amended to provide that upon the UK leaving the EU, the relevant territory is automatically extended to include the UK.
  • Governing law: consider the applicable law of an agreement and whether these are still applicable to the UK. Governing law clauses are fundamental in any commercial contract and if your current contracts are governed by the laws of England and Wales, then this will not be impacted. Going forwards, for any new contracts, try to ensure that the laws of England and Wales apply. References to laws that will no longer be relevant to UK agreements need to be amended to ensure that the correct law is referenced.
  • Regulators: many functions carried out by EU regulators will be taken over by the equivalent UK regulators so organisations should check which regulator they will need to comply with and report to and ensure that is reflected in the agreement.
  • Prices: it is likely that prices, tariffs, exchange rates and other costs of trading will be affected after 31st December 2020. Organisations will therefore need to review their existing contracts and consider the new burdens they may have to bear in relation to any increased costs and tariffs. Consider if your current or future contracts contain mechanisms to alter prices. For example, some contracts may include a price review mechanism that can be implemented in order to renegotiate prices. Alternatively, if prices cannot be renegotiated, consider whether there are any termination rights in the contract that will allow you to exit the contract in the event of such issues.
  • Force majeure: force majeure is an event outside of a party’s control, that if provided for in a contract, can result in the suspension or termination of that contract without further liability to the parties. Such clauses may now also apply to Brexit-related events, depending on the wording of the clause for example, if a certain EU regime comes to an end or if there is a ‘material adverse’ change. If so, seek to amend your agreements to include an express provision stating that the contract will not be impacted by the UK leaving the EU. On the other hand, if an organisation feels that Brexit will affect the operation of a contract in an undesirable or unintended manner, it may be possible to trigger a force majeure clause to terminate the contract.
  • Personal data/ GDPR: The transfer of data from the UK to EU member states will be dealt with by the UK GDPR which is almost identical to the EU GDPR. However, EU to UK transfers may be restricted unless safeguards are put in place so organisations should ensure that their contracts include clauses that allow for the transfer of data from EU member state countries into the UK.

To conclude, if you haven’t already done so, I would advise that you instruct an experienced lawyer to carry out an in-depth review on all existing contracts and consider those terms that are impacted by Brexit and whether these terms need to be renegotiated or amended.

For any new contracts, be mindful that the position in relation to provisions and contractual clauses that may have been standard to you for many years, may have changed and any new contract should reflect this. Again, I would strongly advise that legal advice is sought for this and that you seek the assistance of a knowledgeable lawyer when drafting your contracts.

Berry Smith has a team of expert lawyers specialising in Commercial Contracts and we are already advising our clients in relation to the implications of Brexit. We can help you identify, understand and appropriately manage the risks and challenges posed by Brexit on your contracting arrangements.

Therefore, for further information or assistance, please contact Dan Dowen at ddowen@berrysmith.com  or alternatively please call 029 20 345511 and ask the commercial team.