How businesses should prepare for supply chain and contractual consequences

posted by KeithDaniel

The Brexit transition period will come to an end on the 31st December 2020 and from the 1st January 2021, the UK will begin to experience the full impact of Brexit.

Supply chain & commercial contracts

There will be changes in import and export rules and a change in customs, tariffs and duties.

These changes will likely have a knock-on effect on a business’ supply chain, as such changes could lead to a change in the costs of trading, regulatory and compliance requirements and delays in the supply of goods due to increased border formalities.

Issues with ports may well lead to delays which could have an impact on receiving materials on time, or shipping finished goods across borders. 

In anticipation of the end of the transition period and the potential impact it could have on supply chains, businesses must ensure that they review their contracts for:

  • Timelines. Consider whether delivery dates and milestone dates can still be met. If not, businesses may need to enter into discussions with their customers/suppliers to renegotiate some of the terms of their agreements to ensure that timescales can be adjusted accordingly.
  • Costs. A business should review its position in relation to the cost of customs, duties, and the impact of any currency exchange rates to assess whether there will be any new burdens. Parties may be able to renegotiate prices under a price review clause.
  • Termination terms. If a business feels it can no longer perform a contract profitably or that the contract will be substantially effected by the end of the transition period, and it has not been able to successfully renegotiate the terms of the agreement, it may consider terminating. In this case, the termination provisions will need to be reviewed to ensure that the business can terminate without any adverse consequences.
  • Force majeure. Force majeure clauses provide that if an event beyond the control of the parties occurs, the contract may be terminated or suspended without any further liability being incurred by the parties. It may be possible that Brexit-related events could constitute a force majeure event if such events have materially impacted the performance of the contract. Parties may therefore be able to terminate a contract under this clause, depending on the wording of the clause.
  • Mentions and definitions of ‘Territory’. If such definition does not expressly include the UK and simply states the ‘European Union’, the agreement may need to be amended to include the UK within this definition.
  • Compliance with regulations. Consider whether there is an impact on compliance with certain regulations, bodies or laws and whether there are any associated costs in relation to any changes in compliance requirements.
  • Governing law and jurisdiction terms. If the governing law of a contract is that of England and Wales, the contract will not be impacted by a change in law. However, references to any laws that will no longer be relevant to the UK agreements will need to be revisited and amended to ensure the correct law is referenced.

Notwithstanding, basic contractual principles in the UK will go unchanged as the core principles of English and Welsh contract law is derived from our common law rather than from EU law. The same principles in regard to contract formation, breach and interpretation will continue to apply. It is mainly the commercial and technical terms of contracts that will need to be reviewed.

We at Berry Smith, have a team that specialises in Commercial Contracts and 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 for the commercial team or contact Nick Parker at nparker@berrysmith.com in relation to any disputes arising.