Are your contracts Brexit proof?

31 December 2020 will mark the end of the Brexit transition period. The UK will no longer be treated, for most purposes, as a member of the EU. Only after 1 January 2021 will the practical effects of Brexit truly be felt by business.

As stranded shipments and jammed ports hit the headlines we take a look at some of the impacts Brexit may have on commercial contracts and practical things you can do now to protect your commercial relationships and avoid potential pot holes in the road ahead.

Brexit does not only affect contacts which reply on import and export. What is clear is that investing in a thorough review of your existing contracts and future proofing your new contracts will be invaluable in protecting your business from casualty. 

Auditing existing contracts

First, whilst there is no one-size-fits-all approach to assessing existing arrangements, be they business to business or business to consumer, a good place to start is by reviewing their terms and flexibility. Ask yourself:

  • will it still be in force at the end of the transition?
  • if not, are you going to extend or renew it?
  • if so, does it need re-drafting before doing so?
  • how flexible is it?
  • can you terminate or can/might the other party do so?
  • are there any minimum commitments that need to first be met?

Second, you should consider whether what laws applicable to the performance of the agreement may change and the consequences. The wording of any ‘compliance’ and ‘change of laws’ provisions should be carefully considered to see if you might be put to potentially significant costs in order to comply with relevant post-Brexit legal changes. Does the agreement remain commercially viable?

Third, to the nitty gritty:

  • References to “EU” or “EEA” – these need to be reviewed to see if that will continue to include the UK post 31 December 2020.
  • EU institutions, law or regulatory references – likewise, make sure you are clear whether such references are just to the EU institution, regulator or law, or, the succeeding UK institution, or, regulator or law, or, both.
  • Currency for payments – make sure you understand who bears the risk of change in exchange rates and is there any means of varying charges in response to fluctuations.
  • Tariffs – make sure it is clear who would pick up the tab for any additional tariffs. 
  • Customs clearance – make sure you understand who will be responsible for, and pay for, this. Consider also what impact with such delays might have on time scales and service levels. Is time of the essence?
  • Travel and labour shortages – if people need to travel to fulfil the agreement, or if there is reliance on overseas labour, consider how this may be affected by changes to rights of free movement and lease to increased costs and delays. 
  • Licensing or professional qualifications – may not continue to be mutually recognised e.g. financial service firms could be stripped of ‘passporting rights’ limiting their ability to service EU clients. 
  • Tax – there could well be changes to the tax treatment of payments such as to the way VAT is applied, consider too how this might impact the contract.
  • Data – If personal data will be transferred from the EU to the UK or vice versa there will be additional compliance measures required.
  • Hardship clause – if there is such a clause consider whether it is activated by Brexit and what is says about who should be responsible for resultant increases in costs and changes.
  • Material adverse change clause – if there is one check its terms and its applicability. 
  • Change control – if there is a change control clause consider if it could be helpful to compel the implementation of any changes needed due to the end of the transition period.
  • Dispute resolution and enforceability – Consider the law and jurisdiction of the agreement in relation to both whether or not that choice of the parties is likely to be respected and the enforceability of judgments granted under the agreement.

Future proofing

We can help draft your future contracts to help:

  • Ensure that events arising as a result of Brexit are identified and suitably dealt with.
  • To provide pricing formulae to enable prices to be varied, as appropriate, in the event of tariff changes.
  • To cater for responsibility for customs clearance and the potential impact delays in clearance might have on delivery times.
  • Ensure that payment provisions make it clear who bears the risk of exchange rate fluctuations.
  • To provide the clauses and mechanisms needed to ensure that data transfers can continue.
  • To provide, as appropriate, a termination for convenience clause, with a short notice period, or a specific Brexit termination clause.

Often such matters are left until a dispute arises by which point it can be too late. That is where we come in so that you can continue to do what you do best whilst we make sure of the rest.

 

 

Jennifer Wall

A master at turning what looks to be a tricky problem at the start with lots of dark alley ways into a workable commercial outcome.

Let us take it from here

Call us on 020 7438 1060 or complete the form and one of our team will be in touch.