Brexit and Commercial Contracts

Scenario Planning

Brexit

You should identify your most business critical contracts and evaluate them for Brexit related risks. The headings below should provide some direction but it not intended to provide exhaustive guidance. Depending on the outcome of your review, you should re-negotiate key terms or seek to terminate contracts that impose an unacceptable risk.

If you enter into new agreements, you should consider what the likely impacts of Brexit will be and include wording to ensure the risk is shared appropriately. You may wish to include appropriate INCOTERMS in your contract. You could also include a right to terminate if certain risks materialise which would (for example) make the contract commercially unviable.

Tariffs

If the Withdrawal Agreement is signed the United Kingdom remains in the single market until 31 December 2020 (subject to extension), which means no tariffs will be in place during that time. After the end of the transition period, tariffs would be determined by the future trading relationship between the United Kingdom and European Union.

If no deal is reached with the European Union (either by 29 March 2019 or the end of the transition period) then trade with the European Union will be on non-preferential World Trade Organisation (WTO) terms and Most Favoured Nation tariffs and non-preferential rules of origin will apply to  goods. This will have the most impact on businesses that trade with other businesses in the European Union. In these circumstances, you would have to follow similar customs controls to those that apply to your trade with the rest of the world. This may lead to additional costs (both for importers and exporters) and impose an additional administrative burden, for example, you will need to make an import declaration for goods entering the United Kingdom from the European Union, you may need a licence to import or export your goods and how you complete and pay your VAT return will change. It may also cause delays in your supply chain because of the time taken at the border to carry out checks.  If yours is a business that imports or exports goods from or to the European Union you should ensure that you have appropriately trained staff and resources to comply with these requirements.

For business making use of European Union trade agreements to trade with non-EU countries, these trade agreements will cease to apply in a “no deal” situation. Until bilateral trade deals are in place with appropriate countries, such trade would take place on WTO terms.

For businesses trading with clients or suppliers in countries outside of the United Kingdom, managing currency risk is not new. However, depending on the kind of Brexit that takes place there may be a greater difference in relative currencies that merits more attention in relevant contracts. You should assess how changes in currency (between £ and €) could impact your supply chain and try to negotiate appropriate wording into contracts to ensure this risk is shared appropriately. 

English law and jurisdiction

The UK’s legal system is well regarded and attractive to parties entering into international commercial agreements, and this is unlikely to change following Brexit.

For businesses who enter into contracts with clients and/ or suppliers in the European Union, bringing and enforcing judgments in the European Union may in some (limited) circumstances become more difficult and less streamlined following Brexit (in particular in the case of a no-deal Brexit). If you are concerned about this you should take English and local legal advice on the subject and make appropriate changes to the jurisdiction clauses in your contracts. But most important, you should include a jurisdiction clause in agreements in the first place and perhaps consider updating (or including) dispute resolution clauses. Governing law clauses should continue to be upheld without amendments.

Force Majeure

Following scenario planning, businesses whose operations are likely to be disrupted by Brexit (border delays etc.) should consider how this risk is apportioned in the contract. In particular, you may wish to review force majeure provisions to make sure that (for example) if your supplier cannot deliver on time because of a Brexit related issue, they cannot rely on force majeure provisions to excuse non-performance.

Intellectual Property Rights

See our note on the impacts of Brexit on intellectual property for more information on this subject.

Transfer of Personal Data

See our note on the impacts of Brexit on Data Protection here for more information on this subject and also the Information Commissioner’s guidance for preparing for a no-deal Brexit.

Further Information

See sector specific guidance on how to prepare for a no-deal Brexit, see the UK Government’s guidance here.

Find more information to prepare for changes to import and export of goods  in a no deal Brexit and for other information about how to prepare you should read the UK Government’s Partnership Pack here and the UK Government’s website and links here.

For further analysis of the impact of Brexit on various legal disciplines, please visit our Brexit section or contact a member of the Brexit team.