Posted by Claus Andersen, Partner
Contributing authors: Stewart Wilkinson
Are your commercial contracts Brexit ready?
Your commercial contracts may be vulnerable to political changes. Have you considered if you need to renegotiate? Or engage with your supply chain? Or add extra protection for your IP?
The European regime will continue to apply to the enforcement of UK judgments until the UK leaves the EU in March 2019. It will continue to apply, if the current Withdrawal Agreement is passed, over the course of the transition period to December 2020. The future position depends on whether or not there is a no deal Brexit, and if the Withdrawal Agreement is passed by Parliament. If there is no deal, then national law rules will apply as all EU law will cease to apply. The UK could seek to re-activate treaties such as the Lugano Convention. The future, as with all things Brexit, is difficult to predict.
Contracts: termination / renegotiation
In most ongoing contracts, Brexit in itself will not be a reason for termination. So, if a contract proves to be unprofitable because of Brexit (for instance, due to currency fluctuations), then you would have to look at the termination provisions in the contract to see when you can terminate it and/or renegotiate better terms.
In relation to contracts which are being negotiated now and which are expected by the ‘divorce’ date, you may wish to insert clauses to set out that upon certain actions or events taking place, you will be able to terminate, adjust the prices, change the scope of work or perhaps renegotiate the contract. Put simply, you identify certain ‘trigger events’ and you set out the consequences if those trigger events materialise. So, for example, in the event of currency fluctuations, price adjustment could be the consequence below a certain threshold, but termination or renegotiation above a certain threshold. Other trigger events could be imposition of trade tariff or duty, or change in the regulatory or licensing regime.
One of the immediate effects of Brexit is the border between the UK and the EU becoming visible and tangible. That means that when you import goods from the EU for use in your business, your goods will cross that border. You will need to make sure that your contracts take care of any potential delays due to the border crossing. It is therefore important for companies using supplies from the EU to look at delivery times: is time of the essence? Who takes responsibility for freight, paperwork and licenses? Your contracts with suppliers should also be aligned with your contracts with your customers.
Many companies are dependent on their business being protected by the intellectual property (IP) rights relating to their trade marks, inventions, confidential information and know-how. Without proper protection of the intellectual property, companies may be exposed and their value decrease. Companies must examine where their IP is registered to see whether Brexit will expose their IP rights.
As mentioned, Brexit means that the border between the EU and the UK will be visible and tangible. Doing business across that border means more paperwork for exporters and importers. So, in future, contracts should specifically set out who has the responsibility for preparing the paperwork and obtaining the necessary licences.
If you have any enquiries, please contact Claus Andersen on:
020 7842 1462 Email us