Existing business contracts
There has always been a need to review periodically important business contracts. The vote on 23 June 2016 has increased that need.
The starting point is to consider the effect the Referendum result will have on your suppliers and customers. Supply chains may also be affected by cashflow or continuity problems and a contracting party may therefore seek to end or renegotiate an existing contract which it has with you.
In light of this, you should review your existing contracts with particular regard to:
Scope and duration
Consider geographic references such as “Territory” that may be EU-specific. Check whether a contract is likely to span the UK’s formal exit from the EU and whether that change will affect the interpretation of the contract. A contract which provides for automatic renewal unless notice is given by a contracting party requires particular consideration. It may be preferable to try and change the renewal date or include contingency arrangements.
Consider long-term contracts with fixed pricing and how these could be affected by changes in taxes and tariffs. Foreign exchange and inflation issues may also have an impact on pricing and payment structures.
A contract may contain a clause that provides termination rights in the event that the UK leaves the EU. In the absence of any express provisions, Brexit may also fall under general provisions relating to material adverse changes or force majeure. General contract law principles such as frustration could also apply. You should also consider what is the governing law of the contract and the clause dealing with how disputes are to be resolved. Are such provisions appropriate to ensure that you can achieve the appropriate remedy in the event of a breach of contract by an EU based counterparty?
At present it is not known when the UK will leave the EU and afterwards the extent to which the English courts will have regard to EU legislation and European Court decisions. It is possible that clauses reliant on EU law may be affected. As such delaying bringing a claim under the contract may work against you. Similarly in respect of the enforcement of an English court decision.
It is worth considering these points in the wider context of your industry and competitors, to see if there may be opportunities as well as risks.
Future business contracts
In respect of contracts that you make going forwards:
You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications.