Key issues for business contracts post-Brexit

July 17, 2016

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.

Pricing

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.

Termination

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?

Limitation periods

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:

  1. do any defined terms that you would usually use need to be reconsidered? For example, what is meant in your contracts by the terms “European Union” or “EU”? 
  2. Should you include in the contract an inflation indexing provision? 
  3. Should a currency conversion clause be included in the contract? 
  4. Do you usually refer to EU legislation in contracts which you make? If so, is change needed? 
  5. Does your usual events of termination clause need to be modified? 
  6. Will English law be the best law so far as the interpretation of the contract is concerned? 
  7. Is it best that the English courts will determine disputes? Would a clause providing for arbitration be better?

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