Commercial Contracts, “Brexit Risks” and the EU

by Mike Morris

Based upon our understanding of the current situation, the following are some of the more important terms that may need to be examined

in relation to commercial contracts which have an EU dimension, as a result of the recent Brexit Referendum decision; in considering whether you need to review an existing contract made before the Referendum; or if you are now considering entering into a new longer term agreement.

Whilst, of course, the UK is still a member of the EU – we haven’t left yet – the following might assist in any assessment of existing contract terms and consideration of “Brexit risks” in relation to new contracts with an EU dimension.

Some of the more common clauses that should be checked and may need to be updated (improved) are:

• duration of the contract: if the term of a current agreement or a new agreement is likely to extend until more than one year from now, and certainly if more than two years, then it would be prudent carefully to think through the “Brexit risks”, as well as whether any “get out” clauses are required;

• material adverse change, frustration, force majeure and termination: probably, “get out” clauses such as these in existing contracts (particularly frustration and force majeure), aren’t very likely to be relevant to Brexit; they should now probably be focus items when drafting new contracts;

• automatic renewal terms: if such a clause is included in a contract, consider how to handle its effect, especially in an agreement that’s likely to renew for a term extending beyond the date when the UK exits (or is likely to exit) the EU;

• currency of contract and payment: sterling at least currently has been fluctuating against (e.g.) the US dollar and the euro; for new contracts, consider whether currency risk needs to be better managed and whether / how the impact of Brexit is likely to increase future costs;

• taxes and tariffs: much will depend on the specific outcome of detailed negotiations between the EU and UK; perhaps this should be considered as part of a ‘material adverse change’ scenario and the need for price adjustment clauses; also, if such clauses are in an existing agreement, then they may now need attention;

• EU: if an agreement refers to the “EU” in the context of, for example, a territory, or by a reference to EU laws, then (in some cases at least) it’s likely that an alternative expression, not specific to the EU, will be preferable;

• law governing the agreement: it is thought that in international contracts, English law will continue in the future to be a good choice of governing law;

• dispute resolution forum / mechanism: if the UK chooses not to renew applicable international conventions, complicated issues are likely to arise in relation to the enforcement of judgments relating to international contracts; in addition, Brexit could well make arbitration in London, and UK-based alternative dispute mechanisms, more attractive.

If you have any questions, please contact info@jurit.com