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23 February 2017

What does Brexit mean for your commercial contracts?

While Brexit’s implications for commercial law are still essentially unknown it is worth remembering that the vast quantity of UK commercial laws are not the result of EU initiatives and may therefore remain unchanged. That said we have identified areas which we are expecting to be affected (notably agency, privacy, e-commerce, consumer law, distribution, intellectual property and outsourcing) and will be keeping an eye on these throughout the year. In the meantime we have prepared a guide to some key contractual clauses to think about in both your existing agreements and those being entered into following the decision on 23 June 2016.

What to consider in Existing Agreements

If you have any concerns about any of the following areas in existing agreements do let us know. It will be easier to vary agreements now rather than wait to see how things pan out.

  • Check for references to EU legislation and status of law provisions: Are there references to legislation as at the date the contract is signed or does it incorporate “as amended” legislation? If the parties have agreed that a contract should apply in accordance with the statutory provisions as amended from time to time remember that alterations to legislation introduced following Brexit may have significant and unexpected effects on the parties’ rights and obligations.

  • Check force majeure provisions: Be particularly aware of force majeure clauses that include a change of law which might enable a party to avoid liability for non-performance of its contractual obligations.

  • Check for material adverse change and hardship clauses: These may allow a party to renegotiate contractual terms if a contract becomes unprofitable if there is a change of law or an event out of a party’s control.

  • Check territorial scope references: If there are references to the EU what is the relevant date (as at date of agreement or as varied from time to time)? Agreements may need amending to cover the UK if that is what was intended.

  • Check pricing mechanisms: consider the potential impact of import tariffs between EU and non-EU states or changes in VAT.

  • EU registered or unregistered intellectual property rights: If IP rights form the subject matter of the agreement we advise seeking specialist advice – it is likely that the IP landscape will change significantly.

  • Check import and export provisions and controls: Does the business rely on EU trade deals, the free movement of goods and/or the free movement of services? Consider any possible exposure to increased administrative burden and costs.

  • Competition/ Block Exemption: Do any distribution and/or licensing arrangements rely on the regulations and guidelines? Consider obtaining specialist input on the potential impact of Brexit.

  • Secure judgment or settlement prior to the UK’s withdrawal from the EU: For parties engaged in existing litigation or contemplating pending litigation against an individual or entity with significant assets in Europe, securing a judgment or settlement prior to the end of the Brexit negotiation period will be increasingly important.

Negotiation Of New Agreements

  • We recommend keeping the following in mind when negotiating agreements that will take effect after 23 June 2016 and are likely to continue during and after the negotiation period:

  • Brexit clauses: Consider including contractual provisions specific to your agreement which trigger some change in rights/obligations as a result of a defined Brexit-related event e.g. If  [X] occurs then a right to terminate / negotiate shall automatically arise.

  • Brexit clauses: Consider including specific statements that an agreement/specific clause will not be affected by Brexit e.g. The validity and full force and effect of clause [X] shall not be prejudiced or diminished by the United Kingdom leaving the European Union.

  • Structure: Consider whether the structure being put in place for the transaction might lead to future problems (e.g. withholding tax).

  • Contract term and longstop dates: Consider these in light of the evolving Brexit timetable. Where relevant use the timetable as trigger points for re-negotiation or expiration of the agreement.

  • Price adjustment mechanisms: Consider including a price adjustment mechanism that covers potential changes in costs arising from Brexit. This clause could specifically allocate responsibility for Brexit-related price fluctuations (e.g. as a result of currency risk, tariffs and import/export costs).

  • Contract currency: Consider the most appropriate currency for the arrangement. This may vary depending on your role in the contract (e.g. service provider/recipient, franchisee/franchisor, licenesee/licensor) and the geographical location of the other party.

  • Territorial scope: Try not to link any references to territory/scope to general references to the EU. Be very clear as to territories intended to be covered during the term of the agreement

  • Status of law and references to legislation: The legal framework in the UK will change in the coming years. If referring to specific legislation, consider the inclusion of a status of law provision stating either that references to legislation are to legislation as at the time of contract signature or as amended from time to time.

  • Effect of change in the relevant law: If it is anticipated that there may be a change in applicable law which will affect either party’s obligations or the nature of the commercial arrangement consider addressing who should be responsible for ensuring compliance and at whose cost.

  • Warranties: Contractual warranties often include references to EU legislation (e.g. environmental matters and data protection rules regarding the transfer of personal data). Seek specialist advice on how such references should be dealt with.

  • Dispute resolution and governing law clauses: Make it clear which courts are to have jurisdiction over any disputes between the parties and which law is to govern the contract.Consider whether to include an arbitration clause, particularly if enforcement is a concern.

  • Force majeure: Carefully consider the drafting of any force majeure clause. References to material changes to the regulatory landscape and political change could be used (following Brexit) as a means of avoiding contractual obligations. Consider expressly excluding the impact of Brexit from a force majeure clause if this is a concern. 
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