Brexit Impact On Commercial Contracts For UK Business

Brexit is likely to only have a limited impact on English contract law. However, any contractual obligations may be adversely affected. For existing contracts which continue after Brexit, it is important to review them to see whether there is any impact on a business’ performance, or the costs of performance, of its obligations under the contract which arises from Brexit and whether those contracts provide protection as they currently stand. For any future contract entered into after Brexit occurs, businesses should consider ensuring that the contract is drafted in such a way as to provide protection against the impact of Brexit. In this article, Brexit Impact on commercial contracts for UK Business, we take a look at the mechanism and process involved.

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Commercial contracts for the supply of goods

Although the supply of goods is mainly governed by UK legislation, Brexit will bring about some significant changes in the supply of goods contracts between businesses. These include how goods are labelled, price changes, increased haulage costs, import and export licenses, changes in VAT rules, and new custom’s processes and procedures.

UK businesses that import and export goods with the EU will need a UK-issued Economic Operator Registration Identification Number (EORI), or they will need to register for simpler import procedures. You may already have an EORI, but if it doesn’t start with “GB” then a new one will be required.

When dealing with customs processes and procedures, in the absence of an agreement to the contrary, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU in a similar way to those that already apply for goods traded outside of the EU.

Commercial contracts for the supply of services

Business to business contracts for services will still in the main, be governed by the UK Supply of Goods and Services Act of 1982 and, as such, the same contract law principles will continue to apply.

However, when Brexit comes into effect, the treaty provisions on freedom of establishment and free movement of services will no longer apply to UK businesses but businesses should be largely unaffected by this. Business to business contracts for the supply of services are governed by the Supply of Goods and Services Act of 1982 and common law principles. Irrespective of this, it would be a good idea for suppliers dealing with customers in the EU to ensure they have written contracts in place with customers that are ideally governed by English law. If there is no written contract in place governing the supplier and customer relationship then this could be risky, particularly if the customer is based outside the UK. This will be due to the uncertainty surrounding the terms and laws which govern the contractual relationship.

If a supplier is processing personal data on a customer’s behalf as part of any services, data protection considerations arise when personal data is being transferred from the UK to the European Economic Area (EEA) and indeed beyond. Any organisation that is subject to the Network and Information Systems Regulations of 2018 must continue to ensure the security of the network and information systems for which their services rely on (regardless of whether they deliver their services directly or through a third party.)

Does the contract already provide Brexit-protection?

There may be existing provisions in a contract that will assist in providing protection or recourse where Brexit-related events affect a contract:

Force Majeure

Force majeure clauses typically seek to relieve a party to a contract from liability for a breach resulting from “circumstances beyond its reasonable control”. An event will only be beyond the reasonable control of a party if it has taken steps to avoid its operation or mitigate its results. If Brexit was a possibility when the contract was entered into, it could be argued that the parties could and should have planned for its effects.

Unless there is a suitable express reference to Brexit, the market view and case law suggest that force majeure clauses are unlikely to assist. However, certain events arising from Brexit, may – dependent upon the drafting of the clause – assist. For example, in the context of delays in delivery of goods, the definition of force majeure may be drafted or capable of interpretation to encompass delays due to cross-border issues.

Material Adverse Change (MAC)

MAC clauses are not as standard an inclusion as force majeure clauses but do appear in certain types of contracts. These include:

• Lending – to allow the lender to end the arrangement if there is an adverse change in the borrower’s position or circumstances.
• Corporate Acquisition – to allow a buyer to walk away from the deal if events occur that are detrimental to the target company.

Whether the effects of Brexit will trigger a MAC clause will depend on how the clause is drafted. However, a party is usually unable to rely on a MAC clause on the basis of circumstances it knows about when it enters into a contract.

Hardship

A long-term agreement may contain clauses which deal with which party should bear the burden of increases in costs of supply, fluctuations in interest rates or exchange rates, and other changes to factors that the parties took into account when they made the deal.

Whether such a clause can be invoked when a Brexit-related event occurs will depend upon the wording of the contract. Even if it can be invoked, the clause may only offer limited assistance.

Termination of Contract

The contract may include scope for termination, by either party, in connection with circumstances arising from Brexit. If a contract’s termination clause gives a party a right to terminate on relatively short notice, the prospect of termination can always be raised as a means of encouraging negotiation.

How we can help

We have a proven track-record of drafting contracts of varying complexity and also advising upon contract disputes. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner and firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of saving you money and ensuring you achieve a positive outcome.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Corporate, News Tagged as