The political, social and financial impact of the outcome of the so-called “Brexit Referendum” (with the resulting political mayhem) will no doubt continue the nightmare of uncertainty over several years, if not decades, to come. But business people have a fundamental need to “keep calm and carry on”. That must be reflected in commercial contracts. Without even really knowing at this stage what exactly “Brexit” means (I do no think “Brexit means Brexit” is suffice), what should we be doing in our contract development to prevent uncertainty and possible risks or ineffectiveness. What potential problems could arise in cross-border agreements in the coming years? How can we prepare a contractual system that provides both the necessary degree of certainty and clarity and at the same time allow for flexibility in future developments.
Let’s start off with a few ideas…
Brexit could have a very clear impact on the movement of goods, services and people. It could result in new or increased customs duties and import or export restrictions, tariffs and duties. Personnel may no longer be allowed to work on long-term projects in other countries. This in turn could impact pricing structure, deadlines and time frames for delivering goods and services. In extreme cases it may raise issues of potential frustration (impossibility) or force majeure (for delays) and clauses may need to be adapted accordingly.
There may be issues of definition in regards to scope and territory. What is “the EU“? It must be made clear now whether the UK is to be deemed, for the purposes of contract scope, to be part of the EU even after it formally leaves. Another concern in this area could be whether references to“EU law” will include any implementing or successor legislation in the UK following Brexit, assuming that EU law is likely to cease to apply in the UK at some stage.
It could be more difficult to enforce UK court judgments within the remaining EU member states in the future. This could render the UK jurisdictions less attractive for cross-border deals or compel parties to rely more often on arbitration and the New York Convention for enforcement. Check your choice of law and jurisdiction clauses. However, it should be noted that (i) English contract law will not itself be impacted to any extent by Brexit and (ii) a parties’ choice of English (or other) law will still be respected after Brexit in the EU under the Rome I Regulation (593/2008/EC) in relation to contractual obligations and the Rome II Regulation (864/2007/EC) in relation to non-contractual obligations. Similarly, under the common law, the English courts will uphold the parties’ choice of English law (or any other law) for a contract.
Term and termination: if an existing contract is likely to expire before March 2019, no changes may be necessary or the expiry date will at least provide the appropriate opportunity for some renegotiation to take place. For indefinite or long-term agreements we should see if there is a right to terminate the contract with effect before March 2019. Should we give notice of termination in such cases?
Above all, do not despair. But at this stage, we would be all well-advised to review existing contracts to see if and how far they will be impacted by the current intention of the UK to leave the EU in 2019. It may also be a very good opportunity to start talking to your existing (and future) contract partners to reach an amicable agreement as to what needs to happen post March 2019. At the same time, any upcoming contract documentation needs to be “Brexit-proofed” before signing. Tightly-worded material adverse change provisions (“MAC clauses”) may suddenly become very commercially attractive in the future.
In any case the contract dinosaurs will have to move on and adapt or be made extinct by the Brexit impact. Brexit could therefore mean simply redrafting existing template clauses or, indeed, it may produce at least one certain result: the all-purpose “Brexit Clause”.