Any UK companies doing business with the rest of the EU, or even
just in the UK but relying on customers and suppliers who deal with
the rest of the EU, should be keeping an eye out for the
ramifications of Brexit. These include the effect on the rights and
obligations the business has assumed in its commercial contracts.
Furthermore, not only will Brexit need taking into account when new
contracts are entered into, but existing contracts may also need
revisiting and amending. Most of them, after all, will have been
drafted and negotiated when the prospect of the UK leaving the EU
was considered remote.
Most commercial contracts such as licences or distribution
agreements which confer rights in a defined territory often, if
that territory is "Europe", define it with reference to
the Members States of the EU or the EEA. At some point these will
no longer include the UK (assuming, as appears to be likely, the UK
leaves the EEA when it leaves the EU):
For existing contracts granting rights in the EU, the parties
need to decide whether the UK will continue to be included as part
of the contract territory post-Brexit.
New contracts would do well to provide for whether the
"EU" as defined will include or exclude the UK at the
outset and, if it is to be included, whether, when the UK leaves
the EU, it should remain part of the contract territory or
For the sake of convenience and because it will remain a key
territory after Brexit, many contracting parties will probably wish
to keep the UK within the contract's definition of Europe
whatever happens to its relationship with the rest of the
continent. However, in case other Member States ever leave too, it
would be advisable for contracts to provide for what happens to
any country which quits the EU and not restrict this
contingency plan to the UK.
Brexit will mean the following changes:
Restrictions on the movement of people, meaning key staff may
be more difficult to secure or keep.
The UK diverging (albeit gradually and incrementally) from the
EU in legal and regulatory terms, meaning "one size fits
all" products and services may no longer be possible in some
cases and the UK may go its own way in areas like VAT, data
protection and competition law.
Possibly higher trade barriers between the UK and the EU.
The pound's value increasing and decreasing in turn as this
story continues to play out.
Changes in the competition regime governing exhaustion of
tights and parallel importation.
All of the above could have a significant effect on the
suitability and attainability of existing contractual provisions
relating to matters like development and delivery times, pricing,
royalty calculation, minimum purchase targets and product
liability. For existing contracts, therefore, the parties need to
ask the following questions:
Do any clauses need renegotiating?
If the other side will not renegotiate or we cannot agree the
changes, should I terminate on notice (if I can)?
Is there any scope to get out of the contract by relying on
force majeure or break clauses?
How much scope will there be to mitigate (and maybe even
reverse) any disruption by shifting focus to operations and markets
outside the EU? Does the contract allow this?
All of these issues should also be considered when new contracts
are entered into. Since the ultimate outcome of Brexit is
uncertain, they should ideally be drafted with maximum flexibility
built in so that a range of scenarios can be accommodated.
Currently, if a contract between parties in different countries
is silent on what law and jurisdiction will apply, the issue is
addressed by European conventions and regulations which may no
longer apply to Britain post-Brexit. It will therefore be doubly
important to include clauses in the agreement providing for which
state's law and jurisdiction it will be subject to.
Furthermore, once the UK has left the EU:
It may be harder for a successful UK litigant to enforce a
judgment in the EU; and
If it litigates in the courts of an EU Member State it may find
itself getting less favourable treatment than before as an
outsider, especially if Brexit negotiations end up being fraught
Consequently, picking partners carefully, managing contractual
relationships and only signing up to attainable obligations will be
It will be hard to plan for all of the above eventualities since
the ultimate destination of the Brexit train is unclear. On the
plus side, the train is moving slowly. The reset relationship
between the UK and the EU, and how it affects trade and innovation,
will evolve over time. That will give those who are prepared for
the new climate the opportunity to adapt and make the most of the
coming challenges and opportunities.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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