Will my contract survive Brexit?
An important consideration for businesses is whether commercial contracts with an EU dimension will survive Brexit on 30 March 2019. The following are possible concerns:
- the imposition of tariffs on goods and services in the event that the UK leaves the Customs Union
- customs checks at borders, causing additional cost and delay
- restrictions on the freedom of movement of people, an acute issue for example in the construction and care sectors
- changes in exchange rates
- whether references to 'the EU' will continue to include the UK after Brexit, for example in trade mark licences.
These and other issues may materially affect the commercial bargain underlying a contract. The contract may become significantly more onerous, or impossible, to perform.
Fortunately, the UK is not in the Eurozone, meaning there will be no change in the currency of the UK.
It is essential to review contracts in order to determine whether any relief is available in their express terms.
- Termination clauses: What rights does the contract give the parties to end the contract?
- Material adverse change (MAC) clauses: Is such a clause included and, if so, what is expressed to amount to a material adverse change?
- 'Force majeure' clauses: Such a clause may entitle a party to suspend performance and possibly end the contract.Generally it is not enough for there to have been a change in economic or market circumstances affecting the profitability of a contract or the ease with which the parties' obligations can be performed.The general view is that it is unlikely that a standard force majeure clause will be triggered by Brexit, but each contract must be construed based on its own terms.
- Frustration: Would Brexit make further performance of the contract impossible, illegal or radically different? The bar is set high by the Courts. Again, it is not enough that the contract is merely more expensive to perform.However, certain contracts will likely meet the criteria.For example, UK financial services firms, if they lose EU 'passporting' rights, may be able to rely on this.
New contracts, currently being negotiated, may well need a 'Brexit clause' if any of the above possible concerns are at all relevant. If such a Brexit clause is desirable, it must clearly define a Brexit related trigger event and specify the precise consequences for the parties of that event occurring.
Businesses trading with the EU will gain advantage by addressing these issues early.
If you would like more information on how the points raised could impact you, please contact James Wingfield.