Brexit: Commercial Contracts

The UK left the EU on 31 January 2020. A transition period, during which EU laws continue to apply in the UK, is due to end on 31 December 2020. The UK/EU Withdrawal Agreement sets out transitional arrangements and negotiations for the future UK/EU relationship are ongoing.

Commercial contracts are based on the bargain between the parties, and are largely out of the reach of EU law. However, the UK leaving the EU does present certain risks, and opportunities, for contracting parties in terms of their commercial arrangements. Many businesses will have audited their contracts in the run up to the various No Deal deadlines. As we approach the end of the transition period, fresh audits of existing contracts should now be considered, particularly where those contracts involve EU entities, alongside strategies for mitigating Brexit-related risk and future-proofing new agreements.

Particular focus, of course, will be on the financial provisions in the agreement. As negotiations continue between the EU and the UK over a potential free trade arrangement, businesses should keep a close eye on the impact of developments relating to:

  • Regulatory divergence
  • Trade barriers including tariffs and non-tariff barriers
  • Logistical and compliance costs
  • Currency fluctuation
  • Other charges and levies. 

All of these factors could substantially affect the overall cost and pricing structure, and also the contract term and risk allocation structure in the agreement.

Alongside financial and commercial considerations, revised rules in a number of areas will also have potential implications for commercial arrangements:

Businesses should also think carefully about the proper territorial scope of their agreements (particularly for arrangements relating to IP rights), and the basis upon which the contract can be terminated, particularly where it is intended to tie termination rights to Brexit.

In addition to contract negotiation and risk allocation, Brexit will have an impact on enforcement of contracts in cross-border disputes. Whilst the UK and EU courts will uphold English governing law clauses for both contractual and non-contractual obligations in cross-border disputes, the position in relation to which court will have jurisdiction over disputes, and enforcement of judgments is less certain. Parties entering into commercial arrangements with EU-based entities may wish to consider arbitration for the resolution of disputes, whereas an audit of existing contracts should assess the likely outcome for disputes based on existing jurisdiction clauses.   

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