Commercial contracts are based on the bargain between the parties, and have been largely out of the reach of EU law. However, the UK leaving the EU has presented certain risks, and opportunities, for contracting parties in terms of their commercial arrangements. Many businesses will have audited their contracts to prepare for the end of the transition period, but ongoing review and monitoring of existing contracts remains important, 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. Businesses should keep a close eye on the impact of developments relating to:
- Regulatory divergence and labelling requirements
- Trade 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 also have potential implications for commercial arrangements:
- Freedom of movement and mutual recognition of qualifications (for services contracts)
- Competition law
- Data protection (in particular cross-border data flows and increased compliance burdens)
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.
Further, if trading online in the EEA, they should consider their website information requirements to ensure compliance with the legal requirements relating to online activities in each relevant EEA country.
In addition to contract negotiation and risk allocation, Brexit has an impact on enforcement of contracts in cross-border disputes. The UK and EU courts will uphold English governing law clauses for both contractual and non-contractual obligations in cross-border disputes. In relation to exclusive choice of court agreements, the UK has joined the 2005 Hague Convention in its own right but there is some divergence between the UK and the EU Commission as to the date from which the Convention applies. Parties entering into commercial arrangements with EU-based entities will need to consider carefully the rules on jurisdiction and enforcement and ensure that the contract deals appropriately with questions such as service of proceedings. Parties may also wish to consider arbitration for the resolution of disputes.