Brexit and your business
With possibly less than 30 days to Brexit, Angela Kerry – from our Commercial law team looks at the potential effects of Brexit on your business.
It is the dreaded ‘B’ word but we ignore it at our peril.
When negotiating and drafting contracts the uncertainty of how contracts may or may not be affected by Brexit (with or without a deal) means that businesses must in some way cater for how Brexit will impact them. For many this has meant holding back on commitments both in the short and the long term. For others this is simply not possible but places them in a risky position.
According to some leading commentators: “There are virtually no businesses in the UK that won’t be affected by Brexit. The question is one of degree and all businesses should examine their processes.”
This article considers what we are looking at (in broad terms) about the perceived effect on commercial arrangements and therefore how to contractually protect the parties.
Before delving into the problems that might arise and some potential workaround solutions, some businesses may feel they are protected by a force majeure clause that frustrates the contract. In other words that whatever happens after Brexit if the commercial arrangement is no longer viable can either party claim that the arrangement is frustrated by Brexit and can they walk away without any liability on either side?
A recent case in 2019, concerning a £500 million lease in Canary Wharf, highlights that force majeure clauses may not cover the problems that arise under a contract as a result of Brexit. In this case the tenant wanted to move away from London as a result of Brexit and claimed the lease was frustrated. It was found that it was not a legal necessity for the tenant to relocate and also that Brexit was a foreseeable event when the lease was entered into. The conclusions that have been reached based on this case are: that the wording of a force majeure clause will dictate whether it will assist a party where Brexit has impacted; and in many instances, the force majeure clause will be of no assistance if the contract was drafted after the referendum thus making Brexit a foreseeable circumstance, and therefore arguably one that could have been dealt with in the contract.
What therefore are the possible implications of Brexit that could cause problems for commercial arrangements in the months and years after Brexit (if it ever happens!)?
- Supply chains could be affected.
- New or increased tariffs may be payable on both imports and exports, whether of raw materials, components or finished products.
- Currency issues leading to price inflations if the currency of the contract is sterling and there are fluctuations in its value.
- Delays in goods entering or leaving the UK. It is anticipated that there could be delays of up to two and half days for goods leaving the UK.
- There might be price increases for business energy, such as gas and electricity, with some energy suppliers exiting the market, exacerbating this impact.
To mention but a few!
So how can a business ensure that its commercial contracts are Brexit proof? In short, it can’t until the basis on which the UK leaves the EU is known.
However in the meantime there are some precautions that businesses should be taking to deal with the uncertainty in some way:
- Businesses should review their current contractual arrangements to consider if there is at least a walk away option in a contract for them. Whilst this is far from ideal it could enable a business to terminate a potentially very unprofitable contractual arrangement.
- Discussions and negotiations should be considered with organisations in the EU that a business currently trades with to take an early look at the arrangements to see if there are options available other than walking away. This should take into account the duration of the arrangements and could include regular reviews over the lifetime of the contract.
- Anticipate the issue in current negotiations and draft to provide some safety mechanisms to deal with changes to the contractual arrangements that may be necessary.
At EGL we can review your current contractual arrangements and help with the drafting of new ones to safeguard your business as much as possible.
This article has focussed mainly on commercial contracts but the problems could be far wider:
- Freedom of movement of workers will be affected. If a business employs EU citizens or sends employees to work in the EU this may become more difficult if not impossible.
- Product safety or eco-compliance, including packaging and labelling that references EU licensing will become more complicated and difficult to deal with.
- The transfer of personal data between the EU and UK will need to be reviewed.
EGL can advise and assist in all these areas.