Commercial team comments on Brexit

04 Jul 2016

After the referendum vote in summer 2016, Teresa May triggered Article 50 on 29 March 2017. This is the official mechanism which starts the process of the UK leaving the European Union (EU). Unless an agreement is reached earlier, EU Treaties will cease to apply to the UK from 29 March 2019. 

The government white paper, “Legislating for the United Kingdom’s withdrawal from the European Union” published on 30 March 2017 describes how the Great Repeal Bill will affect the legislation in the UK, and intends to:

  • convert directly-applicable EU law (EU regulations) into UK law;
  • preserve all the laws we have made in the UK to implement our EU obligations;
  • ensure that rights in EU treaties that can be relied on directly in court by an individual will be available under UK law ; and
  • provide that historic Court of Justice of the EU case law be given the same binding, or precedent, status in our courts as decisions of our own Supreme Court.

Given the above, the UK should have the same legal framework on the day after our withdrawal from the EU, as at the day before. Whilst this creates some level of legal certainty for UK companies, the commercial outlook remains uncertain as the market responds to the changing political and global landscape. Parties should therefore continue to consider how Brexit may affect existing contractual relationships, and ensure that the potential effects of Brexit are incorporated into any new contracts.

In addition to simple review of contracts to identify if there are any references to the EU which should be amended to include the UK, parties may wish to consider how contracts may be affected by wider market changes, such as the continual fluctuations in currency. Many contracts may become commercially unviable if the burden of a weakened currency is borne solely by one party. Parties may therefore wish to amend contracts to incorporate specific provisions regarding the amendments to terms should the value of currencies fall under set margins. 

The UK’s access to the single market has been a widely debated topic. If import tariffs are introduced contracts should make it clear whose responsibility these are to be. The International Commercial Terms produced by the International Chamber of Commerce (INCO terms) are widely used in contracts to determine who has responsibility for shipping and insurance. INCO terms will continue to be interpreted in the same manner after Brexit, which may mean that there is an unintended result (and a large bill) for one party if tariffs are introduced and a party is unintentionally bound to pay them.  

Whilst historically the financial standings of the parties, and the financial landscape generally would not be considered ‘force majeure’ events, parties may wish to consider amending the wording of ‘force majeure’ clauses to specifically exclude changes in tariffs or currency fluctuations. Some contracts contain ‘material adverse change’ clauses which are far more likely to encompass the issues caused by Brexit, so it may be that these should be reviewed.

As well as challenges, there could be opportunities which businesses could consider in order to take advantage of the effects of Brexit. 

We are only too happy to help, and to work with you through any queries you may have on Brexit and the best way to mitigate its impact on your commercial contracts.

For more information please contact Howard Ricklow or Charles Braithwaite.

Additional information