The Business of Brexit

Implications for the commercial contract process

The United Kingdom is due to leave the European Union (EU) on March 29th 2019, officially dissolving its membership after 25 years. During that time the EU has expanded considerably in complexity and geographical scope, heavily influencing the legal systems, economies and day-to-day activities of its member states.

Opposition to EU influence is evident in all member countries, but has been particularly influential in the UK. Arguments for and against the EU have raged back and forth across the UK Parliament for years, encompassing issues such as immigration, public services and the economy; but, in June 2016, a referendum on membership was granted to the UK people.

A decision was made to leave the union and a two-year transitional period was entered into, during which time negotiations on Britain’s future relationship with the EU would be undertaken.

As we draw towards the end of that period, an agreement has still not been made and the negotiations continue with little sign of resolution. This has implications for almost every aspect of public and private life, but none more than trade and commerce, particularly the ongoing relationships between businesses operating across UK/European borders.

A crucial part of that relationship is the commercial contract, which governs everything from pricing to regulatory compliance; data protection to insolvency and dispute resolution.

Taking pricing as an example, an end to free trade between the UK and Europe is a distinct possibility if a deal is not reached. In the case of a ‘hard’ Brexit, new tariffs and taxes would be introduced on goods and services sold across the border. Existing contracts would need to be renegotiated to take account of the impact this would have on pricing, while new contracts would need to include clauses designed around this new variable.

In another possible development, non-compliance with European regulations might mean that certain UK products could no longer be sold in the EU – a good example of this would be the ‘passporting’ of some financial services. If a contract could no longer be fulfilled because of this, a dispute would arise and both parties would need to investigate whether existing Force Majeure clauses or Material Adverse Change clauses were sufficient to dissolve the contract without recourse to litigation or alternative dispute resolution (ADR).

If a dispute was unavoidable, the parties might not be able to rely on decisions handed down by the European Court of Justice (ECJ), since the UK may no longer be under its influence. As a result, choice of law clauses would be required, or a reliance on supra-national bodies such as the New York Convention for arbitral awards.

The key word here is uncertainty. Until the future relationship between the UK and Europe is known, all eventualities are possible, which makes the development of effective commercial contracts difficult. The following discussion calls on the contract expertise of 11 IR Global members, who give their views on the pertinent problems that commercial entities should be considering in the shadow of Brexit. They use their considerable experience drawn from jurisdictions across Europe and the USA to advise businesses on the full range of implications, and how to make their new and existing contracts Brexit-proof, regardless of the eventual outcome in 2019.

Read the rest of the document by downloading the pdf: IR Global Virtual Series – The Business of Brexit