The impact of a “no deal” Brexit on commercial contracts: five questions to ask

25 February 2019

Now that a “no deal” Brexit is an imminent possibility, what should every business do to plan? Given that “no deal” could significantly affect a business’ ability to perform a contract and how each contract is interpreted, all businesses should therefore, now and urgently:

  1. review their material commercial contracts; and
  2. where appropriate and practicable, agree sensible amendments to protect all parties.

The five questions to ask are:

  1. Does the contract expressly deal with any of the likely effects of a “no deal” Brexit (eg: the imposition of tariffs, delays caused by customs checks and restrictions on freedom of movement) and should it? Most particularly, should there be a variation to cater for such things? Or is the force majeure clause already appropriate to what the business needs? (Hint: this is unlikely).

  2. Are references to the EU or to EU laws in the contract (for example, to define where the parties can and cannot trade or what VAT laws apply) drafted such they will include or exclude the UK after Brexit? Is that interpretation what the parties want?

  3. Will it be more difficult to enforce a judgment of an English court in an EU counterparty’s jurisdiction after Brexit? What arrangements can we put in place to mitigate the risk?

  4. Will the business need to comply with any additional regulatory regimes or and conformity standards as a result of Brexit?

  5. Is personal data transferred from the EU to the UK and will that be allowed?

To the extent that these questions highlight problems ahead, the parties should discuss the issue openly. In most cases, where amendments to a contract are in the interests of both parties, it will be easy to add, through a side letter or other short document, a "Brexit clause" which addresses the risks and sets out what the parties have agreed.

In the absence of a “no deal” Brexit, the withdrawal agreement will ensure that most EU law will apply in the UK until 31 December 2020 – but most of the above issues will still be relevant to consider.

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By Mark Lucas