May 23, 2016

Brexit and my business contracts

Brexit: Business contracts implications.

Departure will not take place immediately: there is a period of time when the United
Kingdom can negotiate its future relationship with the European Union (EU). The process is regulated by law specifically and only by Article 50 of the Lisbon Treaty.

Contrary to belief, a contract need not be in writing, it can arise from conduct, a course of dealings, e-mail exchange or orally. Many SMEs do have written contracts with suppliers, distributors, commercial agents and these contracts may have EU wide operation, depending on the services, goods or human resources involved.

Parties to contracts or potential future contracts with a performance duration that may extend beyond the date of an exit would be well advised to consider whether the consequences of a Brexit would affect the operation or performance of their contracts.

For example one of the foundation principles in EU law is the freedom of movement of goods without import duties or equivalent. Over time Brexit may lead to imposition of tax, duties or equivalent charges which may make the supply of goods not economically viable.

In such event it is likely to want to look for some means of terminating the contract or suspending future performance and so one will need to examine whether the “circumstances beyond the parties control provisions” (also known as “Force Majeure”) in the contract allow suspension and eventual termination. The other parties may well take an opposing view on whether a Brexit is a force majeure event, particularly if the choice of law in the contract is not UK law.

It is likely that over the course of several years following Brexit, piece meal UK
legislation will bring some certainty in the gaps that some SMEs could inadvertently find themselves in. If you think you may need some advice, please get in touch with us on 020 3026 6321.