Implications of Brexit on contracts

October 7, 2019

Businesses of all sizes are concerned that there is great uncertainty for business, especially in the context of a possible no-deal exit by the UK from the European Union. Despite plenty of media coverage, many SMEs are unprepared and don’t have a resource, budgets or a roadmap to help them become prepared.

Parties circumstances and markets change even in more simple times, and contracts that were one a “good bet” may become less commercially or financially viable (for either one or both parties). With the added complications that Brexit (in particular a “no-deal”) may have on the UK organisations to trade with European partners, organisations need to anticipate, understand and deal with risks that may come up, both mid-contract terms and in the future.

This uncertainty over Brexit carries risks in commercial contracts as a result of detangling the UK from the EU. While all commercial transactions carry risk, the ideal position to be in being informed and in control so you can reduce that risk. This can be done to some extent through your contracts which can help minimise your exposure to risk.

If you have contracts with a cross border element, whether you are importing or exporting goods or services outside the EU, whether to customers or buying in components from suppliers, or sharing personal data within the EU and if your contract term goes beyond the date when the UK is due to leave the EU, you may need to review and where appropriate renegotiate your contracts.

Just a few of the contractual issues that the parties may need to revisit include:

  • Scope of territory – for example if the contract describes the territory as “EU”, will this then exclude the UK?
  • Will there be a material change in the ability of the parties to fulfil the contract?
  • Does the contract allow for a “reset” if there is a change in law or material circumstances?
  • Compliance and safety standards and certification – if references are made to EU regulations or certification, will UK sales need to adhere to these – and what are the consequences (such as breach of specifications) if certification can’t be met within the timescales set.
  • Import/export duties and delays – which party will bear the costs and delays arising from any duties or delays?
  • Data protection obligations including measures to protect personal data if there are transfers of data outside the EU – and whether the UK will be considered “outside the EU” for these purposes (and so what additional steps need to be taken to be compliant with the GDPR obligations) ( see below for more!).

Where contracts deal with the processing of personal data, parties need to be aware of the mandatory compliance obligations under the General Data Protection Regulations, which includes a need to have a written agreement between parties dealing with that processing (known as a Data Processing Agreement or DPA). If there is a transfer of personal data between parties or in or out of the EU, there must be protections in place for the security of that data, including the inclusion of standard contractual clauses. In a pre-Brexit negotiated contract, these protections might not be robust enough to cover the individuals’ personal data if the UK is no longer part of the EU. Also legislative protections for transfers of data outside the EU that are in place for EU companies may not apply for UK companies if no withdrawal agreement can be reached.

No matter what the effect that Brexit (or other external factors) will have on a contract, parties should be aware that unless they otherwise agree, they are contractually obliged to perform a contract, even if it is not commercially or financially viable (for either one or both parties), This means that parties may be stuck with a contract that is going to either cost them money or not be as profitable or straightforward as once thought.

Parties should address these issues before they become a serious problem for the business. We suggest that, as is often the case in all walks of life, identifying that there may be an increased risk is the first step. Assessing the risk and then addressing it then follows on. This can be done by either looking to renegotiate or vary contracts, and in some cases looking at whether cutting any losses and terminating unviable contracts is cost effective or realistic option.

How we can help you

At LawBite, we can help guide businesses through the maze of implications on Brexit on their business, including how it may affect current and new contracts. We can help with all aspects of Business law advice including:

  • Carrying out reviews of current contracts, highlighting risks and suggesting steps forward
  • Drafting new contracts to reduce risks on the business
  • Advice on GDPR compliant Data Processing Agreements and data processing transfer advice

Rachel Robinson LawBrief SolicitorThe author of this Blog article, Rachel Robinson, is hosting a free webinar on Wednesday 9 October at 12.30 pm as part of LawBite’s Brexit series. You can register here.

Rachel Robinson has over 20 years’ experience of providing company commercial law advice, including drafting contracts, data protection and competition law to organisations of all sizes, ranging from FTSE100 companies to owner managed small business.

Previous episodes in the webinar series are available to watch now.

Our lawyers, provide expert legal advice to your business to ensure that your contacts are appropriate and robust. We also offer to review your terms and conditions and recommend updates and improvements to make them more effective and better suited to your business. Prices start at £149+VAT for contracts up to 20 pages. Get in touch for a free quote.

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