Thankfully, the majority of commercial contracts will be unaffected by Brexit. However, it’s very important for businesses to review their contracts and consider how they could be affected.
It’s easy to identify cross-border contracts as likely problematic agreements. As well as tariffs, businesses may find that movement of goods becomes more difficult after Brexit because of the time and cost of dealing with customs. Other, less obvious contracts could also be affected. For example construction agreements could become difficult to perform where shortages of labour or goods arise; the care industry relies heavily on workers from the EU and exchange rate fluctuations may affect the cost of materials.
Plan for the future
Where a contract is identified as a potential source of difficulties after Brexit, close attention needs to be paid to its terms. English courts are notorious for their strict approach to contractual interpretation. But what happens in the absence of express contractual terms when there is a change of circumstance? The affected parties are unlikely to be able to obtain relief from economic difficulties caused by a change in circumstances. For that reason, I’d advise that you seek a variation of contracts and to insert a ‘Brexit clause’ to specifically address the obvious or unforeseen effects that Brexit may bring. The nature of that clause will vary from contract to contract. In some cases there may be a contractual right to vary the contract. In most cases, it will be a matter of negotiation. Without doubt, from now on thought should always be given to the inclusion of a Brexit clause in new contracts.
In the absence of a Brexit clause, parties will need to consider the existing terms of their contract. A ‘force majeure’ clause is a common term of a contract, used to excuse parties from their obligations where difficult circumstances can arise. May this offer some reprieve to the party that faces difficulty without the protection of a Brexit clause? Well, caution should be exercised. A force majeure clause can normally only be applied to obligations that become impossible to perform as a result of unforeseen circumstances arising outside the fault of any party as opposed to obligations that become uneconomic to perform. Sometimes a contract may have a clause relieving parties from performance of obligations where material adverse events arise. Such a clause could be used by a party seeking to excuse itself from its obligations.
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