Commercial Contracts following Brexit

Commercial Contracts following Brexit

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Commercial Contracts following Brexit It is vital that you review the key terms of your business or organisation’s existing contracts and those which it may be planning to enter into in preparation for Brexit.

This article explains some of the key commercial issues which could arise following Brexit and identifies practical considerations for future-proofing a contract. The overarching message is to avoid unpredictability by creating certainty where possible now.

This article is prepared on the assumption that the UK is to leave the EU by way of a “hard Brexit”, meaning the UK ceases to be part of a customs union and is no longer obliged to comply with EU law. Whilst a hard Brexit will cause more change than the other possibilities, it is best to err on the side of caution pre 31 October 2019 (or whatever date the UK ultimately leaves the EU, if it does).

Brian Miller

Philippa Blane

Partner brian.miller@laytons.com +44 (0)20 7842 8000

Trainee Solicitor philippa.blane@laytons.com +44 (0)20 7842 8000

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Commercial Contracts following Brexit

Financial Hardship

Data Protection Laws and Transfers of Data to the UK

Brexit could have significant commercial implications affecting

One of the more immediate issues arising in anticipation of

the profitability and performance of contracts and could lead

Brexit concerns data protection arrangements and the transfer

to financial hardship for the parties. For example:

of personal data from countries in the European Economic Area (EEA) to the UK.

• there could be changes to exchange rates; • tariffs could be imposed or increased;

Where your business or organisation relies on the transfer of

• additional costs and delays could be incurred due to

personal data between the EEA states and the UK to operate,

customs checks for goods entering and leaving the EU; • restrictions on the freedom of movement of people

such a transfer could be problematic following Brexit. Whilst it will be possible to send personal information from the UK to

could create labour shortages in the UK, particularly for

the EEA without additional arrangements, the same cannot be

sectors such as construction, hospitality, franchising and

said about transfers from EEA member states to the UK.

care services which are heavily reliant on workers from the EU; and • a contract may no longer be required following Brexit,

Following Brexit, data processing in the UK and transfers of personal data from the UK to EEA member states will continue

for example, if a business relocates and no longer

to be governed by European regulation in the form of the

requires premises or plants based in the UK.

General Data Protection Regulation ((EU) 2016/679) (GDPR).

This is because the GDPR was automatically incorporated into

Such events could cause a contract to become unprofitable

domestic law on 25 May 2018 when it became applicable in

or difficult to perform, which is problematic, particularly as it is

all EEA member states.

unlikely that parties will obtain relief from the consequences in the absence of express provisions.

After Brexit, the European Commission has stated that a decision about transfers to the UK cannot be made until it has

To future-proof a contract against Brexit, consider including

considered whether the UK offers an adequate level of data

clauses which expressly deal with these possible occurrences.

protection, and therefore can be added to the list of countries

One solution would be to include further termination

for which the Commission has already made a determination

provisions whereby either the contract can be terminated on

of adequacy. It is recommended that standard contract

Brexit or by short notice, if the necessity occurs.

clauses are put into place with a business located in an EEA member state in order to facilitate a transfer of personal data to the UK.

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Commercial Contracts follwing Brexit

References to the EU and EUrelated Legislation

Governing Law and Jurisdiction

It is unclear whether a contract which refers to “the EU” will be

Whilst there is no reason to believe that English law will be

interpreted as including the UK after Brexit. This could clearly

less attractive as the choice of law, it is important to consider

have a huge impact on the functionality of a contract.

whether English jurisdiction clauses will continue to be suitable.

If, for example, the EU is defined to mean its “member states from time to time”, this would suggest that it will not include the UK (and potentially, therefore, Iceland, Liechtenstein and Norway). Conversely, if the definition of the EU specifically

Choice of Law

refers to the UK, it would suggest that the contract continues

English contract law will be largely unaffected by Brexit. This

to relate to the UK. Nevertheless, interpretation will depend

is because it is largely derived from common (i.e. case) law

on a range of factors, including the purpose and context

and so commercial contracts are subject to limited statutory

of the clause in question, the commercial background and

intervention (and such intervention mainly derives from UK

commercial common sense.

statute in any event).

A solution to future-proof a contract which contains

A choice of English law should be upheld under common

references to the EU or EU-related legislation would be to

law after Brexit. Although the position in relation to non-

make it clear how such references are to be interpreted after

contractual matters is largely untested, the English courts

Brexit.

would be likely to respect the parties’ choice as well.

Jurisdiction Clause The English courts will be largely unaffected by Brexit as EU law has little influence over the English judiciary and the civil procedure rules. However, some points to note about jurisdiction include: • how such references are to be interpreted after Brexit.

• it being likely still to be possible for parties in member states to give the English courts jurisdiction over the contract; • there being possibly greater complexity and inconsistency in the treatment of an exclusive jurisdiction clause in favour of the English courts; and

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Commercial Contracts following Brexit

• whether judgements of the English courts will be enforced in member states. This requires some caution and a conservative approach would be to: a. assume that national law will apply and to take local advice as to the implications; and/or b. use arbitration, since arbitration is unlikely to be affected by Brexit.

Practical Steps to Consider 1. Consider how Brexit is likely to affect your business generally.

2. Identify key contracts which are likely to be affected

by Brexit and consider whether they provide sufficient protections.

3. Consider renegotiating and terminating contracts to avoid the uncertainty associated with Brexit.

4. Always take care when discussing issues with third parties, since unequivocal statements that an action either will or will not take place may lead to subsequent arguments concerning interpretation of the contract, including whether the contract has been varied.

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The position in relation to Brexit and its impact on contracts subject to English law is in a state of flux and which may therefore require us to make changes to this note, if and when Brexit takes place.

This article may not be reproduced without the prior written permission of its author, Laytons LLP. It reflects current law and practice and the opinion of the writers only and not necessarily that of Laytons. It is intended to be general in nature, and does not purport in any way to be comprehensive or a substitute for specialist legal advice in individual circumstances.

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