Brexit: Commercial Contracts and Supply Chains

The UK leaves the EU customs union and single market on 31 December. This will have profound implications for British businesses and their trading arrangements. Trade negotiations are continuing, but there is no guarantee that a deal will be reached before the end of the year. Even if the UK can secure the “Canada style” deal with the EU it is seeking, it is important to recognise that this does not represent the status quo. Deal or no deal, customs controls will apply to trade with the EU from 1 January and frictionless trade will end.

Many businesses will have been planning for this outcome for some time, implementing Brexit related reviews and addressing issues identified by, for example, amending standard contract documents, or addressing issues specifically when negotiating bespoke contracts.

However, if this is not you, then it is still not too late to act.

Brexit clauses

• Consider including a clause in contracts that triggers some change in the rights and obligations of the parties as a result of the UK leaving the EU customs union and single market. This might give relief from delays caused by the introduction of customs controls, and/or the ability to pass on additional costs incurred.

Force Majeure

• It is unlikely that a standard force majeure provision will apply to a Brexit related matter. However, the wording of the provision should be checked.

Termination rights

• Consider including a right to terminate at the end of the current transition period, or a general right to terminate at any time for convenience by giving a reasonably short period of notice.

Prices and delivery responsibilities

• Check the pricing provisions in the contract. Where selling or buying cross border, are prices inclusive or exclusive of duties and tariffs? Is the position clear?

• If selling goods to another UK business which incorporates imported components or materials, can any cost increase or additional duties incurred be passed on to the customer?

• Where buying or selling cross border, which party is responsible for dealing with customs procedures on leaving and entering a country and the associated costs?

• Review the use of INCOTERMS. Will using the same INCOTERM be appropriate after 31 December?

Time for delivery

• If you are supplying goods, allow for the possibility of delays arising from customs procedures. This may also be relevant when supplying goods to other UK businesses, where those goods incorporate imported parts or materials.

Personal data transfers

• If transferring personal data between the UK and EEA member states, consider whether new or updated agreements will be required after 31 December.

Personnel

• Consider whether the end of freedom of movement will impact on your ability to deliver against contracted timescales.

Contractual references to the EU

• Check references to the EU and the EEA in contracts. Should these references continue to include the UK after 31 December? Is the position clear? This is likely to be particularly important in licences and distribution agreements, where rights are typically granted in relation to defined territories.

• As an additional precaution, consider the possibility of Brexit leading to future changes to the composition of the UK. Should a contractual reference to the UK include a future independent Scotland?

Changes in law

• Is there any legislation which is crucial to the operation of the contract which may be affected following the end of the transition period? Consider what effect a change of law might have in these circumstances and the potential for incurring additional costs.

Dispute Resolution

• It may become more difficult to enforce English court judgments in EU member states after 31 December. This may result in more complexity, more cost and delay. Consider whether it would be beneficial to include a requirement in contracts to use arbitration.

Remember, time is running out. Whatever the outcome of trade negotiations, the UK’s trading relationship with the EU will change fundamentally on 1 January.  It is important to act now.