Commercial contracts post-Brexit

The end of the Brexit transition period is looming and from 23:00 on 31 December 2020, there will be many significant changes that businesses will have to contend with.

Whilst, at the time of writing, we still cannot be certain what post-Brexit life will look like as we await the outcome of yet more trade deal talks, there are key considerations businesses are advised to make in order to be prepared for the end of the transition period. One such consideration is for businesses to review current contracts and take advice so amendments can be made to help protect their position with international customers, suppliers, traders, partners and other contracting parties.

In our latest blog we invited John Pickervance, Head of Commercial at Forbes Solicitors to discuss his thoughts on what business should be doing with their commercial contract now to be ready post Brexit…

Many contracts are unlikely to contain adequate provisions to deal with the potential adverse consequences of Brexit. For example, most contracts will have been drafted on the basis that the UK is a member of the EU, that goods and people can move freely and without tariffs, and there is regulatory alignment, and, one thing we can guarantee at least, is that this will not be the case from 1 January 2021.

We regularly advise clients of all sizes, from new ventures, to long-established companies, on preparing, negotiating and updating contracts, and whilst there is no magic ‘Brexit-clause’, there are key considerations to be made to future-proof contracts as much as possible, including:

– Ensuring the flexibility of a contract in light of the forthcoming uncertainty and changes;

– Dealing adequately with pricing and payment. For example, tariffs and additional duties will apply to many imported goods at the border, so contracts should clarify how such fees shall be calculated and who is to bear the responsibility for paying them. Further, the UK’s exchange rate is likely to be more volatile around the time of the end of the transition period, and there may be long-term implications too so businesses should ensure they are contractually protected from fluctuating exchange rates;

– Considering the impact on the supply chain. For example, there may be interruption of supplies which prevents or hinders a party from performing their obligations, and border checks are almost guaranteed to cause at least some disruption. In fact, the UK government has estimated that the worst case scenario is that 40%-70% of lorries will not be ready for the new border and customs declarations requirements.

All businesses need to be aware of the impact of delay, and to consider in contracts whether time is of the essence for the supply and delivery of goods, whether any termination rights can be exercised in the event of delay, and whether any damages would be payable due to the same;

– Clauses in respect of the governing law of a contract and jurisdiction should be reviewed in light of the UK no longer being part of the EU. Further, territories defined by reference the EU or EEA, and any references to EU bodies, laws, and regulations will need to be amended.

Amidst all of the Brexit uncertainty, which is compounded by Covid-19 uncertainty, one factor remains certain for businesses who contract with international parties -time is running out. There will be no extensions to the transition period and businesses should aim to be proactive to prepare for the future to put them in a stronger position going forwards.

Pre or post-Brexit, it is important that contracts work for businesses by ensuring that they do exactly what the business needs them to do, and to provide protections in case things don’t go to plan. The right contract will give a business the ability to trade with confidence and certainty.

 

For advice and assistance with commercial contracts in light of Brexit, Covid-19, or for any other reason, Forbes’ Commercial team are here to help. Contact John Pickervance, on john.pickervance@forbessolicitors.co.uk or  0333 207 1134.

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