1. Carry out a contract audit
Brexit is likely to impact on the operation of existing contracts. It is therefore vital for businesses to review their existing contracts:
- Is there reference to the EU as a geographical area in the contract? If so, it may be unclear how this applies to the post-Brexit UK. For example, will a distributor or agent given the right to distribute/sell in the whole of the EU or a specific EU state still have the right to distribute/sell in the UK after a Brexit, or will they be prevented from doing so? Do the Commercial Agents Regulations apply to your arrangements? If your contract is unclear or its terms will not make sense once a Brexit has been finalised, consider agreeing amendments now to avoid future difficulties.
- Is there reference to, or dependence on, particular EU legislation? If so, it is possible that a Brexit could trigger the contract's force majeure provisions or that the performance of the contract will be frustrated if that EU legislation no longer applies. Addressing any consequences which could arise as a result up front with the contracting party may be invaluable to avoiding future business disruption and disputes. You should consider whether it is appropriate, for example, to expressly include or exclude Brexit from any force majeure provisions, provide termination rights when the UK eventually leaves the EU, or provide alternative procedures which will take effect following Brexit.
2. Negotiating future contracts
In ongoing and medium- to long-term contract negotiations, aside from being mindful of all of the issues above, your business should also consider:
- Jurisdiction and governing law clauses: it is more vital than ever that these are included within your contracts; they need to be clear and unambiguous as to which court has jurisdiction to hear a dispute and which court's laws apply to the contract. Parties should not be too concerned about including English law and jurisdiction provision as, for the most part, Brexit is unlikely to impact on the reasons why parties chose to use English courts (e.g. the quality of judges, the relative efficiency of the courts, the adversarial nature of the system, and the full disclosure of relevant documents). English law remains a good choice for contracts.
- Service provisions: because service of court documents may become more protracted in the post-Brexit era, it may become necessary to apply to a defendant's local court for permission to serve proceedings within the EU, leading to (often lengthy) delays. It may be that the UK becomes a party to the Lugano Convention whose provisions mirror those which exist under EU law. However, this is uncertain so consider including provisions for service of process within your contracts with parties based in the remaining EU states.
- Dispute resolution clauses: carefully consider whether to include a provision for disputes to be referred to final resolution by way of arbitration rather than litigation through the courts. Arbitration is a non-court alternative method of resolving disputes resulting in a binding arbitral award being granted rather than a court judgment. Enforcement of arbitral awards against foreign parties falls outside of EU rules and is governed by the UK's membership of the New York Convention. Whilst there remains uncertainty over what the post-Brexit enforcement landscape may look like, using arbitration could be a means of mitigating against that risk, at least until the outcome of Brexit is known.
If you would like to discuss any aspect of this article, please get in touch with Alastair Govier or Caroline Watson, or your usual Thrings contact.