Should my contracts have “Brexit clauses”?
A well drafted contract should deal with most eventualities.
Although Brexit is perhaps more of a certainty than an eventuality, given that we don’t yet know exactly what Brexit will look like, how can a contract deal effectively with its consequences? The answer to this will depend on the nature of your business, but a few examples should serve to demonstrate the kinds of issues you may wish to consider:
Can I fulfil my contractual obligations?
When the UK leaves the EU, what happens if your business cannot supply or receive goods because of an overhaul of the border system at sea or air ports?
Force majeure clauses absolve parties of their contractual responsibilities if circumstances beyond their control prevent their fulfilment. Common examples are acts of God, war, or industrial action. If a particular post-Brexit scenario might prevent you from fulfilling your side of a bargain, a standard force majeure clause may not provide adequate protection. Consider a specific provision for Brexit and make sure the clause sets out exactly what constitutes an event of force majeure (exit from the EEA without a replacement free-trade arrangement for example), when this would be deemed to happen, what a party claiming relief would need to do in terms of process and what would happen and when in terms of the parties’ obligations.
Consider also a “hardship clause” which may offer some relief if Brexit has a particularly punitive effect on your business in relation to the operation of the contract (for example consider if you need flexibility on delivery dates, changes due to staffing levels or if there are price hikes related to raw materials).
If I sue a company based in the EU, can I get my money?
Court judgments are currently recognised and enforceable across all EU member states without any special procedure. Outside of the EU regime enforceability depends on a variety of international conventions and the local laws of the states in which enforcement is sought. We do not know what this landscape will look like post-Brexit.
Consideration might be given, for example, to including an arbitration clause in the contract. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards requires the courts of contracting states to recognise and enforce each other’s arbitral awards. 157 states are party to the Convention, including most EU member states. In a post-Brexit world, arbitration may be a clearer route to recovery than litigation.
The UK is scheduled to leave the EU on 29 March 2019. Shortening the term of a contract (if you are able to) would allow you to re-evaluate the implications of Brexit before it happens, leaving you free to try to re-negotiate the terms or renew as is. Currency fluctuations may be a real issue, so more flexible contractual pricing mechanisms may provide some level of protection. That being said, if Brexit provides a more favourable outcome for you than the other contracting party, you would not want the arrangement to come to an end prematurely or deny yourself the benefit of a favourable currency fluctuation.
Whilst it is not possible to completely future proof your contracts, addressing these kinds of issues now may help to guard against some of the potential consequences of Brexit.