Do we need to “Brexit-proof” our contracts?

28 February 2019

At the beginning of February we asked whether Brexit was even more frustrating than first thought, and today we are considering whether contracts being entered into need to be "Brexit-proofed". Who knew there would be so much to think about when the UK voted to leave the EU…?

Many contracts include a force majeure clause which generally has the effect of excusing some contractual obligations if they become impossible to perform due to events occurring which are outside the obliged party's control. Finance documents also often include material adverse change clauses which allow a lender, for example, to limit its financial exposure following an unforeseen adverse event.

So is there anything that can be done? This is an important question as it is easy to see how it could be argued that Brexit is an unforeseen adverse event in relation to contracts which were entered into before the vote to leave. It would not be as easy to argue this in relation to contracts made more recently as the UK leaving the EU is not really unforeseen at this point. With that being said, "Brexit clauses" have been popping up in draft contracts more frequently in an attempt to ensure that Brexit does not have these unintended effects on an agreement.

We have to accept that regardless of the way the UK leaves the EU, whether this be with or without a deal, Brexit will have an effect on our businesses. In order to combat this, in some instances clauses are being included which allow certain elements of a contract to be renegotiated failing which the contract can be terminated. Clauses like this operate after a "trigger event" which needs to be clearly and carefully defined to ensure that it applies only when it is intended to. Options for a Brexit related trigger event could be;

  1. Changes in law;
  2. Changes in price caused by taxes;
  3. Dramatic changes in exchange rates;
  4. Changes in regulatory regimes; or
  5. The contract becoming unprofitable for either party.

Further, given that Ireland is remaining within the EU while the rest of the UK leaves it is certain that Brexit will have an effect on any and all tractions which take place between parties in Ireland and the UK. It is recommended that any business which deals with other businesses in Ireland carry out a full review of their contracts and any pending agreements to ensure that they are appropriately Brexit proofed.

For all businesses, contracting with businesses in Ireland or not, it is important to be aware of any Brexit related consequences stemming not just from events that will directly affect them, but also those in their supply chain for example. If you have not already, you should be considering how Brexit may affect your business and any commercial contracts you have generally. If you have any particular key contracts you should read through them and try and ascertain if any negative implications of Brexit would be clearly dealt with under the terms of the contract or if they should really be amended to cover this off. Any required amendments will need to be negotiated and agreed and this takes time so addressing the issues now is key.

If you require any assistance with "Brexit proofing" your business affairs, Gepp Solicitors has individuals across multiple practice areas who would be able to assist you.

For any further information please contact our Commercial Dispute Resolution team.

This is not legal advice; every case turns on its own facts and specialist advice should be sought in every instance. It is intended to provide information of general interest about current legal issues.