Do you need to review your business contracts because of BREXIT?
It is possible that Brexit may make it more difficult for you to perform your contracts or they may become less profitable. From a legal point of view, when negotiating a new contract or thinking about terminating an existing contract there are clauses that may help one or both parties to deal with unforeseen events or issues such as:
- A clause to allow withdrawal from the contract where there has been a materially adverse change. The contract can set out what would constitute a materially adverse change and whether the clause could be invoked before or after the change.
- A clause which allows a party to renegotiate a specific part of the commercial deal in the event of hardship (e.g. a change in the costs of materials or currency exchange rate). The clause would set out what aspects can be negotiated. There could be a default procedure to apply if the parties cannot agree a change, e.g. an agreed default rate of exchange, default indexed pricing structure or perhaps a third party ruling by a suitably qualified expert.
- Amending the “force majeure” clause. These clauses allow a party to have their performance under a contract suspended where there is an event which is reasonably beyond their control. After a further period of time it is common for the force majeure clause to allow the contract to be terminated if the problem continues. Force majeure clauses can be worded differently in different contracts but many of them will not deal with ‘Brexit’ as such. If this point is important to you, a force majeure clause could make it clear whether or not the consequences of Britain’s referendum to leave the EU and/or triggering Article 50 are events which are included or excluded as being events or matters beyond a party’s reasonable control.
- A similar but slightly different clause would be a termination clause which allows a party to terminate part of its contract or possibly to put in place an alternative arrangement (which would need to be clear) if specified events or circumstances occur due to the UK referendum on leaving the European Union which took place on 23rd June 2016, and/or after the UK has notified the European Council of its intention to withdraw from the European Union under Article 50 of the treaty on European Union.
What should you do right now given the Brexit decision?
- Consider your existing Key Contracts or standard terms i.e. contracts which make a real difference to your business. Are there any that you wish to bring to an end or renegotiate? Are there any that you are negotiating at the moment which would benefit from any of the clauses mentioned above or a variation of them?
- Without inclusion of clauses along the lines mentioned, if there is a dispute about the contract relating to problems arising from the Brexit, it is likely that a Court will treat the parties as having been aware of the potential for ‘Brexit’ issues and decide that as the parties had decided not to deal with them in the contract, the Court cannot rewrite the contract to add in new provisions.
The above is general information rather than legal advice. Please seek our advice on your specific circumstances and contracts.
Contact: Niels McKenzie, Director