Brexit & commercial contracts

Introduction

Brexit and the new trade deal between the EU and the UK will directly or indirectly affect most transactions between Irish and UK businesses or Irish businesses doing business in the UK (including Northern Ireland).

Suppliers will need to consider not just events which may directly impact them but also anything which may affect their supply chain.  Customers will need to consider not only possible impacts on their own ability to use goods or services purchased under an agreement (and whether the price they are paying will remain competitive) but also how the market for their own products may be affected. Impacted businesses should  take steps to ensure their contracts and agreements deal with the impact of Brexit.   In this article, Damian Maloney outlines what to do.

Audit of existing contracts & negotiation of new contracts

Businesses should carry out an audit of contracts, in particular where there is a UK element to them (directly or through the supply chain) and assess the effect that Brexit may have on them.   Similar points arise when negotiating new commercial contracts with a UK element and the following should be considered:

• New tariffs, customs checks, non-tariff barriers or other increases in costs: A supplier should consider including clauses that seek to share the burden of increased costs in providing the goods or services.  Agreements could include a number of Brexit-related provisions dealing with factors on which the charges, or the price, are based, for example  the current tariffs that are in place, applicable corporation tax or VAT rates, the level of complexity of current customs checks, or paperwork.  Where those factors  change, a mechanism could be included for how the agreement will be impacted. 
• Movement of persons: The freedom of UK nationals to work in the EU and for EU nationals to work in the UK will be curtailed. This should be of particular importance to businesses operating in the services industry.
• Freedom to provide services: New restrictions will apply to the provision of services from the UK or into the UK. Costs may be involved in complying with these restrictions, where compliance is possible.
• Monitoring currency fluctuations:  Parties may wish to consider how to allocate the risk of future changes in the value of sterling/euro. An agreement may for example,  instead of setting out a fixed price,  include provisions to cater for where there has been an exchange rate shift between the order date and the payment date which exceeds an agreed “exchange rate tolerance”. 
• Territorial scope of your agreements: does the agreement have the EU as its territorial scope? If the contract is to be performed or part performed in the UK, the definition of territory will need to be amended/drafted so as to specifically include the UK.
• Parallel regulatory regimes: If existing or planned commercial agreements govern the introduction of new goods or services onto both the UK and EU markets, note that there will be parallel regulatory regimes, under both UK and EU law, and contracting businesses will likely need to agree who should be responsible for achieving compliance and the costs of same.
• Change in law: Suppliers and customers who are contemplating entering into or are already subject to long-term commercial agreements (particularly service agreements) will need to be mindful of the contractual impact of changes in law arising out of Brexit.  Agreements frequently expressly address what will happen if the law changes and who bears the resulting costs, for example by specifying that charges cannot be increased and requiring the supplier to consult with the customer before making any changes to the services.
• References to the EU:  Some commercial contracts refer to specific EU legislation, usually by way of an obligation on one party to comply with that legislation.  Agreements may also contain references to EU regulatory bodies, or EU standards. Post-Brexit such references may no longer be relevant to the agreement or may impose an unnecessary level of regulation. 

Measures to take

As a practical measure, organisations should:

•  Conduct a business audit. Consider how Brexit will affect their business generally and their commercial arrangements with third parties.
• Contract assessment. Identify the key contracts governing those arrangements and assess if they provide sufficient protection in light of  Brexit and the EU/UK trade deal or are at least clear about the implications of Brexit.
• Contract renegotiation or termination. Consider whether to try to renegotiate or amend those contracts to deal more clearly with the implications of Brexit and the EU/UK trade deal.
• Future contracts.  Ensure that standard form contracts and terms and conditions are amended, and new contracts include proper provision, to deal with Brexit related changes and the provisions of the EU/UK trade deal.

For more information or to discuss any Brexit related issues impacting your business, please get in touch with your usual Beauchamps contact, or Emer Moriarty Crowley, Damian Maloney, Shaun O'Shea (Corporate and Commercial), Dorit McCann (EU, Competition & Procurement) Barry Cahir (Litigation and Insolvency) or Sandra Masterson Power (Employment).