Countdown to Brexit - Commercial Contracts

The impending expiration of the transition period following the UK’s withdrawal from the EU on 1 January 2021 will entail certain significant considerations and changes for commercial contracts. The following are among the key clauses in existing or commercial contracts under negotiation that businesses must consider:

Definitions/Territory: Does the contract contain definitions of the “EU”, “European Union”, “EEA” or “European Economic Area” or provide for territory that includes the EU or EEA, and do these clearly provide for the inclusion or exclusion of the UK? There may be situations where territory must firmly include the UK such as in licensing arrangements or must be flexible such as provisions for international data transfers in data protection provisions. Consider also whether any other country or territory merits specific inclusion or exclusion in your contract. 

Governing Law and Jurisdiction: Assess whether enforcement of an Irish judgment or an English/Scottish/Northern Irish judgment would be more difficult and how this would affect your contract. Consider a choice of court or jurisdiction clause that designates an EU Member State from the end of the transition period, or whether adding an arbitration clause, or other method of alternative dispute resolution, might be suitable for your contractual arrangement from the end of the transition period.

Compliance: Consider whether cost and responsibility needs to be assigned or apportioned to one or both of the parties in respect of any regulatory compliance issues such as any additional licensing, registration, certification or other requirements; and assess the likelihood of regulatory or legal divergence once the UK leaves the existing regulatory and legal frameworks (e.g. financial, data protection, life sciences, etc).

Data Protection: Once the transition period ends, the UK as and from 11pm on the 31 December 2020 becomes a third country for EU law purposes, including the GDPR. This means that one of the specified international transfer mechanisms (such as an adequacy decision or, where one is not in place, another appropriate safeguards such as standard contractual clauses and any necessary supplementary measures) under the GDPR must be in place to ensure uninterrupted, lawful transfers of personal data to the UK. 

Financial or other hardship: Consider whether the end of the transition period brings poses a threat to the commercial or practical viability of the arrangement. Consider any trigger events arise that should be incorporated into your contract. For existing agreements, assess whether the UK’s departure was considered when the agreement was made. Key trigger events to consider are:

• Trade tariffs: Is the contractual price fixed? Does it state where liability for VAT changes and any other trading costs, e.g. tariffs, customs and excise charges?

• Currency fluctuation: Are the contract prices € or £? Are there any provisions for material currency fluctuations? Can the currency exchange rates be hedged? In long-term contracts, consider provision for renegotiation or review of pricing.

• Customs checks: Will delay or associated costs of customs requirements impact on obligations or profitability under the agreement?

• Changes in law: Who bears the cost or duty of compliance with changes in law? Must the contract be terminated for illegality?

• Restrictions on four freedoms: Will there be supply-chain issues, labour shortages or impediments to contracts including services should future restrictions be introduced on the free movement of goods, capital, services or labour?

• Trade deals: Does the contract rely upon any EU trade deals? Could or should UK trade deals brokered over recent years be considered for inclusion?

Consequences of these trigger events also need to be considered, i.e. will the contract or any term in it be suspended, terminated or renegotiated? Is there an existing clause in the contract that deals with which party should bear the burden of such increases in costs and other changes to factors that the parties took into account when they made the deal?

For more information on the above or for general advice on this topic, please contact Gillian O'Shaughnessy or Kelly Mackey of our Commercial Contracts Group or our Brexit Team.

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