With the 29th March 2019 fast approaching, it is, for good reason, becoming increasingly difficult to avoid the “B” word. In this article, we consider contractual measures that businesses may consider implementing in their preparations for various Brexit-related eventualities.
There has been a great deal of speculation surrounding the outcome of the Brexit process, and much remains unknown. Businesses have been planning contingencies since June 2016. Your business’ contracts, and the rights and obligations contained within them, will most likely continue past 29th March 2019, irrespective of the outcome of Brexit. It is therefore worth thinking about how the outcome of Brexit may affect your business’ ability to perform its contractual obligations, and whether those contracts will still be commercially viable.
What is a Brexit Clause?
A Brexit clause is, at its core, a straightforward “if/then” trigger clause, whereby a defined event triggers a change in the parties’ rights and obligations. Broadly speaking, a Brexit clause could be formulated in two ways. A specific trigger event could be defined (e.g. the requirement of new or increased tariffs to be paid), for which a specific consequence will follow (e.g. a price adjustment to the goods or services). This does add an element of certainty, however there is still a risk of being exposed to unforeseen circumstances. Drafting a trigger event in broader terms reduces this risk, but may prove difficult to negotiate. Given that it may not be possible to anticipate the best response to a given event, it may be best to use a specific trigger event (e.g. new regulatory requirements) to trigger an obligation on the parties to renegotiate elements of the contract, and if this fails, there is an option to terminate.
Do I need a Brexit Clause?
If a business is confident that it will be able to continue to satisfy its obligations irrespective of the outcome of Brexit, they may not need to consider a Brexit clause. From the perspective of a customer, it may not be in their best interests to agree to a Brexit clause either.
If, however, Brexit raises a real possibility that a contract would no longer be commercially attractive or a party would be in breach of their obligations, a Brexit clause is worth considering. If a party is unable to meet its obligations, it may find itself in breach of contract, facing termination for default and an action for damages.
If you would like to discuss how BakerLaw can assist your business with contractual issues, please feel free to contact Simon Porter on 01252 730754 or email simon.porter@baker-law.co.uk.
This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.
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