B-day is fast approaching and I’m not talking about a joyous birthday - I am, of course, referring to Brexit Day or 31 October 2019: the day on which we're due to depart the EU. With the day in question nearly upon us, many organisations may not yet have given sufficient thought to potential contractual disputes which could be brewing on the horizon.
I understand that many of you are probably sick of reading about Brexit and Brexit Day, but bear with me - if you, or your company, does business with our European counterparts, then it is going to be in your interests to spend just a few minutes reading about minimising exposure to potentially expensive disputes arising from B-day.
Brexit Day - What are the potential issues for my business?
It goes without saying that Brexit has created uncertain times and where there is uncertainty and ambiguity, disputes invariably arise and litigators thrive. You might ask ‘how is any of this going to hit me or my business in the pocket?’ – here are some of the potential issues:
- Imposition of tariffs/duties;
- Fluctuation in exchange rates;
- Effects of Customs checks;
- Compliance with different regulations; and
- Adverse effects on free movement of labour.
And those are just a few of the big-ticket items, which businesses should be concerned about.
Brexit Day - What should I be doing to prepare?
There will no doubt be a number of litigators out there who are rubbing their hands with glee, just waiting for the proverbial to hit the fan after Brexit Day. However, for me, those who have entered into contracts with European entities should be dusting them down and scrutinising them to identify what they provide for should some of the potential unwanted consequences occur following B-day.
Basically, you should be having contract reviews now if you have not already done so. ‘That is the purview of the commercial lawyer and not the litigator’ I hear you cry, but actually, as a dispute resolution lawyer, working to prevent disputes arising in the first place is just as important as working to resolve them when they have arisen. Admittedly, that ordinarily involves me, working with you after a dispute has been resolved and when you have already had to spend what can be eyewatering sums on legal fees. Instead, I would much rather find a way to help you avoid a dispute arising in the first place, or if one does arise, make sure we are on the best possible ground and as prepared as we can be to fight for you. The best way to achieve this is to carry out contract reviews.
Brexit - What issues in particular should I be looking at to try and avoid expensive disputes?
During the current transitional period - from 29 March 2019 until 31 December 2020 - we will remain subject to EU law, so if your contracts with EU entities expire before 31 December 2020 and are not going to be renewed, then the direct effects of Brexit to your contracts are going to be minimal. However, if your contractual relationships with European entities are going to extend beyond 31 December 2020, then you should be looking at future proofing contracts and, where there could be issues, trying to renegotiate terms.
Whether you are looking into the merits of trying to renegotiate contracts, or are in the process of, or going to be, negotiating contracts, then there are a number of issues to which you should be giving consideration:
- You may be sitting back thinking that whatever issues arise, you are going to be able to rely upon a force majeure clause in your contract to either postpone performance of contractual obligations or possibly effect termination. Unless the clause in question specifically refers to Brexit as a force majeure event, then it is unlikely that a Court would sanction reliance upon it, based on the associated effects of Brexit.
- If your business is potentially going to be affected, either directly or indirectly, by, for example, one or more of the Brexit consequences highlighted above, through the knock-on effects to either the supply chain which you rely on, or the market which you operate in, it is likely that your counterparty will also have similar fears. It may then be possible to agree upon the insertion of "Brexit clauses" into your contracts, i.e. clauses which, in effect, trigger a change in the parties' rights and obligations, including, if specified, the right to terminate on the occurrence of defined events or in the event of certain consequences. By doing so, the parties can minimise exposure to potentially expensive litigation.
- If it becomes necessary to serve proceedings outside of the jurisdiction in another EU member state, it is currently a fairly straightforward process, by reason of our membership of the EU and, specifically, the provisions of the 2007 EU Service Regulation. However, that could all change depending on the extent, if any, that the provisions of that legislation are transposed into UK law. In order to negate the need to obtain a Court order and have to attempt service of proceedings outside of the jurisdiction, which can become a protracted and ultimately expensive process, consideration ought to be given to the insertion of a service clause, which provides for the service of proceedings on an agent within the jurisdiction.
- The law relating to the effect of exclusive law and jurisdiction clauses is unlikely to change materially, given the approach the UK proposes to take by signing up to various international conventions. However, in the absence of such clauses in contracts, there are concerns about the approach UK Courts and the Courts of EU member states will take to determine the applicable law and jurisdiction and, particularly, the ease with which judgments obtained in this jurisdiction will be able to be enforced in the courts of EU member states. It may, therefore, be sensible to get local law advice from the domicile of the counterparty, to identify the time and expense which is likely to be incurred in enforcing a UK judgment. Where there are prohibitive factors to taking enforcement action in the relevant jurisdiction, serious consideration should be given to the insertion of a dispute resolution clause, which provides for resolution by way of English arbitration, an award from which can be readily enforced by virtue of the UK’s status as a signatory to the New York Convention.
What is featured above is by no means an exhaustive account of the issues which ought to be reviewed upon a contractual audit; they are the issues which, as a dispute resolution lawyer, I believe it is important to focus on, to try and avoid disputes from arising or making sure that you have the upper hand if a dispute does arise. If you have any questions about contractual issues that may arise from Brexit and Brexit Day, please get in touch with our Dispute Resolution and Litigation Team.
Let’s see what happens - and Happy B-day!
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