Contracts and the B-word
Those of you who follow British politics closely may have heard about something called “Brexit”. Don’t worry if you haven’t, it’s been kept quite under the radar, but I’m here to tell you that it’s actually quite a big deal.
In short, the UK is going to be leaving the EU on 29 March 2019 and this is going affect businesses in a number of different ways. Businesses most likely to notice a change are those who have some sort of trade in the EU. These businesses will be parties to contracts with clients or suppliers in the EU and it is these contracts that I would like to discuss.
But a contract is a contract is a contract… isn’t it? Well yes and no, contracts typically lend huge clarity to a commercial relationship by setting out who does what and when. This is all fine unless commercial realties change, e.g. with the biggest political event in a generation, and trade is affected. So, I hear you ask, how might Brexit impact my contracts?
Increased trade barriers
This is a bit of contentious point in the Brexit negotiations however it’s looking like trade barriers between the EU and the UK are going to increase. This means that costs when trading in Europe are also likely to increase.
It’s important therefore to assess the commercial impact this will have on your contracts and if, in light of this increased cost, your position under any agreements needs to be revisited.
Your contract is likely to incorporate a commitment to a particular price for your goods or services. If this price is in pounds or euros and the value of these currencies change, then the price of your goods and services will change.
So, when negotiating new agreements, you may wish to consider how to allocate the risk of future changes in currency value. You may even want to insert a clause which allows you to terminate the contract if this change goes beyond certain parameters (on the grounds that it would affect your profit margin).
Some contracts are territory specific and that territory might be defined as the EU. Indeed this definition could have been agreed well before the results of the referendum were declared, or before the whole idea had even been contemplated. In these circumstances, you will need to assess whether the territory of the UK will be automatically excluded from the contract after Brexit occurs. Indeed this may require some amended wording and it would certainly be better to raise this before the big day.
Grounds to terminate?
The big question in all of this is; if Brexit adversely affects your commercial position, do you have grounds to terminate your contract?
This will very much depend on the terms of the particular contract, and it’s most relevant to contracts with territorial application, but it would be worth conducting a contract review to assess where your risks lie and what you can do now to prevent a problem in the future.
Briffa can provide a full Brexit audit of your intellectual property rights and commercial contracts. Please just email [email protected] for more information.
Alternatively, if you would like to know more about Brexit and its affects, please tweet @Nigel_Farage.