Craft Focus - Jun/Jul (Issue 73)

92 Brexit delay provides time to review contracts How will Brexit affect your contracts? Legal expert Lindsay Ellis has the answers There is ongoing uncertainty surrounding the timing of Brexit, with a recent vote delaying the process and no clear indication of a specific leaving date. It is vital that organisations use this opportunity to consider the impact the process may have on existing contracts, as well as those proposed after the UK has officially left. Brexit could negatively impact business supply chains, and the performance of obligation by subcontractors and suppliers should be considered. Other areas to explore include term, territory, currency, tariff and customs clearance. Failing to plan for this could result in increased costs or damage to business performance. FORCE MAJEURE These clauses can relieve a party from liability for a breach resulting from ‘circumstances beyond its reasonable control’. However, if Brexit was likely when the contract was agreed, it could be argued that the parties involved should have been prepared. Without a specific reference, force majeure clauses are unlikely to help, but depending on how the clause was drafted, it might address delays in delivery of goods. COMPLIANCE WITH LAW CLAUSES Many contracts state that parties must comply with applicable law. In any event, it will be a matter of interpretation whether such a clause could oblige a party to absorb the costs associated with Brexit- related charges. Long-term contracts typically address what will happen if the law changes, often specifying that charges can only be increased in limited circumstances, with the supplier required to consult the customer before taking action. TERMINATION The contract may include scope for termination by either party. This may be in connection with circumstances arising from political events or a failure to agree a charge. If a contract’s termination clause gives a party a right to cancel on relatively short notice, the prospect can always be raised as a means of encouraging negotiation. COMMON LAW AND FRUSTRATION Frustration arises where an event occurs after the date of the contract, radically transforming the obligations of either party or making it impossible to fulfil. A contract is not frustrated due to inconvenience, hardship, financial loss or when the event should have been foreseen by the parties. As such, it is accepted that frustration will not help with Brexit, although it might apply if changes in law were to be made subsequently. INTERPRETATION AND IMPLIED TERMS The courts are unlikely to interpret a contract or imply a term to assist a party adversely affected by the process. Similarly, the fairness of a proposed implied term or the fact that the parties would agree to it is insufficient grounds for implying it. Both interpretation and implication of terms have regard to the background knowledge reasonably available to the parties at the time they entered the contract. BREXIT CLAUSE Inserting a clause into contracts will trigger some change in the parties’ rights and obligations when a defined event occurs. This could affect every aspect of doing business and the best the clause may offer is a binding requirement for the parties to renegotiate the deal. For other contracts, it may be possible to specify the consequences of certain events, but with Brexit, there is the risk that new events may occur. MAKING NECESSARY CHANGES It is clear from recent developments that the only current certainty with Brexit is more uncertainty. Organisations must take the time to review their existing commercial contracts, ensuring that every possible outcome is accounted for. Existing obligations within contracts could be negatively impacted and without taking the necessary steps, you are potentially inviting risk. I advise seeking advice from an experienced contract lawyer and starting to plan for life after Brexit. “It is clear fr om recent developments that the only current certainty with Brexit is more uncertainty.” Lindsay Ellis advises on outsourcings, procurements and commercial contracts for Wright Hassall, a Warwickshire- based firm of solicitors. wrighthassall.co.uk