How will Brexit impact your new or existing supply contracts?

Which contracts should deal with Brexit?

If a contract party’s ability to perform the contract, or the cost of performing the contract, is likely to be affected by the effects of Brexit.

What if I do nothing?

It depends. The existing contract may already have a good alternative to negotiating a variation dealing with the effects of Brexit – it may, for example, have a short notice period to terminate the contract giving the parties a relatively painless escape route. However, beware that if you do nothing, the contract parties will still be obliged to perform the contract, even if Brexit makes it commercially unattractive to do so.

Is there an alternative to renegotiating the terms of my contract?

Maybe, but it depends on the drafting and a court’s interpretation of your existing contract.

A contract party wishing to vary or end the contract may look to clauses such as force majeure or the termination provisions but it may turn on the circumstances in which the party is seeking to rely on the clause and the way in which the clause has been drafted. It is not certain.

What can I do?

A lot can still change between now and 29 March 2019. As such, it is difficult to anticipate what the ramifications of it will be for you.

There is no all-scenarios-type clause that can be put in your commercial contracts, but if there are certain, obvious consequences that are likely to arise for your business from Brexit, then you ought to look to make provision for those consequences.

Consider the following:

 

• What is the likely effect of Brexit on the parties to the contract? For example, tariffs on imports/exports, restrictions on provision of services, consents, freedom of movement and the increased cost of performance, exchange rate fluctuations, fall in demand etc.
• Who is going to bear the cost of the above changes in circumstance?
• Will your existing contract suffice? For example, does it contain a useful alternative to renegotiation, what are the termination rights etc.
• If there are specific events in your contemplation, can you provide for specific consequences? If so, should you be negotiating now with your trading partners to provide for those events and consequences?

 

If you are concerned about what effect Brexit may have on your commercial relationships get in touch with us to discuss.