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Date for the Company Diary

Posted on 29th March, 2018

Brexit EU JigsawFollowing on from the General Data Protection Regulation going live on 25 May 2018, another date for the company diary is 29 March 2019, this being the current scheduled date for the UK to leave the EU aka ‘Brexit’. Like all things Brexit, this date is subject to uncertainty and change- all 28 EU Member States will need to agree all the terms of Brexit and sign the Withdrawal Agreement. The UK will then enter a transition period of two years following exit. UK businesses should start to consider how Brexit will affect the commerciality of their businesses now.

 

As a member of the European Union, the UK enjoys the four economic freedoms –

1. free movement of goods;

2. free movement of services;

3. free movement of labour; and

4. free movement of capital.

Therefore, withdrawal from the EU will mean that the UK can no longer enjoy these freedoms and thus the implications for UK commerce will be felt greatly. Withdrawal will affect–

1. operations;

2. performance; and

3. financial viability.

UK companies should consider what their current and future commercial agreements provide for, in terms of mitigating the risks associated with business operations, contractual performance and financial viability of trading:

Territorial scope: it is likely that import and export duties/tariffs will become payable in moving goods between the UK and the EU. It is also likely that there will be increased administration, with associated costs. Identify which agreements will be affected and what provisions are included to apportion increased costs and the contractual consequences of incurring time delays relating to Brexit red tape.

Pricing Mechanisms: it would be wise to consider the incorporation of a price adjustment mechanism so that potential “Brexit costs” are identified and allocated.

EU Legislation: how are such references to be treated? Does the agreement provide for “as amended legislation” meaning that legislative changes will be applicable to the agreement? If so, consider what impact this will have on the agreement.

Force Majeure clauses: often used to allow the parties to avoid default due to uncontrollable events – which can extend to political and legal situation changes. Current clauses are unlikely to address Brexit, consider amending such clauses so that they do.

“Brexit Clauses”: in order to future proof agreements, consider including specific provisions to address potential consequences of the Brexit deal i.e. stipulate a trigger point which will cause action, this could include the right to re-negotiation the terms of the agreement, or the right to a price review and adjustment or the right to terminate.

Governing Law and Status: English law will be in a state of flux and may not be an appropriate choice due to questions around enforceability in international courts post Brexit – consider what is appropriate if one of the contracting parties is based in the EU. Irish jurisdiction may become very popular.

Whilst the real Brexit repercussions are not yet fully known, UK businesses should still make a start of undertaking a Brexit review exercise in relation to their commercial agreements and aim to get a head of the curve, rather than being caught out.

For more information, please contact the Corporate and Commercial team on 01642 356500.

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