The more the risk of a ‘No deal’ Brexit, the more you will need a Brexit clause in your trading agreements. Any business involved in trade between the EU and UK is likely to be affected by Brexit. We have some template Brexit clauses to include in your contracts. These cover different scenarios:
- Any material adverse impact
- Restrictions on movement of people
- Import Duties and Tariffs
- Regulatory and Legal changes
If you have any cross-border dealings between the UK and EU, our sample Brexit clauses could be essential.
Addressing Brexit Uncertainty
Given the uncertainty over the terms of Brexit, you need a mechanism for handling the changes when they occur. Our Brexit clauses offer this, plus some ideas for dealing with new laws and regulations that could affect you. And in some cases, if the impact is really tough, you may want to be able to cancel a contract.
All new contracts involving in trade in goods or services between the UK and Europe need a Brexit clause at this stage. As for existing contracts, it is time to discuss extra terms with your trading partners to cope with the uncertainties and risks. Our sample Brexit clauses can be helpful in this exercise as they contemplate a variety of ways to deal with the impact of Britain leaving the EU.
For example, if new tariffs apply to import of certain goods to the UK from Europe, will the cost be shared or will the importer have to pay the full amount? If you have a Brexit clause in your contract that allows either party to call for a meeting if there is a Brexit impact on the contract, hopefully, you will agree on some adjustments that benefit both parties.
If you have long term relationships with suppliers, buyers, agents or consultants and if those relationships involve EU citizens or trading with other countries in the EU, how do you plan for Brexit?
The answer could be a Brexit clause in your long term contracts and arrangements. This especially applies to businesses with buyers, agents or distributors in Europe and to those who act as agents or distributors in the UK for suppliers based in the EU.
This document contains a number of sample clauses for use in contracts which might be affected by Brexit. Any such clause needs not only to be worded to conform to the language of the contract to which it applies but also, so far as possible, to deal with the relevant issues that are likely to affect one or both of the parties in the event of Brexit.
While relevant Brexit clauses should be inserted in any new contract that is likely to be affected, it is also important to consider making changes to existing contracts. Opening discussion with your suppliers, agents and customers sooner rather than later could well lead to a more seamless transition than waiting until your dealings are directly affected by new regulations. Our sample clauses could be used as a reference point for those discussions. (The author of this note was asked by a major European client to write a Brexit clause on the Monday following the Referendum in June 2016 for a contract that was then under negotiation. Good planning is key to a successful outcome.)
Bear in mind that a Brexit clause may have implications for other terms in a contract, so those implications and any consequential changes elsewhere in the contract need to be considered and dealt with when the Brexit clause is introduced. This can, in particular, be relevant when a Brexit clause is so worded that it can result in the contract being terminated: a reference to the relevant provisions of the termination clause in the agreement will be needed.
There are four main points to consider for a Brexit clause:
• First, identify the potential risk – this can be either general in nature or specific
• Second, say what happens if the risk occurs – this will usually involve one party notifying the other and then they meet to try to agree a solution
• Third, what happens next: either they agree on a change to the contract or they fail to reach agreement
• Fourth, if there is no agreement, does one of them have the right to terminate the contract or do they carry on and cope with the risk or do they get a third party to decide on a solution?
Our clauses give some examples of different situations. If one of the parties is badly affected by
Brexit and there is no meeting of minds on a solution, giving a party the right to terminate the contract is a fairly drastic solution and needs to be thought through carefully.
The usual dispute resolution clause on the contract is unlikely to be much use as arbitration or a court action is designed to say which party is in the right, not to tell them how to deal with an unforeseen situation where neither is in the wrong and they cannot decide what to do with the problem. Appointing an expert is one possibility – if you are willing to rely on that third party to make the decision for you. Alternatively, you could try mediation, where an independent mediator will help you try to reach agreement.
Legal advice on the use of these sample clause is advised.
Our clauses are divided into 6 sections: General, General with definition of Brexit, Import Duties, Regulatory and Legal, Restrictions on movement of people, and Territory.
• General We have a clause that requires the parties to meet and try to resolve any issues that arise as a result of Brexit. The second paragraph is optional and would allow a party to bring the agreement to an end if Brexit has a material adverse impact on the Agreement.
• General with definition of Brexit Given the uncertainties even a definition of Brexit is not too easy, but we have included one with an alternative generally worded Brexit clause.
• Import Duties. If you are an importer or exporter, how will your contractual arrangements be affected if new import duties or tariffs are imposed? Similarly, how will your agents or distributors in Europe be affected if new tariff barriers are imposed? We have some sample clauses to deal with this, with alternative potential solutions
• Regulatory & Legal- If the rules governing your business activities or products diverge from those in the EU and this has a major impact on your business, you need to be able to deal with the consequences and we have three sample templates. In an extreme case this might mean trade has to stop altogether – e.g. a fish processor whose Spanish suppliers no longer have access to fish stocks in UK waters.
• Restrictions on movement of people– if visa restrictions are imposed on travel between the UK and EU, could it affect technical support services and supply of labour to your business? There are three sample clauses.
• Territory – if you have a contract that assumes you have free access throughout the EU and/or that the UK is part of the EU, will the contract still be effective after we leave? Many contracts have a clause defining the territory covered by the contract – e.g. an agent or distributorship agreement. We have a couple of sample clauses to deal with this.
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