As you are undoubtedly aware, the UK currently plans to leave the EU on the 29th of March 2019 (“Brexit”).
At the time of writing, there isn’t yet clarity on which of the various leaving scenarios will be adopted, or whether there will be a delay to the departure date.
However, irrespective of which scenario is adopted, there will be a range of contractual implications for companies with business relationships covering the UK, the EU and the rest of the world.
These impacts could range from the relatively trivial right through to existential threats to a business.
Essentially, every business contract will need to be reviewed against a number of criteria to assess whether Brexit necessitates changes to wording, business practices, compliance requirements or even leads to contracts having to be terminated.
As such, they need to be addressed in meticulous fashion and the risks of certain future scenarios weighed up.
Key to this process will be that businesses have:
- Access to up-to-date, complete contract records for all agreements. If contracts are missing or in a variety of formats, this will make the job of reviewing them that much harder.
- Accurate contract metadata, allowing for easy search and categorisation, eg to show all contracts relating to European businesses, or particular business units.
If both of the above are in place then the next steps become much easier. If not, then first a process of contract gathering and centralisation needs to happen.
Once this is complete, the contracts themselves can be reviewed to determine the impact that Brexit could have.
What specific areas should the review focus on?
The following five points represent some of the areas that should be reviewed as matter of priority. It is by no means a comprehensive list and legal advice should always be sought.
1. Clauses containing references to “the EU” or “the European Union”
This is a simple place to start. As and when the UK leaves the EU, this change in status should necessitate a review of any contract that makes reference to the EU and your business’s relationship to it.
- Can the contract continue in its current form?
- Will a simple rewording be required?
- Does the contract need a deeper review based on the relationship of the business to the EU.
2. Other clauses such as “Force Majeure”, “Change in law”, “Governing Law’ and “Termination Rights”.
The UK leaving the EU will trigger significant changes to the global economical and political landscape.
As such, it may mean that certain clauses are applicable or become relevant. This is all about the wording of those clauses and the implications of a change in legal jurisdiction.
For UK businesses, where previously a contract may have been subject to EU law, that same contract may include provision to transition to UK law or may require rewriting.
Another consideration could be whether the event of Brexit can be leveraged by your business or your business’s counterparties to justify terminating an unfavourable agreement?
Checking the precise wording of Force Majeure, Change in Law and Termination clauses might create opportunities or risks for contracts being terminated.
In extreme cases, the UK’s departure from the EU could make current working arrangements prohibitively onerous, in which case contractual obligations and termination clauses will be even more important than usual.
3. Data Processing & Management.
By splitting from the EU, the UK will then represent a separate territory for data processing purposes and companies will have to take remedial steps to ensure they can continue to legally process the data that they hold on their customers and business partners.
GDPR will continue to apply to UK businesses, despite Brexit, where businesses offer goods or services to EU countries or a UK business processes the personal data of persons located within the EU.
However, for UK companies which would now sit outside of the EU, they will be required at least to update privacy policies and may also be required to change their structure and working practices.
Similarly, for countries outside of the EU that previously did business with both the UK and the EU, they will now have additional legislation to consider when managing data belonging to their counterparts.
While UK legislation and the GDPR will likely be aligned to begin with, there’s every possibility that over time they will diverge, leading to further contractual and compliance considerations.
Clearly the UK and the EU already have different currencies but the wider impact of Brexit is likely to result in currency fluctuations.
Already, announcements about Brexit deals, parliamentary votes and postponements are enough to trigger currency swings, particularly in GBP.
As and when Brexit comes to pass, it is likely to lead to significant uncertainty around the UK economic future and that will likely lead to further, more severe fluctuations.
If a business’s contracts stipulate payment in a particular currency, this could become costly if that currency loses value or changes significantly in a short space of time.
Similarly, some contracts have made provision for renegotiation if currencies move by a certain percentage. While this may result in more acceptable terms, there may still be costs incurred for legal consultation and redrafting.
It’s key to review contracts for clauses and arrangements relating to currencies and then to anticipate what the consequences could be if particular currencies move significantly in either direction.
5. New and Renewing Contracts
All the items above should also be considered when drafting new contracts. With Brexit likely in the near term and then further legislative changes to follow, making provision for various different scenarios in contracts should be front of mind.
For example, will potential future changes to indirect taxes such as Customs Duty and VAT need to be factored in to how the contract is worded?
Naturally, the same considerations should be made for contracts approaching renewal.
Now is not the time to simply let contracts auto-renew without due consideration.
It’s vital to have a clear view of upcoming renewals, so that there’s sufficient time to assess the current contracts and plan for future arrangements.
The exit of the UK from the EU will have wide-reaching consequences for businesses, citizens and governments.
Businesses seeking to minimise risks and capitalise on opportunities presented by this change need to have a forensic understanding of their contracts.
They will also need to deploy legal resources to assess the implications and to outline any threats posed by this upheaval. Naturally, there will be costs associated with this so making the process as efficient as possible is vital.
Using contract management software to store, categorise and report on all your contract agreements, can speed the process up exponentially as well as making future changes and ongoing compliance more straightforward.
Further Information Sources
The UK's data protection authority (the “ICO”) has also published guidance for UK businesses and SMEs on preparing for a no deal Brexit. This includes a 'six step' plan, broader guidance, FAQs, and an interactive tool to help assess whether standard contractual clause are an appropriate data transfer solution.
The UK Government has released business advice guidelines for no Brexit that apply to UK businesses, which are worth reading.
For specialist legal advice on GDPR, SaaS and cloud computing, contact Bodle Law.