Commercial contracts

1 July, 2016

The current situation:

English commercial law is widely considered to be one of the best, if not the best, in the world. Underpinned by a fundamental principle of freedom of contract, the main pillars (offer, acceptance, consideration etc) have been unchanged by our membership of the EU.   However, EU legislation is very relevant to a large number of commercial agreements, so the implications of Brexit will need to be considered now, and further focussed on, as it becomes clearer what the process for exiting the EU will be.

 

What might change?

What will change and how it will change is difficult to know at this stage as so much depends on how Brexit works and what a post Brexit Europe looks like. Contracts will remain in force as drafted as the result of the referendum itself changes nothing unless a contract specifically dealt with this issue. However if contracts, for example, define territories by reference to the EU (as is frequently the case with licences, distribution and franchise agreements) then the UK may need to be added separately. Contracts with provisions which are driven by EU law, such as data protection, consumer protection, agency and competition for example, will need particular attention paid to them as it becomes clearer over time how the mechanics of Brexit will affect these areas of law.

 

What impact could this have on UK businesses?

The impact on commercial contracts generally should be limited, but reviewing and potentially amending contracts to provide for even small changes which may be required could still be a time-consuming process for businesses, and every re-visiting of contractual terms gives the opportunity (or threat) of a challenge to the price and other key commercial terms.  Specific business sectors though, including tech and media, healthcare, food, financial services and property, may have their own particular concerns.

 

What you need to be thinking about now:

As lawyers, we recommend you review your contracts on a regular basis anyway, to ensure they are giving you the right protection as the law and your business needs change over time. So if you haven’t done this in a while, then now might be a good time to do this even if you don’t have major concerns about the implications of Brexit on your trading arrangements. Provisions could be added to give more options (price variations, exit rights, adapted force majeure/hardship clauses) in the event, for example, that the economic situation materially worsens or if currency fluctuations, the price of raw materials, staffing or changes in the application laws or regulations, makes a contract economically or practically unworkable. And, any businesses looking to put in place anything other than short term contracts would be wise to consider building in this additional flexibility.

If you have a query about any aspect of commercial contracts, please contact Pete Kenyon at pete.kenyon@crippspg.co.uk.