Why food and drink businesses should review their contracts in light of Brexit

28 February, 2019

 

The food and drink Industry will be one of those potentially most affected by Brexit, particularly if we leave on 29 March without a deal encompassing a transition period and future trade agreement.  This blog looks at what practical steps food and drink businesses could take in respect of their commercial contracts to prepare.  

 

Review of existing contracts

We anticipate an increase in contract disputes following Brexit as parties seek to terminate or re-negotiate existing terms so it’s advisable to be prepared for this.  We recommend that businesses review their existing key contracts to identify any risks and opportunities.  Consider in particular:

 

Territories

Which of your contracts involve parties, products, parts or ingredients from the EU?  Could the contract be affected if people are not able to move freely between the UK and the EU? Does the contract refer to the EU? Will this include the UK post Brexit?

 

Term of contract / review or renewal periods

There may be more risk with longer term contracts.  Consider whether to approach your counterparty to amend the term or review period.

 

Price

Try to calculate the impact on costs of the current and potential effects of Brexit e.g. due to market volatility, above average exchange rate fluctuations, changes to customs procedures and import and export tariffs, delivery costs, insurance, or changes to labelling requirements.

Establish who is responsible for each of those increased costs under the contract.  Does the agreed price for the goods include duty for example?

 

Timing

Delays at borders are likely if new customs formalities affect movement of goods – who is responsible in the contract for failure to meet delivery dates or service levels?  Are your customers/suppliers prepared? 

 

Termination provisions

It depends on the drafting of the particular clause, but it is unlikely that Brexit will constitute an event of Force Majeure (“Act of God”), even if performance of the contract is now unprofitable for one of the parties.  Are there are any other termination clauses which could be invoked such as a “material adverse change” or “hardship”, allowing termination if there is a significant change of circumstances for either party? 

If a contract can be terminated, this may give the opportunity to renegotiate a new one.  However, consider all likely implications as well as notice requirements before attempting to terminate a contract, as wrongly terminating could result in a significant claim in damages.

 

Insolvency

What if your supplier or customer becomes insolvent?  Can this trigger termination? Is there a parent company guarantee?

 

Negotiating new contracts

Flexibility will be the key here for contracts being negotiated and signed before the shape of Brexit has been determined. See here for more information in respect of possible Brexit clauses to include. https://www.crippspg.co.uk/brexit/brexit-clauses-an-update/

For more information, contact Gemma Pearmain on 01892 506229 or gemma.pearmain @crippspg.co.uk or visit www.cripps.co.uk.