Contract considerations for the end of the Brexit transition period

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03 November, 2020

Since the publication of our earlier article highlighting key aspects of contracts which should be considered in light of the forthcoming end to the Brexit transition period (https://www.forbessolicitors.co.uk/news/47169/brexit-preparing-for-the-end-of-the-transition-period), negotiations between the UK and EU have continued. There is, however, no agreed deal and despite the EU's chief negotiator Michel Barnier telling the European Parliament recently that "an agreement is within reach if both sides are willing to work constructively", it remains likely that a deal will not be agreed in time.

Nevertheless, given the disruptive implications of Brexit, in whichever form that takes on 31 December 2020, all UK businesses who trade with suppliers or customers based in the EU (or other country with whom the EU has a trade agreement) are advised, if they have not done so already, to review existing affected contracts and consider the consequential impacts of Brexit.

Many contracts are unlikely to contain adequate provisions to deal with the potential adverse consequences of Brexit. For example, most contracts have been written on the basis that the UK is a member of the EU, that goods and people can move freely and without tariffs, and there is regulatory alignment, and this will not be the case from 1 January 2021.

In addition to the points highlighted in our earlier article, we advise businesses to consider how their existing contracts will protect them in relation to the following areas post Brexit:

  • Tariffs: tariffs will apply to many goods imported into the UK so it is necessary for contracts to clarify how such tariffs shall be calculated and who shall be responsible for paying them.
  • Delay: border checks will be required to ensure that tariffs or duties are paid and that goods meet required standards. The introduction of the new checks is likely to cause significant disruption. In fact, the UK government has estimated that the worst case scenario is that 40%-70% of lorries will not be ready for new border requirements. All businesses need to be aware of the impact of delay, and to consider in contracts whether time is of the essence for the supply and delivery of goods, whether any termination rights can be exercised in the event of delays due to border checks, and whether any damages would be payable due to the same.
  • Contract contents: references to EU bodies, laws, standards and regulations will need to be amended.
  • Exchange rate: the UK's exchange rate is likely to be more volatile around the time of the end of the transition period, and there may be long-term implications too. As a result, businesses should ensure they are contractually protected from fluctuating exchange rates.
  • Staff: if the ability of a party to perform contractual obligations depends upon its employees working in the UK (for EU suppliers) or the EU (for UK suppliers), businesses need to consider the pending changes to immigration rules, travel restrictions and work visas.
  • Termination as a result of Brexit: businesses should consider to what extent suppliers or customers are able to terminate contracts for reasons related to Brexit.

For businesses looking to amend contracts to deal with the consequences of Brexit, it is advisable to start this process as soon as ever possible to ensure they can be finalised before the end of the transition period.

For more information contact John Pickervance in our Commercial department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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