As at the date of this article, the British Government has produced some 196 guidance notes on preparing for a no-deal Brexit, covering matters as diverse as manufacturing, employment, recognition of seafarer certificates, maritime security notifications, and fisheries. The full list is available here.
This article highlights some of the key points that marine businesses should consider in respect of their commercial legal arrangements in order to prepare for Brexit.
Impact on suppliers and customers
Suppliers will, naturally, be considering how events may impact on them and their supply chain. Some of the potential impacts of a ‘hard’ Brexit are, by now, well-rehearsed, but include:
- Changes to arrangements for freedom of movement of workers, and freedom to provide services
- Trade tariffs on imports or exports
- Changes in the law
- Changes to licences and consents, both within and outside the EU
- Changes to currency exchange rates
- Other financial factors, such as changes to consumer spending or borrowing costs
These factors may well influence the profitability of key commercial agreements, or even make it impossible for businesses to perform their obligations under those agreements at all. The risk of not ensuring that commercial arrangements address Brexit is that the parties will be required to continue to perform their obligations in full, even if doing so has become commercially unattractive or impossible as a result of Brexit-related events. This may lead to breach of contract, claims for damages and termination for default. While it is open to parties to argue that in such circumstances a contract has become “frustrated” as a result of Brexit (i.e. impossible to perform), it is difficult to guarantee that this will be the case and a safer course is to address key concerns now.
Will current contractual arrangements provide any reassurance?
Many businesses rely on standard form terms and conditions including clauses which may already offer some comfort. For example, supply agreements (standard form or otherwise) sometimes contain a force majeure clause, which states that a party may be excused a breach of contract where the breach is caused by a factor outside their control, which has made performance of its obligations impossible. However, unless force majeure clauses specifically reference Brexit, they may not be particularly helpful. This is because an event is only outside the control of a party if the party has taken all reasonable steps to avoid its operation or mitigate its results. If Brexit was a possibility when the contract was entered into, it could be argued that the parties could (and should) have planned for its effects.
Such contracts may also have material adverse change clauses, allowing a party to walk away from the contract if they suffer some form of detrimental effect, which may potentially offer a degree of comfort.
What changes should businesses be considering?
Businesses will need to consider a range of additional commercial factors when agreeing contractual arrangements, such as the inclusion of a ’Brexit clause’ into standard terms and conditions and bespoke contracts to cater for specific identifiable issues that might arise. A Brexit clause will commonly work by identifying a trigger event such as a particular change in the law, and then either give the parties the ability to renegotiate some or all of the contract, or terminate it in its entirety. Alternatively, it may seek to specifically apportion risk of such a circumstance occurring to a particular party.
The incorporation of a Brexit clause within commercial contracts will not guarantee that a commercial arrangement will be “Brexit proof”. However, it is a measure that can be adopted to potentially mitigate some of the effects of Brexit.
This article outlines the position under UK law. The legal position may well be different if contracts are to be interpreted in accordance with the law of other jurisdictions.