How will Brexit affect commercial contracts? – Part 1

Brexit – EU references in contracts

Whilst the UK left the EU on 31 January 2020, the exact manner of the UK’s future trading relationship with the EU is yet to be agreed. Despite this uncertainty, businesses will benefit from thinking ahead and considering the potential impact on commercial contracts. This is a high priority for those contracts which by their nature, cross the UK-EU border in some way. For example, an English seller supplying products to a business in Spain or an English company offering its products to English customers but doing so in reliance on EU regimes and laws.

In the first of a series of blogs on the effect of Brexit on existing and new commercial contracts, we consider the position if:

• your contract makes reference to the EU, typically as a territory – for example, as an area of exclusivity or by stating that data will not be transferred outside the EU; and/or
• your contract refers to EU legislation – will this still be effective?

EU references in existing contracts

Do references to the EU in a contract continue to include the UK? The answer to this will depend whether the EU is defined as its member states “from time to time”. If so, this strongly indicates that the definition does not include the UK after Brexit. If the definition instead specifically names each country including the UK, then the UK should be covered, even post-Brexit.

If the definition is not clear and simply refers to the “EU” – then the wider commercial background and commercial common sense becomes more relevant and will vary case by case.

Future proofing

Going forward, it would be best to state expressly in each case whether or not a definition of the EU includes the UK or to list each jurisdiction separately. It may also be sensible to deal expressly with other possible changes in the membership of the EU and indeed in the membership of the UK.

References to EU Legislation

EU law will continue to apply in and in relation to the UK until 31 December 2020, when the transition period comes to an end. At that point, most EU law will continue to have effect within the UK indefinitely (but on a different constitutional basis) until the government decides to repeal or amend it. This could lead to changes in the medium to long-term as a result of Brexit. Both TUPE and the Commercial Agents Regulations have been referenced by commentators as examples of EU law the government might look to change but any such changes are likely to take some time and they will continue to apply in the meantime.

Generally, a well drafted commercial contract will include in its boiler plate provisions a clause stating that references to a law include any modification, re-enactment or consolidation of that law. Contracts should be checked for such a provision (now and in the future), particularly if any specific legislation is key to the operation of the contract. In the absence of such express wording, the default position (established under the Interpretation Act 1978) is that references to repealed law are construed as referring to the new law where that new law repeats and re-enacts the older law referred to within the contract. This conversion however has the potential to not always provide a straightforward result. An express provision stating your preferred position – whether you wish to incorporate legislation as it evolves or to have legislative references fixed at the time of signing – is the best course of action.

Later blogs will focus on matters such as Brexit as a force majeure event, the impact on data transfers, jurisdictional issues and new burdens when operating contracts.

To discuss this blog or any other commercial contract query, please contact Emily Sadler.