The Impact of Brexit on Commercial Agreements

How could you be prepared to the effect on trade relations between the UK and the EU State Members before the adoption of the future Brexit deal ?

As an entrepreneur you must be aware of any scenarios such as:

- the significant increase of the cost of the contract due to the potential reintroduction of customs duties
- the risk of exchange rate fluctuations,
- the potential cases of contractual non-performance caused by the impossibility of delivering certain products or by the extension of delivery times.

This commercial impact of Brexit will necessarily have legal consequences unpredictable by the contracting parties at the moment of the conclusion of the contract and will be likely to disrupt its general economy.

How to behave during Brexit with your co-contractors ?

You may be faced with the following issues :

Could the contracting party for whom the execution of the contract has become particularly disadvantageous force its partner to renegotiate the contract?

Or could he decide, regarding the impact of Brexit, to terminate the contract unilaterally?

On the other hand, will the contracting party who finds himself, completely involuntarily, in breach of his contractual obligations risk the termination of his contract by his partner?

How to get ready?

It is first necessary to analyze the content of the contract, the clauses that have been inserted into it. Traditional renegotiation or exit mechanisms may allow the contract to be renegotiated or terminated. For example, the contracting parties may have inserted a contingency clause, a Material Adverse Change (MAC) clause, a force majeure clause or specific clauses providing for the possibility of renegotiation/termination in the event of a specific event (exchange rate variation, change in regulatory framework, etc.).

There is also a “Brexit clause”, authorising the renegotiation or termination of the contract in the event of Brexit. The advantage of using a contractual mechanism is mainly that it could allow an amicable renegotiation of the contract. It will then be necessary to ensure that these clauses can effectively apply to the Brexit situation.

Depending on the wording of the clause (in particular for contingency, force majeure or MAC clauses), it will be necessary to demonstrate that the event allowing the clause to be activated was unforeseeable at the date of conclusion of the contract. For the contracts concluded before the 23rd of June 2016 it will be easier to demonstrate it.

In any case, it is important to remind that it will always be possible to rely on classical legal remedies in order to rebalance the relations between the parties.

How can we help you?

We speak your language. If you would like more information or have any questions, please do not hesitate to contact us directly. Contact us, we would be happy to assist you in any way we can.