The Impact of Brexit on Commercial Contracts

While Brexit terms are still being discussed, law firms should prepare for the aftermath with a proactive approach and diligent planning. A vital part of this should include impact assessments for commercial contracts.

In this current state of uncertainty, it can seem like there are an endless amount of risks to consider. The best practice, therefore, should be to begin contingency planning as soon as possible. Understanding the exact obligations for all contracts is crucial to assess the impact of Brexit and formulate any risk mitigation strategies.

In this article, we examine the main contractual terms that could be affected by Brexit; exploring how legal tech will help with the transition.

References to EU Legislation

Any contract where parties have warrantied compliance with EU rules could prove problematic. Theoretically, most EU legislation is likely to cease in the UK.

At the time of writing, UK laws that were originally introduced for EU legislation compliance will be maintained. However, problems with this could still arise in specific sectors. This includes Financial Services: an industry heavily regulated at the EU level.

To restrict these initial issues, Parliament passed the UK Withdrawal Act 2018 (the ‘Great Repeal Bill’), which converts any existing EU legislation into domestic law ‘wherever practicable’. This Act ensures some initial post-Brexit continuity in the operation of commercial contracts containing EU legislation references. Any such obligations will continue to operate in the same way under domestic law.

However, uncertainties may still arise in circumstances where any converted EU law references a non-UK authority as an arbiter of the rules established in the contract. Responsibilities could be adopted by the equivalent entity in the UK, but this is not always practicable or possible.

It is also worth noting that any EU legislation adopted under the UK Withdrawal Act is likely to be amended post-Brexit.

Territorial Restrictions

Many types of commercial contracts (including Service Agreements, Distribution Agreements or License Agreements) are likely to contain specific territorial restrictions. Unless expressly mentioned, the UK may not be included.

Additionally, any reference to ‘the EU’ or ‘the member states from time to time’ will no longer cover the UK. Therefore, the rights and obligations of one party may be different from when the contract was drafted.

It could even mean that the parties no longer feel that the contract is economically viable or produces a desirable outcome. In this circumstance, parties should review their definitions and determine whether Brexit fits within the parameters of their Force Majeure clauses.

Ultimately, any post-Brexit interpretation of territorial restrictions will be based on the construction of the agreement. However, businesses can avoid this uncertainty by reviewing their contracts now, to understand their position better.

Preparing For Brexit

It is vital to know exactly what your commercial contracts contain to ensure you are in the best position after Brexit. However, with potentially hundreds or thousands of documents, reviewing each one manually can be an incredibly time-consuming and costly exercise.

Using Summize, you can bypass this problem. Using industry-leading technology, Summize will read any contract and provide a summary in an interactive format.

We understand the difficulties of searching individually through vast amounts of complex contracts for specific information. Therefore, our ‘Clause Builder’ function allows you to search through all of your contracts at once for customisable contract terms.