It is clear that it will be many years before the final outcome of the Brexit vote is determined. Nonetheless, businesses with exposure to the UK market will need to start planning for the legal changes that may arise. Such businesses should review their existing contracts and trading arrangements with a view to identifying whether any of the issues mentioned below could affect them. In addition, businesses should bear these in mind when entering into new contracts with UK based parties.
On Brexit the EU’s rules dealing with choice of laws will cease to apply in the UK. This could give rise to questions of interpretation – how will an English governing law clause be interpreted, where the UK was in the EU at the time of contracting but by the time of performance it had left? In addition, so many UK laws currently derive from the EU, many of which will be reviewed and possibly repealed or replaced after Brexit – how will this affect the contract? Businesses should consider seeking to change the governing law clause of contracts, where these currently refer to English law. Likewise it is important to assess carefully what choice of law ought to be included in new contracts.
Some agreements, such as intellectual property licences, commercial agency, distribution and franchise agreements, include specific provisions about the territory in which they apply. Very often such agreements define territory by reference to the EU or the EEA. Obviously when the UK leaves the EU, this will have an impact on the contract and contracts should be reviewed now to see if changes to the definition of territory are required.
Frustration / Material Adverse Change
Many have queried whether Brexit could be give rise to a material adverse change event of default, particularly in banking or loan documentation. Brexit should not lead directly to an event of default, however currency fluctuations could impact on ablility to pay and thus give rise to an event of default. Alternatively it could be argued that Brexit gives rise to frustration of a contract i.e. rendering it impossible to complete. Certainly the referendum result saw initial market volatility undoubtedly impacting on the profitability of Irish dealings in UK markets, and inevitably the next two years will give rise to further periods of instability, which might give rise to an outcome not envisaged when the contract was entered into. Whether or not this would result in a frustrated contract, depends on the circumstances of each case and the wording of the agreement in question.
Businesses entering into new contracts, ought to bear in mind the financial instability resulting from the Brexit vote which will continue until well after the actual Brexit and consider including provisions in the agreement to deal with this risk and to review the terms on the implementation of Brexit.
Post Brexit, M&A deals and other commercial arrangements involving UK parties will become subject to separate UK mergers/competition rules in addition to EU rules, resulting in having to comply with parallel sets of laws in relation to competition and anti-trust.
Changes in UK laws and regulations
As we have seen above, after Brexit steps will be taken to review and possibly replace or repeal laws in the UK which derive from the EU. Many laws will be left intact, but many will not. In time, and depending on the outcome of the Brexit negotiations, the UK may introduce measures to restrict the supply of goods or services into the UK, with similar EU measures arising in relation to supplies from the UK. Also new UK standards (for example in food, pharmaceuticals and clothing) may be introduced giving rise to a requirement to comply with two parallel sets of rules.
The new EU General Data Protection Regulation (the “New DPR”) will come into force in May 2018, at which stage the UK will probably still be a member of the EU and so will be required to implement the New DPR. Even when the UK leaves the EU, UK companies operating in Europe will still be required comply with the New DPR. It is likely that the treatment of the UK as a safe destination for data transfers will form part of the Brexit negotiations and that UK data protection law will continue to closely follow EU law, so as to avoid restrictions on data transfers into the UK being imposed by the EU.
These are just a few of the issues which will need to be considered by businesses that are currently trading or intend to trade with UK parties. Obviously the manner of the implementation of Brexit will have an impact on all of the above and will determine how or if such issues need to be dealt with.