The full implications of “Brexit” are not yet known. The Government has choices and decisions to make in respect of our exit approach which will dictate what our relationship with the EU (and Europe generally) will actually become.
The uncertainty over trade is likely to continue for some time. The UK will have to start EU withdrawal negotiations, negotiating a new trade agreement with the EU, potentially negotiating with the World Trade Organisation (WTO) and reviewing which legislation derived from the EU we wish to keep and which we do not. This is a large task which will not really start until the new prime minister is in place.
Formal withdrawal negotiations start when notice is served under Article 50 of the Lisbon Treaty. Once notice is served, likely after the new prime minister is selected, the EU Treaties cease to apply from two years after the notification or possibly earlier, if the withdrawal agreement is concluded before then. So the existing rules for trading are likely to continue to apply until towards the end of 2018.
Parties should nonetheless start considering how the referendum result may affect their existing contractual relationships and plan accordingly. The result itself may not have an impact on existing contractual relationships now, but it may do so when the effects of Brexit become clearer. Any new contractual arrangements must be considered against the background that the UK will likely be leaving the EU at some stage by the end of 2018.
Potential issues to consider when reviewing existing or future contracts could include:
- Do they contain specific references to EU territories, laws or regulators?
- Can existing contracts continue to be performed in the manner originally contemplated?
- Could Brexit constitute force majeure or frustrate the contract?
- Could additional tariffs or export or import costs arising due to Brexit render the contract uneconomic to perform on current terms?
- Can the contracts be amended to reallocate any risks?
- Can existing contracts be terminated as a result of Brexit?
- What is the impact of Brexit on your suppliers and customers, and will this affect your business?
- Which rules will govern the choice of applicable law for your contracts?
- How will existing contracts be interpreted?
As well as challenges, there should be opportunities which businesses should be considering, to take advantage of the effects of Brexit.