In our work with international companies supplying goods to the UK, we see a number of common issues arising regularly. In this second of five articles based on the five elements of the Wu Xing, we take the theme of Wood, the symbol of early childhood and spring, reminding us of the need to start well and plan ahead for future uncertainty.
Wood: lay a strong foundation with a clear contract that protects you from uncertainty by allocating Brexit risks in your agreed terms
The UK may leave the European Union (“EU”) on 31 October 2019. The exact nature and therefore impact of this so called “Brexit” are uncertain, and the political situation remains very fluid. That said, clients can take steps now to allocate certain risks in their contracts and terms of business.
We recommend that - when entering new supply or distribution contracts or reviewing or renegotiating existing terms of business between now and Brexit - clients consider:
Whether any references to territory are clear (for example in an exclusive distribution agreement). Does a reference to the EU include the UK or not? Does a reference to “EU law” cover how such law is to be applied and interpreted in the UK after Brexit?
Whether they will be able to vary prices in the event of increased customs or other tariffs or taxes?
Who is responsible for customs clearance and consequent potential delays in delivery times?
What regulatory requirements the goods must satisfy (in the event of divergence between the UK and EU) and who is responsible for conformity assessments? Consider if the use of UK or EU components might have an impact on rules of origin for tariff purposes.
In relation to existing contracts, Brexit or its effects may trigger a renegotiation clause or a force majeure clause or may even amount to frustration of the contract (if performance becomes impossible). The English Court dismissed a frustration argument in the recent case of Canary Wharf v EMA 1 showing that each case will be very fact specific, so we recommend advice is taken before ceasing to perform under any contract.