Whilst the June 23rd vote does not immediately change the UK’s legal position within the EU, we are now set on a course. Departure from the EU occurs through the triggering of Article 50 of the Lisbon Treaty. We do not know when that trigger will be pulled, but when it is, a two year clock will start to run towards the UK’s exit from EU membership.
The process leading to formal exit will lead to some areas of uncertainty, but it may also bring about new opportunities. Forewarned is forearmed and, by assessing the position now, identifying potential opportunities and planning to mitigate risk, you can put your business in the best possible position to respond and gain an advantage on the competition. Whilst many are making sweeping, generic statements, the truth is that no one knows precisely what will happen, or what will replace the current arrangements with the EU, and, likewise, a one size review will not fit all: the likely impact on you depends on your own structure, people, relationships and contract terms.
But you can take steps now to assess the potential impact on your business. You can help to control the situation by reviewing your contractual relationships and, potentially, by looking to renegotiate certain points which may be impacted by future changes as a result of Brexit, to remove or reduce potential risk areas.
Key questions that you may wish to consider include:
- Are you committed to long term agreements which implicitly assume the status quo, which are likely to span formal exit from the EU, and which may, therefore, present ticking time-bombs?
- Do your agreements refer to defined “Territories” which contain references to the EU (particularly distribution, agency, licensing, franchising and joint venture agreements)?
- Do they rely on, or make reference to, obligations under EU Regulation, or rely on the continuance of the EU in its current format, with the UK as a member?
- Can they still be interpreted in a clear and sensible manner following formal exit from the EU? Or is there room for ambiguity, doubt or debate?
- Conversely, are any key contracts, particularly with EU counter-parties, due for renewal? What happens on the expiry of the initial contract term: do they expire as a matter of course, roll-over for a new period, or is service of some form of notice required? How are your counter-parties going to approach renewal negotiations? Might it be preferable to bring forward renewal discussions, or put in place contingency arrangements at this stage?
- Have you entered into agreements which run more than two years into the future with fixed pricing? How might these be impacted by changes in taxes and tariffs?
- Is your pricing and payment structure likely to be impacted by foreign exchange issues?
- Are your contractual dispute resolution provisions sufficient to provide you with an effective remedy in the event of non-payment, or breach, by an EU counter-party? Do you have clear choices of the law governing the contract and jurisdiction (where disputes will be resolved)? Will these provide you with a binding remedy that can still be enforced in any EU jurisdiction where your counter-party, and its assets, might be located?
- Might any of your key suppliers, or others further up the supply chain, face cash flow or resourcing pressures as a result of current events? Will the exit vote threaten supply chain continuity? What can, and should, you be doing now to mitigate such risks and ensure continuity of supply?
- Are any of your current arrangements unprofitable, or delivering an unacceptably low margin? Might your supplier or customer seek to use the Brexit vote to terminate, or renegotiate, those arrangements? How can you best prepare yourself for such a situation? And might you turn the situation to your own advantage, using it as leverage to terminate, or renegotiate, current terms?
- Do any key contracts contain express provisions dealing with Brexit, for instance providing termination rights? Or material adverse change provisions, which could be deployed in the current climate, or which may be triggered by future events? Would there be scope for argument that force majeure provisions are applicable, or that the contract has been frustrated as a result of the Brexit vote and process?
- How should you deal with current contractual arrangements which do not provide for, or even contemplate, changes and challenges arising as a result of Brexit?
- Do you have branches, offices or other types of presence in other Member States?
- Even if you do not have any cross-border trading relationships, is your business reliant on EU nationals? How will they be impacted by future changes?
- Do you know how your competitors would respond to these questions? Are they in a stronger, or weaker, position than you? How does their operating model differ to your own? Where might this provide you with an opportunity to advance your own strategy to exploit any weaknesses, and where might you need to protect your position?