The UK has long been regarded as a springboard for businesses headquartered outside of the UK into the rest of Europe as well as a natural market for other European businesses to expand into. Many inward investors from outside Europe choose, at least in the early days, to service the rest of Europe from the UK. The English language and business culture together with fewer constraints on commerce and a highly skilled workforce make the UK an attractive place to do business. With the right planning - including specialist, co-ordinated advice at an early stage - the majority of all of the legal work needed to get started in the UK can be done quickly and inexpensively.
Taken from "Check-in UK", our concise guide to setting up and doing business in the UK, the following article examines the issues to be aware of regarding contracts and commercial arrangements.
Contracts and commercial arrangements
When entering the UK market, international businesses will need to consider what approach they wish to adopt in relation to their contractual arrangements. Whether they contract under online terms with consumers or businesses, small print terms attached to purchase orders or invoices, or traditional "wet" signatures on formal agreements, the bottom line is that changes will be needed to protect the business as it expands into the UK.
Choice of law and jurisdiction
While it may be attractive to the international business to keep contracting under their own governing law, many UK and EU companies will resist this approach. As such, adapting sales contracts so that they are governed by English law can smooth the sales process in the UK and EU.
As in other parts of Europe, certain types of agency appointments and arrangements are protected under English law and can provide the agent, regardless of contractual arrangements, with the right to claim commission on expiry or termination. Overseas businesses should seek specific legal advice on the terms of these agreements so that they understand the implications of entering into such an agreement and can take steps to mitigate this risk.
Under EU and UK competition rules, certain agreements restricting competition are void. This can lead to fines and the relevant clauses – and perhaps the whole agreement – can be found to be unenforceable. It is important to take advice if you are seeking to fix resale prices and/or impose an export ban on a distributor within a specific territory, for example.
Key legal considerations
Existing commercial contracts of an international business can be a good starting place for those to be used by the UK entity. However, such contracts typically contain terms that cannot be enforced in the UK, and should be reviewed and updated to ensure they comply with English law. Changes around limitation of liability, warranties and certain limited IP provisions can be typical to ensure the agreement complies with and is enforceable under English law. Such changes aside business-to-business contracts allow businesses to negotiate the terms that suit them without much interference from statute.
Regardless of the law and venue agreed, when dealing with UK or EU parties or performance of a contract in the UK or EU, certain local "mandatory rules" will apply and often override what the parties have agreed. The mandatory rules in each country will be different, so businesses should consider getting local counsel to review any high value or strategically important contracts which are not governed by the law of the market in which the customer is based.
When enforcing the terms of a contract, international businesses may find it easier to obtain and enforce a judgment against a contract governed by English law rather than enforce a judgment obtained in an overseas court for which no mutual recognition treaty with the UK exists.