Brexit may result in cross-border commercial trading arrangements being significantly impacted, for example, if additional tariffs or customs arrangements are imposed on goods being imported from or exported to the UK which make the arrangements uneconomic, or if Brexit results in a change of regulatory regime applicable to the arrangements.
Commercial contracts (both existing agreements and those negotiated between now and Brexit, particularly with UK suppliers and customers) should be reviewed for certain Brexit-related risks:
- Force Majeure, termination rights – review the Force Majeure clause (the one that talks about war, flooding and acts of God) to see if it is broad enough to potentially include Brexit. Broad Force Majeure clauses with language like “any event beyond a party’s reasonable control” may allow a party to stop performing under the contract after Brexit in certain circumstances. For new contracts being negotiated, consider including clauses explaining how the parties’ arrangement will change if a certain type of Brexit occurs, i.e. the UK leaves the EU single market and/or customs union without a free trade agreement that covers the goods or services in the contract. In some cases, you may simply want the right to terminate the contract in the event of a Brexit scenario which results in additional tariffs or regulatory requirements being imposed.
- Taxes clause – Review the taxes clause of your contracts. In the event the UK leaves the EU customs union, and/or the single market, new tariffs and VAT charges may apply to goods and services imported from the UK into Ireland and from Ireland into the UK. You should seek to understand how these tax changes will affect your business, and who is liable in your contracts for increased tax costs.
- Choice of law / jurisdiction – review the choice of law and jurisdiction clauses. Many commercial contracts (even those between non-UK parties) list English law as the law of the contract and give English courts exclusive jurisdiction over contract disputes. Going forward, parties that want to apply the law of a common law, EU, English-speaking country will need to choose the law of Ireland. In addition, you should think carefully before giving exclusive jurisdiction to English courts, because it is unclear how judgments of UK courts will be enforced outside the UK after Brexit. Ideally, reciprocal judgment recognition arrangements will be agreed in the Brexit negotiations. If that is not the case however enforcement of UK judgments in Ireland (or vice versa) might become more difficult. In other words, you might win a case against a defendant in an English court, but if all the defendant’s assets are outside the UK that award could be difficult to collect.