The Trade and Cooperation Agreement (TCA) between the leaders of the European Union and the United Kingdom was announced by fanfare on 24 December 2020.
This agreement avoided the “no-deal” Brexit and marks an important change in the UK’s relationship with the EU. The TCA agreement has become to be seen as a skeleton agreement with many of the finer details of the new post Brexit between the EU and UK to be agreed.
Although some of the finer detail is awaited, businesses can and should take steps now to ensure that there are plans in place to ensure that commercial contracts (such as supply of goods and/or services, distributor, agency, outsourcing, franchise and computer agreements) are fit for purpose and do not leave them exposed.
There are various reasons why commercial contracts might become unviable as a result of Brexit. This could be as a result of:
- trade tariffs;
- currency fluctuations;
- changes to taxation; and
- restrictions on the free movement of persons.
The effects of Brexit on commercial agreements by itself will not usually provide businesses an automatic right to terminate commercial contracts. Because of this businesses might find themselves stuck in contracts which have onerous terms, tariffs, and mean that commercial agreements are no longer commercially viable.
Businesses should therefore review all existing agreements and future agreements for the following:
Brexit may constitute a force majeure event, allowing one or both parties additional time to perform their obligations, a defence against claims for non-performance, and even the right to terminate the contract. Whether Brexit constitutes a force majeure event, and the effect on the contract if it does so, will be dependent on the wording of the clause.
If Brexit renders performance of the contract impossible, illegal or radically different to that which was contemplated at the time of entering the contract, the contract may be “frustrated” and come to an end. But the doctrine will not apply solely because it is difficult or not financially viable to perform the contract in question.
Contracts may include specific clauses to address one or more consequences of Brexit, for example:
(1) Clauses specifying who is responsible for tariffs imposed, the extra costs of customs paperwork, or delays at ports. It’s worth noting that the UK’s trading relationship with countries other than those in the EU has also changed, and new tariffs could arise on trading with non-EU countries.
(2) One or both parties may have a specific right to seek to renegotiate, or even terminate the contract, as a result of changes arising from Brexit.
The GDPR has now been incorporated into UK law, and imposes essentially the same obligations on businesses as before Brexit. However, as the UK is outside of the EU, transfers of personal data by businesses in the EU to those in the UK will be subject to the same restrictions as apply when transferring data to other non-EU countries.
At the moment, the UK is in temporary grace period, whereby the UK is treated as if it were inside the EU for the purpose of data transfers between the EU and UK. This allows data to be transferred freely between the EU and UK, without “additional safeguards” being required. This grace period lasts until at least 30th April, and may be extended to 30th June 2021. In the meantime, the EU is considering whether to grant the UK “adequacy status”, which would permit data to be transferred from the EU to the UK without additional safeguards. If the EU does not grant the UK adequacy status before the end of the grace period, businesses transferring data from the EU to the UK will need to put in place new agreements to implement additional safeguards, such as the EU’s standard contractual clauses for data transfers.
Reviewing commercial contracts now will give businesses the chance to consider the consequences potentially triggered by the above, and ensure new contracts address the changes brought about by Brexit.
Our team can advise businesses in respect of the effect of Brexit on commercial agreements. The above is only a summary and is not intended to be specific legal advice. If you need any advice on the effect of Brexit, please contact a member of our Corporate Team.
Andrew Cooper (email@example.com – 01284 717511)
Simon Ratcliffe (firstname.lastname@example.org – 01284 717426)
Neil Walmsley (email@example.com – 01284 717416)
Mark Daly (firstname.lastname@example.org – 01284 717500)
Mark Whittaker (email@example.com – 01284 717513)
Jonathan Hewett (firstname.lastname@example.org – 01284 717412)