How to get your contracts ready for Brexit

Goodbye BritainBusinesses are having to plan around the Brexit/Trump effect. Do you continue with EU suppliers & customers and maybe have tariffs on your EU business? Do you build up your UK base to avoid tariffs? Will Trump put a trade deal with Britain at the front of the queue or the back?

Now is a good time to revisit your contracts to make sure they’re Brexit and Trump proof.

Factor in Brexit & Trump

It’s too early to tell if Trump will stick to all his campaign promises. Also, no one knows what Brexit will actually mean to business. Apparently, not even the government has a clue what to do 5 months after the referendum. [UPDATE: that doc was nothing to do with the government and it definitely does have a Brexit plan so what’s all the fuss about?]

It’s difficult to have a plan for Brexit when the government doesn’t(/does/who knows?)

This makes it difficult to plan for Brexit when the government doesn’t have one but you do need to have some kind of strategy. Remember, Brexit won’t change English contract law as it was never harmonised in the EU. You should consider the following issues:

  • Quality of supply – if raw materials or services become more expensive, can you change them?
  • Place for delivery – who delivers where, particularly if we leave the single market
  • Delivery timings – can you absorb delays through a new customs regime?
  • Currency – GBP or EURO? What if the currency fluctuates wildly?
  • Payments – can you renegotiate the price if everything becomes cheaper / more expensive?
  • Who owns the IP? Is it better kept in the UK or EU? Does it matter?
  • KPIs & SLAs – are they achievable after Brexit? Are service credits really a good idea?
  • Warranties & indemnities – do these need to be more detailed now?
  • Limiting risks & liabilities – are your risks greater due to Brexit? Have you managed these in the contract?
  • Force majeure – what if the Brexit negotiations go sour and your employees have to leave the UK?
  • Change in legislation – if the UK introduces a whole raft of new laws can you adjust your contract terms?
  • Ending the relationship – how, why and when? Is a bad Brexit deal a good reason to terminate?
  • Managing the exit – handover or clean break?
  • Choice of law – English, French, German?
  • Choice of courts – same as the choice of law or somewhere else?

Review your contract as a whole

You need to factor in Brexit to your contract. You do have a proper written contract, don’t you? English law is flexible. The agreement you made by a handshake on the golf course is enforceable. So is the one you made via email. Even variations you made over the phone. But the details are often difficult to prove and can take time and money to sort out. And what happens if you were on a French golf course at the time?

You do have a proper written contract don’t you?

It’s best to get everything in writing. Look at your contract. Did you “cobble together” your standard terms from various different contracts? Did you “find them on the internet”? Did you draft them in the year 2000?  I’ve heard all these and my advice is to start over with a new set of terms.

Properly drafted contracts save money. Some of my clients have told me they have avoided costly court action as the contract already made it all clear. You don’t have to come to me, of course, there are other lawyers. Just don’t leave it until you’re about to sign and then ask them to “have a quick look” at the contract. Unless the contract doesn’t matter to you, in which case don’t send it to the lawyer at all.

If your suppliers or customers set the agenda, you might not have much power over the content of the terms. You should at least know what the risks are.

Keep tabs

Don’t file the contract away until the day before you want to bring legal action. Keep tabs on the relationship. Get your supplier to send you a regular report and check they’re hitting the agreed KPIs. Does your customer pay late? Is this because you invoice them just after their payment run or is it because of currency issues? Call a review meeting to work out what’s happening and keep both sides on top of their game.

Get serious

Is your relationship still working? Are Brexit / Trump fears to blame? Either way, you need to let them know you’re serious. Does the contract contain service credits or liquidated damages? If so, claim them. If the customer isn’t paying on time, then get your credit controller onto them. Have they materially breached the contract terms? If so you may have options. Ask your lawyer to draft a formal letter before action warning them.

Terminate and sue

Brexit might become the executioner of business relationships governed by poorly drafted contracts

If your business partner is still not playing ball, maybe now is the time to end the contract. Do you have a replacement supplier ready to take over? Nobody wants to run an expensive legal action, but you might have no choice. And Brexit might become the executioner of business relationships governed by poorly drafted contracts.

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