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It has been almost three years since the UK voted to leave the EU and with the ‘deal or no deal’ debate continuing, the impact of ‘Brexit’ remains uncertain. Unless an extension is agreed, Brexit will take effect on the 29 March 2019.
What does this mean for your business?
Brexit should be at the forefront of your mind when negotiating new contracts. How will it affect your existing contractual relationships or the way you currently organise your business? Will Brexit adversely affect cash flow or recovery of debts? What practical steps can you take to navigate through the Brexit minefield?
The Commercial team at Humphries Kirk can help guide and assist you getting your business affairs in order.
It is important that you review your contracts from time to time, but areas which you should consider now are:
Price and Payment – Are there mechanisms to allocate who will pay for costs including duties, end taxes and, more importantly, increased costs of logistics and clearance? For example, in construction contracts, consider whether Brexit should be a ‘Relevant Event’ which would allow the contractor to negotiate cost fluctuation provisions as a result of the UK leaving the EU.
Trigger events – You should check whether any provisions of the contract will cease to apply once the UK leaves the EU, and whether Brexit will trigger an event that could terminate the contract.
Territory – A contract may specify that the agreement must be performed only in the EU. Contracts should therefore be reviewed to see whether the territory includes the UK post Brexit. If the contract requires a party to do something in the UK as well as in other EU countries, then the UK should be specified separately if the contract has separate performance provisions which are applicable after 29th March 2019.
Governing Law – It is important to identify the governing law which applies to your contracts. Presently, commercial parties may choose in advance which law will govern their contract. Post Brexit, the parties should specify which law is to apply to the contract.
Jurisdiction and Disputes – Following Brexit, you will need a jurisdiction clause in your contract and a jurisdiction clause to refer disputes to the English courts.
Remember that contracts under foreign law are likely to be much more expensive to enforce or defend. If the foreign courts have jurisdiction, these costs may be prohibitive.
If we have a ‘no deal’ Brexit and your business obtains a judgment in England, could that judgment be enforced against the debtor’s assets in other EU countries, as at present? It is likely that this will mean having to bring new proceedings in the country where the assets are, and getting that court to acknowledge the English judgment.
Picking contracts apart – Severance clauses are often included in contracts. These allow the court to ignore illegal, invalid or unenforceable clauses but to enforce the rest of the contact. So, if the law changes and this makes some requirements illegal or unachievable, they will be struck out, but the rest will survive. How does that leave the rest of the agreement? Perhaps, commercially unprofitable? On the other hand, if there is no such provision, if one element becomes illegal or unenforceable the whole contract will fail.
Intellectual Property – Holders of EU trademarks and registered Community designs are not automatically holders of comparable intellectual property rights in the UK. This would require further legislation.
If there is a ‘no deal’ Brexit, then any EU trademarks and/or registered Community designs will continue to apply in the remaining EU countries but will cease to cover the UK.
You should prepare a schedule of your intellectual property detailing what it covers, where it was registered and when it is up for renewal. This will enable you to identify any gaps in your intellectual property protection. It will also enable you to consider whether your portfolio of intellectual property is relevant to your current brand and business model.
Domain names – Following Brexit, UK businesses will not be able to own or continue to own an “eu” domain name unless it has operations or individuals resident in the EU. UK businesses should therefore register a suitable UK domain name.
All marketing and business materials should be updated and clients/suppliers and other third parties notified of the new domain name. Sufficient notice should be given to allow for a transitional period before the UK leaves the EU.
Data Protection – The Data Protection Act 2018 (DPA) incorporates the General Data Protection Regulation (‘GDPR’) into UK law. If there is a ‘no deal’ Brexit, then the flow of cross-border personal data from the EEA to the UK will be restricted unless arrangements are in place to provide adequate safeguards for the data. It is likely that the UK would be considered adequately compliant so long as the DPA remains unaltered and GDPR is incorporated into UK domestic law.
After Brexit, any UK businesses trading with the EU will still have to comply with DPA.
Product Liability and Safety – At present, much of the standards for domestic product liability and safety are set by the EU. Once the UK leaves the EU, those standards may change as domestic standards apply. This could result in cost implications in meeting differing standards and could affect the way that goods are manufactured. This is the case where goods are exported to the USA, for example. Any increased costs of manufacture and/or costs of importing/exporting the goods and to provide for the change of standards should be reflected in your contracts: who will bear these costs?
Trading with the EU in the event of a ‘no deal’ Brexit – UK businesses will need to ensure they are familiar with and understand what the likely changes to customs procedures will be and, if necessary, put steps in place to negotiate commercial terms to reflect any changes in these procedures, and any new tariffs of duties that may apply to particular types or UK/EU trade.
Employees – The UK Government has indicated that there will not be any immediate substantial change to employment legislation. However, as much of our employment legislation is derived from EU directives, there may be changes made over the long term.
Where the economy is in a period of instability and cash flow may be an issue, businesses should be reviewing their staff expenditure and whether restructuring is necessary. Where businesses need to restructure and are considering redundancies, legal and professional advice should be obtained to ensure that you are aware of your information and consultation obligations.
If employees work outside of the UK, then contractual documents and handbooks may need to be updated to ensure they comply with all relevant laws.
A huge impact on many businesses is the uncertainty of rights of foreign employees to remain in the UK. Many businesses rely on French, Polish and other EU citizens who bring their talents to the UK economy. Following Brexit, will they need to have work visas? At present, there is no certainty and there is evidence that good people are leaving the UK because of this.
Cash flow, Finance and Debt recovery – An ever-increasing period of instability in the UK could lead to significant cash flow and financial problems for businesses. As a preventative measure, you should be reviewing what you owe your creditors and what your debtors owe you anyway. Wherever possible, you should be trying to reduce the amount of debt the business has in order to increase its cash flow. You should consider negotiating payment plans with debtors to ensure regular payments are coming in, secure short term overdraft finance to assist with cash flow and contact your creditors to see if you can negotiate a payment plan.
For further information, or for advice on any other corporate or commercial matter, please contact the Commercial team at our offices in Poole on 01202 725400 or Dorchester on 01305 251007. Visit us at www.hklaw.eu and follow us @HumphriesKirk on Facebook, Twitter and Linkedin.
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