Brexit and Commercial Contracts: The Devil will be in the Detail

11
Feb

As the clock winds down towards exit day on 29 March, many commentators are seeking to provide businesses with one-size-fits-all plans for managing the fall out of the UK ceasing to be a Member State of the European Union. Anyone seeking positivity in the present uncertain situation is to be applauded but, in reality the number of Brexit possibilities still up in the air makes trying to find broad brush solutions a thankless task.


It may be unpalatable to many, but over the next few months most business owners are going to have to review their operations in great detail. Some have already started the process and, as a contracts lawyer, I am seeing increasing numbers of queries concerning agreements made with businesses across the EU. One of these raised an interesting point that demonstrates the level of scrutiny that may be required.


My client supplies to businesses in other Member States using contract terms that provide for English law to be the governing law and the English courts to have jurisdiction over disputes. So, if a dispute arises after the UK has left the EU that will still be the case, right? Wrong.


The choice of courts in commercial contracts is subject to an international treaty called The Hague Convention on Choice of Court Agreements 2005. The UK has membership only by virtue of its membership of the EU. If we leave without a withdrawal agreement, a so-called Hard Brexit, we will immediately cease to be a member of the club meaning that EU contractors could seek to enforce their contractual rights in their own courts. Fighting such a case could use up significant management time never mind the legal costs.


Fortunately, the problem has been addressed. Legislation has been tabled so that the UK will accede to the Hague Convention in its own right when it ceases to be a Member State so that contractual choice of courts will continue to be enforceable across the EU. Problem solved? Not quite.


For technical reasons UK accession to the Hague Convention will not take effect until 01 April 2019. The new regulations provide that the rules will continue to apply after the UK ceases to be a Member State and before accession to the Hague Convention but there is no guarantee that other EU Member States and their courts will see it that way. What to do?


Best advice is not to enter into contracts with overseas parties containing an exclusive jurisdiction clause in favour of the UK courts on either 30 March 2019 or 31 March 2019. A peculiar outcome perhaps but there it is.


Of course, if the withdrawal agreement comes into force, the UK will continue to be a member of the Hague Convention at least until the end of the transition period.


The moral of the story? Brexit will affect every part of every contract, even those parts we don’t usually have to consider. Problem is, the effect will depend on the kind of Brexit we have. Interesting times indeed.

 

Our expert team are here to provide you with practical guidance and support for the issues you face.  If we can assist in any way, please contact Mike Ward on mjw@swinburnemaddison.co.uk or 0191 384 2441.

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