Last week’s announcement that the Government is planning to accelerate the introduction of legislation addressing a no-deal outcome for Brexit has caused many businesses to think again about the risks associated with their important contracts should Britain leave the EU without an agreement in place.  We have spent the last two years advising our clients how to mitigate some of these risks in new contracts, but with only five months to go now, the real possibility of no deal and its potential consequences mean that a new focus on important contracts would be well advised.

Even if a contract hasn’t been negotiated and drafted with Brexit in mind, it is possible that some of its provisions could be invoked should a significant change in circumstances result from Brexit.  For example, a force majeure clause might assist a party if an event which is outside the control of a party applies.  Material adverse change (MAC) provisions which are sometimes found in finance-related contracts may also be relevant.  In most cases, however, it is unlikely that these would be of much assistance and even if they can be argued to be applicable, they may provide very limited help.

You will be in a far better position if you are able to negotiate and agree a Brexit-specific amendment to your key contracts.  It’s often the case that all parties to a contract can benefit from such a change because it seeks to address directly and specifically  the type of risks which are assessed as being a threat to performance under the contract. 

Those risks  are going to be specific to each contract and there is no one size fits all solution.  For example, the parties to a supply chain agreement may be particularly concerned about the possibility of import duties or other tariffs being imposed and the associated increased costs and potential delays to goods.  A services agreement which is dependent on access to a pool of skilled labour may be far more affected by restrictions on freedom of movement.  And as we read ever more apocalyptic forecasts of what might happen should Britain crash out of the EU with no deal in place, it would be sensible to at least consider how business might be affected in the event of major and long-term civil unrest.  With campaigners today claiming to be able to mobilise over 700,000 supporters for peaceful marches, it is easy (if worrying) to understand how these numbers could escalate and then translate into violent disorder disrupting everyday life for an extended period.

When we are advising on provisions like these, we discuss with our clients what risks they perceive and how they would like to address them.  It might be as simple as building in pricing flexibility to accommodate additional costs.  More fundamentally, it could provide one or more of the parties with the ability to unilaterally terminate part or all of the contract.  For each circumstance, we suggest thought goes into both the required remedy and the event which acts as the tipping point for that remedy.  With the almost impenetrable range of political outcomes which might eventually ensue, careful consideration also needs to be given to exactly what circumstances will allow these provisions to be invoked.  Should events other than Brexit itself act as triggers for any provisions?  A second referendum which reverses the outcome of the original referendum would not be Brexit, of course, but it might lead to situations which the parties to a contract ought to be considering now and trying to address.

Unlike some contractual matters, Brexit is absolutely not something where template solutions can be applied.  All businesses can take the initial steps of analysing their high value contracts and assessing the potential Brexit risks.  We believe that these need to be viewed in a broader context now than at any time over the previous two years and once that analysis has been completed, steps should be taken to work with the other parties to the contract to address and manage that risk.