Irwin Mitchell Experts Highlight The Key Concerns For Business

Britain’s exit from the European Union, whenever and however it may happen, will have an impact on commercial contracts of all types.

The following article looks at a number of key issues that businesses need to consider.

Increased trade barriers

Brexit is likely to result in increased trade barriers between the EU and UK, meaning that the costs of trading in Europe may rise. When reviewing current contracts, it is advisable for businesses to evaluate what commercial impact this rise may have and if necessary, attempt to renegotiate such arrangements. Businesses should consider taxes, duties and other levies and to what extent prices should or should not include these.  

Currency fluctuations

Currency fluctuations could have a significant effect on existing commercial agreements. Businesses should review the mechanisms for pricing and see if there are any provisions which allow for parties to renegotiate price, this is particularly sensible in contracts with a lengthy term. When negotiating new agreements, parties should consider how to allocate the future risk of changes to the pounds value, perhaps parties might agree to share the pain or gain that arises from changes due to Brexit.   

Parallel regulatory regimes

The risk of parallel regulatory regimes under UK and EU emerging is dependent on what the UK’s future relationship with the EU will look like. If they do emerge, parties will need to agree who should be responsible for achieving compliance and who should bear the consequences of non-compliance. In addition, agreements may contain references to EU regulatory bodies or EU standards which may be no longer be relevant to the agreement or impose an unnecessary level of regulation post-Brexit. 

Alongside many others, two primary focus areas will be (a) the impact on jurisdiction and choice of law clauses; and (b) the way in which judgments of the English court are enforced in the EU, and vice versa. 

Choice of Law clauses

Under the current European regime, Rome I and Rome II typically apply to determine which law applies to any agreement.  Under Rome I, parties are free to decide on the law that will govern most contractual relationships.  Where no such agreement has been reached, Rome I provides a mechanism for determining the law that will apply.  Rome II allows for the choice of law in non-contractual relationships and, just like Rome I, it includes provisions for determining the applicable law where no such agreement has been reached.

The government’s approach to Brexit, as set out in its guidance note “preparations for a ‘no deal’ scenario”  is to minimise disruption by introducing into UK law EU legislation that can be passed unilaterally (i.e. those measures which do not require EU co-operation). So, although Rome I and Rome II will no longer apply to Britain from exit day, both regulations will be reintroduced by legislation.

Where appropriate, parties should continue to choose English law to govern their contractual and non-contractual obligations.  Unless other circumstances have changed, Brexit is unlikely to result in parties needing to renegotiate their contractual and non-contractual choice of law clauses.

Enforcement of judgments

Parties in EU Member States currently benefit from a comprehensive framework for the multilateral recognition and enforcement of judgments between the courts of Member States – the “Recast Brussels Regulation”.

The government has passed legislation (the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019) which provides that from exit day, the Recast Brussels Regulation will no longer apply.  However, the new legislation provides that:

• if a party has obtained judgment in the court of a Member State on or before exit day, then that judgment can be enforced after exit day in the English courts under the Recast Brussels Regulation; and
• if proceedings have been issued and the court of a Member State has jurisdiction to hear the proceedings on or before exit day, and judgment is subsequently given, then the Recast Brussels Regulation will apply to enforcement proceedings in the English courts for that judgment.

The result of the legislation is that there is no need for overseas parties to commence enforcement proceedings prior to exit day.  Provided proceedings are issued in the Member State court before Exit Day or judgment is obtained before exit day, any such judgment can still be enforced in the UK courts.

If the above conditions are not met, then any creditor with a judgment from a Member State court will have to rely on the English common law position.  English practitioners are well used to that regime (it currently applies to many judgments obtained in non-Member States) but European practitioners may not be.

Brexit will inevitably make the enforcement of European judgments more complicated, but the transitions provisions will alleviate some of the immediate complications.