The Crucial Importance of Watertight Contracts in Post-Brexit Transactions

One of the main keys to sound business dealings are watertight contracts that encompass every facet of the production and supply of your services or products, anticipate all potential risks, both internal and external, and incorporate safeguards to protect the business. Frequently contracts, once initially drafted, remain in place and are rarely reviewed. Businesses are now operating in the most difficult of times with an increasing pre-disposition towards litigation. 

Any business that intends to continue its cross-border trade with the European Union Member States after the end of the transition period would be well advised to undertake a thorough review of its commercial contracts together with a legal advisor fully conversant with the intricacies of the law involved to assess the effect and the potential risks of the UK’s final exit from the EU on 31 December 2020.

Nick McEwen, an associate in the corporate and commercial team, commented “whilst the final Brexit deal has not yet been struck, the barriers to trade between the UK and the EU are highly likely to increase. Businesses must consider the impact this will have. Costs may increase and you may want to make decisions as to whether new taxes or any other levies should be incorporated into your terms of business.” He further commented, “you and your trading partners may feel it is best to tear up the existing contract and re-draft rather than tinkering with a contract that does not reflect the current trading landscape.”

There are mechanisms that may be able to be invoked, such as material adverse change or even force majeure clauses depending on the interpretation of the overall situation. Also, the UK’s exit from the EU may possibly be viewed as having frustrated a contract.

Your commercial contract is the armour that protects your business from risk and duplicity and it must be up-to-date, comprehensive and resilient to attack. Paola Vitali, a partner in the Barcelona office, recently was able to comprehensively rebuff, in a complex case, an attempt made by our client’s [a prominent Spanish company] customer who attempted to avoid payment having sought to claim the contract was invalid.  The court not only found in favour of our client but also stated that the clauses of the contract completely conformed to the provisions of the Spanish legislation and therefore were valid.  

The Confederation of British Business (CBI) suggested that businesses are in a suspended state of animation whilst awaiting the result of the nail-biting attempt by the UK and EU to bring about a trade deal; other business organisations share the same view.  The businesses that will be able to withstand all the complexities and difficulties that Brexit presents are those that have fully prepared and protected all aspects of the business, together with maintaining a level of flexibility to enable them to respond immediately to all eventualities, expected and unexpected that are thrown up, ensuring that your commercial arrangements fit into your wider business strategy recognising the key risks and opportunities, new and old, could make a significant difference in an altered marketplace that the UK and the EU are now stepping into. Guidance with drafting contracts that reflect the potential post-Brexit trading landscape is the first step to navigating the new era as an independent trading nation.

If you would like guidance and advice in drafting contracts reflecting the post-Brexit trading landscape please click here