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Brexit and trade contracts

Brexit and trade contracts

Brexit will have a major impact on the content and execution of trade contracts between Dutch and British undertakings. For example, agreements for the purchase and sale of products, distribution and agency agreements and partnership agreements. Solid contractual clauses set out in new agreements to be drawn up can help you mitigate the adverse consequences of Brexit.

Consequences for current contracts
In principle Brexit will not affect the validity of current contracts. Both the Dutch and the British contracting party will simply have to continue to fulfil their obligations under a current contract.

It is, however, questionable whether it will be possible to fulfil specific contractual obligations without complications after Brexit. The European Union is a customs union facilitating the free movement of goods and services. After Brexit the United Kingdom will cease to be part of this customs union. Customs formalities at the United Kingdom’s borders will once again have to be complied with. Because of this, the branch organisations for transport are anticipating major delays in the import and export of products in the United Kingdom and the media warns against long queues at the border.

For you as an entrepreneur, this means that the chances are your contractually agreed delivery times will be exceeded. It might also be unclear which contracting party is responsible for compliance with the customs formalities. And there might be additional costs for the required border operations and customs formalities. If no clear contractual agreements have been made on this, it will not be clear for whose account these additional costs come, who has to perform the additional (border) operations and customs formalities and who will have to bear any damage resulting from these border issues. This will depend, among other things, on the text of the agreement (and/or any applicable general terms and conditions) and the law governing the agreement.

You should also be aware that your trade contracts might include provisions that link rights and/or obligations to a specific geographical area. Consider, for example, a distribution or agency agreement that states that the distributor or agent may (exclusively or not) operate in the EU. In this case it cannot simply be assumed that this distributor or agent will still be authorised to work in the United Kingdom after Brexit.
In all these cases obtaining legal advice can be very useful. For example with a view to being well-informed on entering into negotiations with your contracting party and adjusting the contract to the post-Brexit situation.

Contract disputes
Should you, unlooked for, be unable to find a solution with your contracting party, a legal dispute might arise. Brexit will also have consequences for legal proceedings. Currently, which law governs the contract and which court is competent to rule on a dispute about that contract is established based on European regulations. When the United Kingdom ceases to be a member of the EU, these regulations will no longer apply. This might create uncertainty about the applicable law and competent court, which will have to be established on grounds of the national rules of the countries involved and any treaties between these countries. If you initiate proceedings incorrectly, this can have adverse consequences or even result in you being held liable. So seek good advice about this.

Key points for new contracts
If you are about to enter into a new contract with a British company, be aware that you can limit the aforementioned adverse effects and risks by inserting specific contract terms.

For example, you can agree that the contracting parties can change the conditions in the contract in consultation (a so-called ‘renegotiation clause’). In addition, it may be useful to include a comprehensive force majeure provision and/or make agreements about customs formalities and customs and/or import duties. It is even possible to stipulate that you can terminate the contract in the event of Brexit, without any obligation to pay compensation. Because it is not yet clear what Brexit will mean for the enforcement of Dutch judgments in the United Kingdom and vice versa, we also advise you to include an arbitration clause in future contracts.

If you are going to deliver to the United Kingdom, you might also consider a price adjustment option in the case of increased (customs) costs. Furthermore, in the case of export to the United Kingdom, it might be prudent not to agree on hard delivery times and to limit your damage in the event of late or defective delivery as much as possible. In B2B contracts, a far-reaching limitation of your liability is legally permitted.

Conclusion
Even though there is a great deal of uncertainty around Brexit, you can still prepare for it. Solid contractual clauses can help you reduce the adverse consequences of Brexit.

By Karin Harmsen

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