“Not-so-sexy” Brexit – Considering the Impact on Contracts

“Not-so-sexy” Brexit – Considering the Impact on Contracts

Your company’s Board and C-Suite are likely to focus on the macro-level impact of Brexit, in particular, the currency and stock fluctuations and the flow-on effect on trading relationships.

While others are focused on the business concerns and opportunities, solicitors and General Counsel should be alive to the specific issues that may arise in a company’s contractual landscape.

This may not be the sexy aspect of Brexit. But becoming aware of any underlying issue Brexit may have on your key commercial contracts is certainly a task worth undertaking.

Thankfully, the full legal impact of Brexit on contracts is unlikely to be felt until the official withdrawal from the United Kingdom from European Union is given effect under Article 50 of the Lisbon Treaty. So there is some time. However, there are some contractual terms and conditions that may be affected prior to the full implementation.

Here are three types of terms and conditions to review and consider right now:

1. Contractual conditions

The Brexit vote may trigger a contractual condition, either a pre-contractual or a post-contractual term, that enables your company or its counterparty to pull out of a contract. In particular, Brexit could constitute a material adverse change or material adverse effect in contractual conditions. In particular, check terms and conditions of business and share sale agreements, bids or schemes of arrangements.

2. Financial covenants

Be aware of any terms and conditions in material contracts that may be impacted by relative movements in foreign currency, in particular, banking or other financial covenants. Also, check warranties or indemnities in business or share sale agreements referenced to foreign currency and particularly any warranty limitations, caps or collars that may be impacted by the dramatic currency shifts.

3. Governing law

Contracts with the governing law as the law of England and Wales are a source of future uncertainty. This uncertainty is unlikely to persist for up to two years. It may pay to try to renegotiate these clauses now. While it is likely that any appeals from English Courts will be abolished, of more concern is the uncertainty as to which laws of the European Union will survive the exit.