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Impact of Brexit
on contracts
Impact of Brexit on contracts
Impact of Brexit on contracts
Will choice of law agreements continue to be
effective?
Currently English courts determine the governing law of a
contract in accordance with the Rome I Regulation. Following
Brexit, the position is unlikely to change significantly if the
English courts revert to common law rules, as these are similar
to the provisions of Rome I Regulation. For example, an express
choice of law in an agreement will most likely continue to be
upheld.
What about choice of law provisions
extending to non-contractual obligations?
The position is less clear with regard to non-contractual liability
as the Rome II Regulation does not as closely reflect the previous
position of English common law. In particular, although Article
14 of the Rome II Regulation allows commercial parties to
stipulate the governing law of non-contractual liability, this
was not the position under English common law. Accordingly,
agreements as to the governing law of non-contractual
obligations might no longer be effective in English proceedings.
Will an agreement stipulating ‘English law’
be construed differently post-Brexit?
A contractual provision stipulating English law as the governing
law of the contract would currently be construed as meaning
English law including applicable EU law. Post-Brexit, this
would no longer be the case. Most likely, the term ‘English law’
would be construed by the English courts as meaning ‘English
law as in force from time to time’. However, not only could this
lead to a different outcome to what the parties had previously
understood, but it is possible that the absence of a particular
piece of EU law substantially changes the nature of a contract,
or even makes it impossible to perform.
Many contracts have territorial application –
how will such provisions be construed postBrexit?
Many types of contract contain territorial provisions, such as
distribution agreements, joint venture agreements, franchises
and licence agreements. Where the relevant territorial provision
refers to the ‘EU’, such as ‘an exclusive right to operate in the
EU’ what would be the position following Brexit? Would the UK
02 Norton Rose Fulbright – July 2016
continue to fall within the scope of such a clause post-Brexit or
if not, would the change mean that the contract could no longer
be performed as envisaged? Ultimately, the answer is likely to be
a matter of construction for each agreement, but such provisions
will give rise to a great deal of uncertainty and parties may
well be advised to revisit their contracts and look to clarify the
position by agreement.
Could Brexit provide grounds for terminating
an existing contract?
Whether or not Brexit provides grounds for termination will
of course depend on the terms of the particular contract. This
question will be particularly relevant to parties to contracts with
territorial application for the reasons mentioned above.
For existing contracts, parties might try to rely on material
adverse change or force majeure clauses as grounds for
termination. However, there is no guarantee that such clauses,
provisions or principles will allow for termination and each case
will come down to a question of interpretation of the particular
clause having regard to the relevant facts.
It is even possible that parties may seek to rely on the doctrine of
frustration, claiming a contract has become incapable of being
performed as a result of Brexit. Again, it will depend on the facts
of each particular case as to whether such an argument could
succeed.
How can contracting parties protect
themselves now?
As it cannot be known whether reliance on a material adverse
change clause or a force majeure clause will be sufficient
to provide grounds for terminating a contract post-Brexit,
parties may want to consider inserting express provisions into
agreements now. For example, parties might consider clauses
providing an express right to terminate in the event of Brexit
as well as setting out the routes by which termination can be
achieved.
Impact of Brexit on contracts
Contact
For further information please contact:
Andrew Sheftel
Senior knowledge lawyer, London
Tel +44 20 7444 5682
[email protected]
Norton Rose Fulbright – July 2016 03
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