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Brexit consequences for Commercial Contracts

19 January 2021

It was never in doubt, was it? The UK has entered into the UK-EU Trade and Cooperation Agreement (“TCA”) which is a free trade agreement. If your business is party to contracts with parties in the EU, you should consider the following implications.

What are the main implications of the TCA?

Zero tariffs and no quotas for goods exported / imported between the UK and EU subject to the goods complying with rules of origin.

Jamie Murray
Michael Cox,
Senior Associate

Rules of origin exist so that goods which are subject to zero tariffs are confirmed as originating from either the UK or EU (depending on which party is exporting). Note that UK-originating products that incorporate EU inputs can still be considered as products of UK origin and therefore benefit from the zero tariff rules.

Customs procedures will be simplified, including provisions bespoke to the UK/EU relationship such as cooperation at ‘roll-on roll-off’ ports, and the parties will be exploring the possibility of sharing import and export declaration data. In addition, mutual recognition will be implemented for Trusted Trader Schemes, with streamlined procedures available for eligible traders. The parties will also cooperate on recovery of customs duties and combating VAT and indirect taxes fraud. However, border checks still apply to all goods, meaning disruption at the UK/EU border that has not previously occurred.

How could this affect my contract?

Increased costs. Despite zero tariffs and no quotas, the additional customs procedures will increase costs when trading with the EU due to the additional cost of custom agents, increased storage or haulage costs, and the movement of staff across borders will be more expensive. Who is responsible for the additional costs? If a contract is silent on these matters, generally the supplier will have to absorb the cost. Variation of the contract may be appropriate to distribute the costs fairly. Alternatively, the contract may provide for price adjustment or benchmarking, in which case those provisions should be reviewed.

Responsibility for delays. Which party bears the risk of delays to delivery or if goods or services cannot be provided due to a change of law or because key staff cannot move location to provide the necessary services. Again, if the contract is silent the supplier will generally be liable.

UK distributors. Where you are acting as a distributor under a contract with a manufacturer based in the EU you will become the importer that places the products on the UK market. As this is a new concept for distributors in 2021, it is unlikely that your role as importer and the additional obligations are addressed by the distribution contract. Should the additional burdens and risk be borne for the same remuneration?

Technical information. Terms such as EU or EEA should be checked as those no longer include the UK. Likewise, references to EU legislation may require to be considered. As should any consents, permits or licences that are affected by the new EU/UK relationship.

Termination. It may be that the contract does not suit one party and they require to consider the termination provisions. The most likely exit routes are non-cause termination provisions or potential triggers that relate to a change of laws. Force Majeure is a possibility too but that depends on the wording of the specific clause. The standard wording usually provides that a Force Majeure event should be unforeseeable. At this stage, it would be hard to argue that the implications of Brexit were unforeseeable.

How can I best manage any change?

Good Contract Management. Existing contracts should be audited to see if any variations are required. Any new contracts should be negotiated with the new UK/EU relationship in mind.

Good Relationship Management. The relationship between the contracting parties is as important as the contract itself. Regular scheduled meetings should continue and both parties should monitor and discuss performance to ensure the relationship is working for both parties.

Michael Cox, Senior Associate: / 0131 222 2939


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