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How will the triggering of Article 50 affect commercial contracts?

Martyn Mcgrath, Head of Corporate/Commercial at Bowden Jones Solicitors, assesses how Brexit will impact commercial contracts for UK businesses.

Mr Mcgrath, a leading commercial lawyer at Cardiff-based firm Bowden Jones Solicitors, believes it is a necessity for firms of all sizes to begin examining all commercial contracts now that Article 50 has officially been triggered.

The UK leaving the EU may well affect the operation of existing contracts, possibly in a manner that the parties had not foreseen or planned for at the time of entering into the contract. Businesses should take the following action:

What changes do we need to make? Risk assessment.

How can I manage the situation? Certainty about post Brexit arrangements, considering the legal implications should be at the core of your business strategy. A risk analysis should be implemented to ensure your company is prepared for any fundamental adjustments that need to be implemented and identify the effect Brexit will have on obligations under existing and proposed new contracts.

As each firm is unique, the process should be tailored specifically to your needs. Below I have detailed typical practical points which businesses should be addressing now, especially if you trade in the EU or have foreign customers, interests or suppliers.

Commercial Contracts

Existing trade contracts and arrangements will be impacted, referring to a range of EU laws, regulators and territories. A due diligence exercise should be carried out to identify the key contracts and consider their terms. The need for possible amendments should be carefully considered. Including the following:

Territorial scope. Does the contract include the EU as its territorial scope? On leaving the EU, the UK will no longer be covered by that territorial description. Should the contract be amended, or can it be terminated?

Reference to EU legislation. Analyse clauses referring to EU legislation, compliance and any changes. Contracts that refer to EU legislation may need to be amended.

Force majeure provisions. A force majeure clause may be drafted wide enough for a contract to be terminated.

Material adverse change provisions. Similarly, if a contract includes a “material adverse change” provision (MAC), this may permit termination of the contract, although this will depend on a number of factors.

These issues may well result in a dispute. For further advice please contact Martyn McGrath on 02920 484550 or click here