Aspire junior in-house lawyers event: insights on the impact of Brexit

Last week, we shared an overview of the soft skills session from our recent Aspire event. The session was facilitated by Richard Martin from bryn·dean who looked at how in-house lawyers can create healthier, more productive workplaces. Read it here >

This week, we’re sharing an update on Brexit from the legal skills session. This was run by David Lowe, Partner at Gowling WLG, and identified the legal issues following the result of the referendum and the anticipated impact it may have on businesses.

Brexit: seeing the wood for the trees

David began the session by examining recent Brexit developments:

• The Supreme Court ruled that Parliament is sovereign, thus defeating the Government’s argument that Article 50 could be triggered without a vote in Parliament (by using the royal prerogative)
• The European Union (Notification of Withdrawal) Bill passed its third reading in the Commons last week
• The Government published a white paper which echoed the principles made in a recent speech by the Prime Minister at Lancaster House, it also suggests areas where the Government might be willing to compromise on their “have cake and eat it” position

Despite these apparent developments, David stated that uncertainty was still, not surprisingly, the key issue to businesses. We know that a Great Repeal Bill will go through Parliament, which will in effect make all EU law domestic law until it has had the chance to be reviewed, but this change will not be quick. We don’t know what the outcome of Brexit will be, nor do we know what journey we will take to get there, the timing or the impact that it will have on the economy.

In addition, we live in an increasingly uncertain world with geopolitics taking centre stage – the upcoming French and German elections, the impact of a Trump presidency and changing relationships with Russia and China to name a few factors.

Whilst David emphasised that businesses have always had to manage uncertainty, there are a number of key things that lawyers advising businesses should be looking out for from a contract law perspective, including:

1. Managing exchange rate risk
   Exchange rates are a really important issue for any business deal where there is a currency risk. Recent exchange rate fluctuations may have a cost impact causing one or both parties to try and renegotiate commercial terms, particularly pricing mechanisms or in cases where the impact is particularly bad forcing a party to walk away from the contract.

    

   It is important to work with the business to identify deals which may be affected by changing exchange rates and implement pricing mechanisms which lessen the effect of fluctuations.

2. The definition of territory
   If the definition of “territory” makes reference to the EU, then post-Brexit a reference to the EU will technically no longer include the UK. In future contracts, businesses should consider whether they wish to have the definition of territory frozen in time. For example, by referring to “the EU as at the date of this Agreement” or alternatively, the territory could be defined by reference to each individual country.
3. Change of law and the future application of EU law
   Following Brexit, the UK Parliament will have the power to modify or repeal all national legislation as it will no longer be required to follow the direction of the EU. Think about which law the business would want to be applicable. Should the contract to remain subject to EU law despite or should it be transposed into the national law.
4. Term/break clauses
   Recent changes to the economic and commercial environments make long term, cross-border contracts very risky. Businesses could either look to enter into shorter (two-year) deals or incorporate a break/review clause in the agreement.
5. Dispute resolution
   Brexit is unlikely to impact arbitration, as it is generally regulated by non-EU national and international instruments and an arbitral award made in the UK should remain recognised and enforceable in EU Member States. As such, arbitration may offer businesses more certainty as a dispute resolution procedure.
6. Pricing in an uncertain world
   It is likely that post-Brexit businesses will have additional trade costs due tariffs and other barriers to business such as regulations and the administrative burden of transporting goods across borders. These factors should be considered in future cross-border deals.

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