Commercial contracts are important in any business environment. They are the documents that enable us to buy and sell goods, import products, and have secure websites (to name just a few). They provide us with a clear framework for all our commercial relationships. So, with the continuing Covid-19 pandemic and the UK’s impending departure from the EU on the horizon, it’s vital to ensure that any commercial contracts that already exist and any new contracts that are drawn up are watertight and protect your business from the continued impact of Covid-19 and Brexit.
Both Brexit and Covid-19 raise the possibility of commercial contract breaches. Breaches of contract can be separated into four separate categories:
- Minor breaches – these have little or no impact on the outcome of an agreement or contract and can be as simple as receiving a substituted product that wasn’t listed in the original contract.
- Material breaches – a material breach can have a detrimental impact on the outcome or a project. Essentially, if an injured party would not have entered the agreement had they known the breach would occur they can claim damages.
- Fundamental breaches – a fundamental breach occurs when the terms and conditions of the agreement have been clearly broken. In these cases, an injured party can terminate the contract under law.
- Anticipatory breaches – anticipatory breaches happen when one party tells the other that they are unable to perform all or part of the contract. In these instances, the injured party can claim damages.
One of the best ways to avoid a breach of contract and the cost of subsequent legal interventions and lawsuits is to ensure that the conditions detailed within the contract are specific and avoid any uncertainty or ‘muddiness’. Additionally, it is important to make sure that the duties of each party are clearly outlined and that the risks to each party are balanced.
Recently, our team has been asked whether the inclusion of force majeure clauses within contracts could offset the impact of Brexit and further Covid-19 waves and lockdowns. While a force majeure clause can help to mitigate liability in instances such as disruption of supply chains, missed delivery, or fulfilment of services, it is also important to remember that they relate to unexpected eventualities. It is possible to argue that given that both Brexit and the pandemic have been in the public realm for a while, disruption could have been predicted. A more sensible option in the case of the pandemic is to reassess contracts to include careful wording relating to pandemics.
In the case of Brexit, as we come to the end of the transition period, businesses will need to consider revising any commercial contracts they have to ensure that they take into account:
- Increased trade barriers (including taxation and quotas
- Regulatory divergence
- Changes to territory covered and competition law
- Freedom of movement
- Currency fluctuations
- Legal jurisdiction changes
Jarmans Solicitors recommend auditing any existing contracts with EU entities and also taking any of the following points into consideration when drafting new commercial contracts.
Do the contractual provisions consider the EU as a territory or do they list specific countries?
If the contract discusses EU states and uses the term ‘from time to time’ or similar, then the UK is unlikely to remain included post-Brexit. If the UK is named within the contract, then it is still included.
Does the UK leaving the EU fit with force majeure clauses?
We’ve already mentioned this, but if there is a clause relating to ‘material adverse change’ this could allow for a renegotiation if the contract becomes subject to a change of law or becomes unprofitable.
Will the UK’s exit lead to potential fundamental breaches?
Additional costs and inconvenience as a result of Brexit probably wouldn’t qualify as a fundamental breach.
What about GDPR?
Any commercial contracts and privacy notices will need to be reworded to reflect the fact that GDPR will still apply despite the UK’s exit from the EU.
Jarmans Solicitors have an excellent team of commercial solicitors who are able to audit and review any existing contracts and who can also assist in drawing up new contracts that reflect the current global situation. Get in touch to make an appointment.