As of 31 January, the UK is officially no longer an EU member state. However, until 31 December 2020 at 11pm (the ‘end-date’), we will still be subject to most EU rules, and will remain in the EU customs union and single market.
It is at the end of this year that businesses could face the most disruption: we are yet to see what trade agreement, if any, will be struck with the EU, and any other international trade deals negotiated in 2020 will also kick in after the end-date.
How can you minimise this unknown risk to your business? Our recent article touched on one aspect: including a force majeure clause in your commercial contracts. This clause usually states that a party is not liable if they are prevented or delayed from performing their obligations under a contract, due to an event outside of their control (a ‘force majeure event’, also known as an ‘Act of God’). Force majeure events typically include natural disasters, wars and strikes – but what about Brexit?
Your contract, in your hands
There is no set legal definition of a force majeure event, so the meaning will depend on what you have agreed and provided in your contract.
If you are creating a new contract and would like it to cover the effects of Brexit and the end-date, you can include specific Brexit-related force majeure events. You should think carefully about the risks likely to face your business. For instance, if there is no trade agreement by 31 December, potential delays in transport of goods through customs could put suppliers in breach to their customers, or halt production where manufacturers import parts from the EU.
Many force majeure clauses will also include standard wording that “any law or action of government or other authority” is a force majeure event. This catch-all could include Brexit, and the end-date.
Taking back control: exercising your force majeure clause
Drafting your Brexit-proofed force majeure clause is only half of the battle. You must also ensure that you exercise the clause properly when the need arises.
You should read your force majeure clause carefully, or ask your lawyer to review it. Depending on the wording of the clause, you may need to consider the following:
Does Brexit count as a force majeure event?
This will depend on the drafting of the clause, especially the definition of ‘force majeure event’ as referred to above. This may also depend on when the contract was made, and whether the parties could foresee the effects of Brexit at that time.
When can you exercise the clause?
Usually you can only exercise the clause once the force majeure event has begun, rather than whenthere is only a risk or threat of it happening.
Do you need to give notice?
The party who has been prevented from fulfilling the contract will usually need to serve notice on the other party/parties. Often the clause will require the defaulting to state the force majeure event, how long itwill last, and how this will affect their performance of the contract.
Is your decision not to perform the contract a legal necessity?
Are you actually unable to perform the contract, rather than just inconvenienced by Brexit?
Is Brexit the only reason you are not performing the contract?
If Brexit had not happened, would you perform the contract? You may not be able to rely on the clause if there are other factors, such as unrelated low staff volume or economic risk, hindering your performance.
Is Brexit the direct cause of you not performing the contract?
The clause may not take effect if, for example, your supplier is delayed due to Brexit. The cause would be your supplier’s failure to supply a part, rather than Brexit itself.
Have you done everything you can to perform your obligation despite Brexit, and to mitigate the effects of Brexit?
Often, parties must have taken all reasonable steps (or alternatively all possible steps) to avoid or prevent the force majeure event from affecting the performance of their obligations, or – where this is not possible – to mitigate its effects. This could include stockpiling parts, when it is clear in advance that delivery of those parts will be delayed after the end-date.
Will you have to perform the obligation later?
A force majeure clause might only suspend an obligation rather than remove it. You should still be ready to perform the obligation once the force majeure event has ended.
Each force majeure clause will be different and should be read carefully. If any conditions of the force majeure clause are not followed, the clause may not take effect and you could still be liable for breach of contract. Even if you are not liable, if the force majeure event continues for a certain period of time, the contract may allow the other party to terminate the contract.
If you would like to know whether your contract provides for Brexit, and what you need to do to exercise your force majeure clause, please contact one of our corporate commercial law specialists on 01494 478621 or at firstname.lastname@example.org.