ContractsResearch Article

Differences between the UK and the EU post-Brexit Contract Law highlighting the Salient Features


Author: Varun Chaturvedi, 2nd year law student at Chandigarh University. 

Abstract

The European Union is a special economic and political union of the 27 EU nations, occupying a substantial part of the continent together. The EU’s predecessor was founded in the aftermath of World War II. Fostering economic cooperation was the first step: the theory is that countries that trade with each other become economically interdependent and therefore more likely to avoid conflict. The British Parliament eventually ratified the withdrawal agreement after the December 2019 election. At the end of 31 January 2020 CET, the United Kingdom entered the EU (11 p.m. GMT). This marked the beginning of a transition phase that ended on 31 December 2020 CET (11 p.m. GMT), during which their future relationship was mediated by the UK and the EU. The UK remained subject to EU law throughout the transition and remained part of the EU customs union and the Single Market. It was, however, no longer part of the legislative bodies or institutions of the European Union.
The aim of this paper is to research in-depth the discrepancies between UK and EU post-Brexit contract law and to highlight its outstanding characteristics. In addition, this piece will discuss what changed after the United Kingdom broke ties with the EU and its reasons for doing so.

 

Introduction

The European Union (EU) is a supernatural body consisting of 28 European Member States who have chosen to collaborate in the implementation of different social, political, and economic policies. Although the EU was formally founded in 1993 with the Maastricht Treaty in its present incarnation, its roots were rooted in 1953 when Belgium, France, France, and the European Steel and Coal Community were established in 1953. Over time, the EU has grown as the organizational framework for wider European integration as more countries have joined and goals have changed. It actually consists of two distinct but different elements intertwined communities: the European Atomic Energy Community (Euratom) and the European Community (EC).

 

What is Brexit?

Brexit refers to the withdrawal of the United Kingdom (UK) from the ECU Union (EU) and thus the ECU Energy Community (EAEC or Euratom) at the highest of thirty-one Gregorian calendar month 2020 CET. To date, the United Kingdom is the first and only country formally to depart the EU. Ending forty-seven years of membership among the alliance and it first joined its precursor, the ECU Communities (EC), on Gregorian calendar month 1973. It continued to participate within the European Union and European Single Market throughout a transition amount that over on thirty-one December 2020.

Significant impact post Brexit

Generally, the highest priority should be the contracts currently in effect that come under each of these two groups when looking at big commercial contracts to measure how Brexit can impact them, (the “Key Categories”):
1. The contractual term will run beyond the date of the end of the transition period which is likely to be 31st December 2020, unless extended; and
2. The nature of the contract means that it crosses the UK-EU border in some way. The second Key Category is very broad and can come in many forms. For e.g., there may be a seller in Germany and a consumer in England, or an English business that sells its goods but does so to English consumers in reliance on EU regimes and laws. It is worth remembering that for some contracts which superficially appear not to cross The United Kingdom-EU boundary, either because of all elements of the contract falling within the United Kingdom, or no elements falling within the United Kingdom, may also have relevant fundamental implications.

References to the EU as a territory and EU legislation

If a contract applies to the EU (for example, by defining the EU as an area of exclusivity), the departure of the United Kingdom could contribute to the accidental treatment of the United Kingdom in that contract-the area of exclusivity could be diminished such that the United Kingdom is no longer protected. It is likely that statutory references to the EU, as at the date of the deal, would imply references to the EU. Alternatively, as defined from time to time, it can mean the EU. In regards to contracts occurring at the time of departure, there might be some ambiguity. Obviously, current contracts should be very specific on the references that are supposed to include the UK.
References to law may also be troublesome, and a quick search for references to EU directives or laws would not generally fix them. By the conclusion of the transition period, EU legislation will cease to be strictly applicable in the United Kingdom, while the approach of the United Kingdom is to uphold and retain UK legislation that was originally adopted in order to harmonize with EU legislation and to import EU legislation into UK law. However, the effect may be especially pronounced for sectors where substantial regulatory steps have been implemented at the level of the EU and, more broadly, for parties who have warranted compliance with EU regulations.
As part of the Brexit process, the UK government has passed the European Union (Withdrawal Agreement) Act 2020. At the conclusion of the transition era, the Act would abolish the 1972, Act of the European Communities (the Act which originally made EU law part of the legal structure of the United Kingdom) and turn current EU law into ‘wherever possible’ domestic law. At a later stage, those converted laws could then be repealed or reworked.
Such a strategy suggests a more systematic phase of detachment, with EU regulations not actually being implemented en masse at the conclusion of the transition era (although amendment will obviously EU entities or references to EEA nationals must be substituted by suitable UK substitutes in applying legislation). There is still no suggestion of the transformed rules, as opposed to those that will most likely remain largely unchanged from their pre-Brexit form, would be the key goals for reforming to a substantial degree in the near future. For these purposes, if a contract is drawn up under the basis that EU is actually enforcing obligations and constraints, EU law will continue to be in place in almost the same manner for the coming years, and may prove to be troublesome.

Suggested actions are as follows:
• Confirm if the applicable definition includes the Member States from time to time, or explicitly names each country, in the case of contractual provisions dealing with the EU as a jurisdiction. The wording “from time to time” would not include the UK, but if there is a complete list of countries and the UK is called, then the deal should also include the UK. Different qualitative considerations will determine whether the UK is immediately omitted if there is no express wording to signify which interpretation prevails, so the result could differ from one case to the next.
• Check for a clause that specifies that references are to clauses as revised or re-enacted where there is any law essential to the execution of the contract that could be impacted. The default condition (as defined by the Interpretation Act 1978) is that references to repealed laws are read as relating to the current legislation where the new law repeats and re-enacts the older law referenced in the text, unless the opposite intention occurs, in the absence of express language to say otherwise. Combining the Interpretation Act with the EU (Withdrawal Agreement) Act 2020 could have a limited effect on references to laws, essentially rewriting a contract’s citation of EU law as a citation of a newly converted UK law. Having said that, it would be dangerous to put a considerable emphasis on the transfer that often yields a clear outcome and it would definitely be prudent for new contracts to comply with references to EU laws and contractual regulations in order to ensure that there is clarification moving forward, for instance if incorporated laws are further amended. Another thing to bear in mind is that, shortly after the conclusion of the transition period, the Government has announced its plan to repeal EU regulations enabling free travel of people. This will be of special significance to companies delivering cross-border services involving the transfer of people between EU countries: it may no longer be as simple as it is at present and it will be important to rethink the promises made in contracts.
Force majeure, anger, and undesirable content shifts-
It may be that the departure of the United Kingdom, or, more likely, the end of the negotiation phase, would have an especially significant impact on the execution of the deal, and the parties will consider that it would lead to unfavorable consequences if they are bound by obligations based on a new system. It is also prudent to verify if such incidents could come under the scope of any force majeure provision, or if there are any means of defining them as grounds for the termination or renegotiation of the arrangement.

Suggested actions are as follows:
• Study the force majeure definition and consider whether the departure of the United Kingdom or the conclusion of the transition phase may fall under this definition. If it is possible to do so, consider the effect on the duty of the other contracting party to meet its commitments and the possibility for it to depend on that obligation in order to escape liability for non-performance.
• Look for a clause of ‘material adverse change’ or another language that might cause conditions to be renegotiated should the deal become unprofitable or subject to a change in the law.
• Think if it would be possible for any party to suggest that there will be dissatisfaction after the UK’s exit or the conclusion of the transition phase. This will only refer to a contract that imposes commitments that have been difficult to comply with, with the adjustment being the fault of neither side. Furthermore, if the parties had to foresee the alleged frustrating event, a contract could not be frustrated. It would be unlikely that mere inconvenience or the incurrence of extra costs would qualify. It is conceivable that there may be a stronger case for post-transition frustration where a contract depends heavily on EU regimes such as passporting.
Fresh burdens as the deal run
Under the current commercial and regulatory environment that emerges at the conclusion of the transition phase, any cost-benefit analysis of a deal could be totally changed. New cost, risk, and compliance burdens will most likely appear and one or both of the parties will have to bear them. If transparency for them is not expressly discussed, these burdens could make the partnership sour, which could also result in fines or other sanctions if no side addresses what is expected under the new regulations.
Suggested actions are as follows:
• Pricing review mechanisms, given the potential for new import tariffs, changes in VAT, and other trading costs. If the contract’s currency is sterling, look for any wording that addresses serious fluctuations in its value. Provisions may also be in place for both parties to carry out price reviews and renegotiation, in particular in contracts of a, particularly long duration.
• Look for arrangements that depend on regimes that may cease to apply, such as the free movement of goods/services/people or trade agreements with the EU. Is there any indication of which party will have to discharge that duty if new compliance procedures are introduced?
Potential Major post-Brexit effect
For contracts that are not yet executed, there could be less ambiguity than for existing contracts, so the parties may prepare around the effects of the UK’s departure and the conclusion of the adjustment phase and redraft them accordingly (although the uncertainty regarding the position we will be in at the end of the transition period does not make this simple). Nevertheless, after the analysis of existing contracts is complete, when drawing up future contracts that would fall into both main categories, organizations should be cautious.
The subjects discussed in the previous section are discussed in this section, but the emphasis here is on how to draft new contracts in order to anticipate and manage the effect. On all existing and prospective contracts, there is also a new issue to consider: authority and compliance. On all existing and prospective contracts, there is also a new issue to consider: authority and compliance.

References to the EU as a country and to EU rules-
Suggested actions are as follows:
• Evaluate the conditions to determine when, at the date of the deal, or from time to time, the arrangement should protect the EU (there may be further changes to members of the EU). If in comparison to the EU Member States, the UK is to be listed, this now has to be expressly mentioned.
• As an extra measure to address the likelihood of a potential transition of UK membership (e.g., Scotland proceeding with independence), it might be prudent to prepare accordingly and draft correctly while the UK is referred to as a jurisdiction in a long-term deal. Should the territory be the United Kingdom as it now is or the United Kingdom as it varies from time to time? Make plain the desired position.
• Decide whether it would be better to implement the law as it progresses or whether, at the time of signing the document, references remain fixed. If the law is adopted ‘as amended’ as a precaution, consider whether the contract should say that, if appropriate, modifications that have a significantly detrimental impact on the status of any party under the arrangement are ignored. The consequences of subsequent changes to statutes and/or the adoption of subordinate laws are often concerned with.

Force majeure, disappointment, and adverse content transition-
Suggested actions are as follows:
• If it is likely that the withdrawal of the United Kingdom from the EU and/or the conclusion of the transition phase would severely conflict with the deal, have an explicit right to cancel, terminate or renegotiate provisions resulting from the planned real adjustment (such as, in the case of a contract dealing with goods being exported from the Re-imposition of a quota or tariff on certain products by the UK to an EU Member State).
• Such Brexit-related incidents relating to the topic of the contract may also be included in the concept of force majeure, such as the EU procurement regime being inapplicable.
• If the other side wishes to ensure that the arrangement persists and does not threaten to assert Brexit as a pretext for any change of status, have an express agreement stating that the power and effect of the contract (or the selected provisions of the contract) shall not be prejudiced or weakened by the removal of the United Kingdom from the EU or by the conclusion of the transition phase.
Fresh burdens as the deal run

Suggested actions are as follows:
• Apply express wording to discuss pricing processes, market reviews, currency valuation volatility, and how the parties can perform newly-arising regulatory duties.
• If a party weighs the likelihood of either transferring its corporation out of the United Kingdom or performing any other reorganization, consider whether relocation to a group corporation should be allowed and whether compulsory termination should occur after any restructuring.
Governing rules, jurisdiction, and solution of disputes
This could prove to be a region of lower influence on new contracts, unlike previous subjects, but there could still be major improvements whose consequences are generally felt, and so it belongs to this segment where the impact is especially unclear.
The end of the transition phase could make any conflicts between the parties more difficult if one stays in the EU and the other does not. The United Kingdom is currently subject to the laws of the Brussels/Lugano Regimes on the determination of authority for disputes connecting more than one country to the Member States of the EU and/or the States of Iceland, Norway, and Switzerland of the European Free Trade Organization.
These systems will continue to refer to cases that have occurred before the end of the transition period, although there is some confusion with regard to conflicts that have occurred since the end of the transition era.
In the absence of consensus on the continued presence of the United Kingdom in a system such as Lugano, English courts could also respect foreign decisions and clauses of jurisdiction, although it may create questions as to whether a provision alleging English jurisdiction would be enforced in the courts of each remaining member state and whether English court judgments will be entirely enforceable in all other member states.
In terms of authority, the impact of Brexit will be practically reduced, since it is foreseeable that the United Kingdom and the EU will enter into an arrangement mimicking the approach under the Lugano system. Furthermore, the UK has stated its intention to enter into the Hague Option of Court Convention, which may mean that exclusive clauses of jurisdiction are usually respected (to the degree that they are entered into or reaffirmed in any manner at this stage after the UK joins Hague).
Proposed steps are as follows when preparing around the result of not keeping the Lugano Regime or something similar in effect for the UK:
• If you have a possible conflict between the United Kingdom and another member of the EU, consider starting litigation before the conclusion of the transition phase (even if these subsequently, with a view to arbitration, they remain with)
• For any upcoming contract that in any way crosses the UK-EU border, ensure that the contract is clear in its preferred governing law and authority (exclusive or non-exclusive).
• If current contracts contain an exclusive clause of authority, consider reaffirming this until Hague enters the UK (there is significant doubt about the effect of clauses which have been entered into prior to the UK joining in its own right).
• Another choice is to consider adding a binding arbitration agreement or another method for settling alternative conflicts.
• If you have a contract where there might be a conflict with jurisdiction and regulation in a specific EU country, consider seeking counsel on local law on complying with the option of jurisdiction provisions and enforcement under national law.

Lower impact post Brexit

In addition, all small contracts and contracts that are not under the Main Categories are protected by the “lower risk” mark. If a contract expires before 31 December 2020, it should not be a problem, although the possibility of any such contracts being extended on the same terms without complete review or any sort of litigation being undertaken will also be a wise approach to consider. If a deal is to last past that date but does not seem to fall under the second main category, the best option would also be to exercise caution and to be on the lookout for new Brexit-related problems coming to light if none of the topics mentioned in the previous sections are relevant.


Abbreviations used-

1. UK- The United Kingdom
2. VAT- Value-added tax
3. EU- European Union
4. E.g.- Example

Appendix-

● https://www.britannica.com/topic/European-Union
● https://www.lexology.com/library/detail.aspx?g=9174fabc-1753-4c69-8a74-71a81acbf182
●https://www.academia.edu/45008076/COVID_19_AND_EUROPEAN_UNION_THE_ANSWER_TO_THE_HEALTH_CRISIS_AS_A_WAY_FOR_RESUMING_THE_PROCESS_OF_EUROPEAN_INTEGRATION
● https://libguides.law.ucla.edu/europeanunion
● https://www.pinsentmasons.com/out-law/guides/retained-eu-law-uk-after-brexit
● http://www.a4id.org/wp-content/uploads/2017/02/Brexit-Briefing-Impact-on-Contracts-and-Choice-of-Law.pdf

 

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

5 1 vote
Article Rating
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

More in:Contracts