News & Views

Legal tips for business contracts following the EU Brexit trade deal

Whatever your view of the EU Brexit trade deal (or the EU-UK Trade and Cooperation Agreement, to give it its proper title) it was bound to present future challenges for the UK and the EU. Few though would have predicted that the Covid-19 vaccine roll-out would be one of them. The AstraZeneca and EU dispute has highlighted just how careful you need to be when drafting clauses in business contracts relating to the supply of goods and services cross-border, and the value of checking the small print.

So, here are some legal tips for UK-based businesses entering into business contracts with EU counterparties.

1. Be crystal clear who you are contracting with

This may sound obvious, but it is fundamental that a contract is with the right counterparty, that the signatories of the counterparty have capacity and authority to form the contract, and that you carry out adequate financial and reputational due diligence on the counterparty. Your ability to enforce the contract may depend on this.

2. Beware of unintended territory definitions

A new contract being entered into which links to a pre-Brexit contract that has references to the EU (for example, as the area of exclusivity) needs to take account of how the EU is defined in the pre-Brexit contract. If the pre-Brexit contract defines the term EU as being the member states at the time the pre-Brexit contract was entered into, this will include the UK. If it defines the term EU as being the members states from time to time, this will not now include the UK. Territory definitions are crucial as your ability or otherwise to trade freely with parties inside or outside of a particular territory will depend on them.

3. Avoid ambiguous references to laws and regulations

Business contracts often contain warranties regarding compliance with laws and regulations, and so references to laws and regulations need to be carefully defined post-Brexit. As EU and UK laws and regulations start to diverge, it is important to be clear which laws and regulations are being referenced. For example, as EU GDPR and UK GDPR start to diverge, a general reference to compliance with data protection laws will create ambiguity. Where possible, expansion of contract definitions is advisable, as your ability to defend or enforce contract terms will depend on them.

4. Understand what your contract obligations really mean in practice

This has always been the case with business contracts, but the AstraZeneca and EU dispute has highlighted how closely contractual terms are scrutinised when there is a disagreement between the parties. AstraZeneca contracted to use “best reasonable efforts” to supply the EU with vaccines. AstraZeneca argues that this does not confer a strict contractual burden upon them to meet supply commitments. The EU argues it does, and that AstraZeneca are contractually obliged to meet delivery requirements, including using AstraZeneca manufacturing facilities in the UK to supply the EU. It is always best to define such terms, wherever possible, and maybe include some worked examples to help with interpretation. If nothing else, making sure you fully understand the worst case, best case, and most likely outcome of contract obligations, will enable you to put contingency plans in place.

5. Make sure confidentiality provisions factor in data protection rules

The AstraZeneca and EU dispute is playing out very publicly in the press, though commercially sensitive information has been redacted from the published version of the contract. Confidentiality provisions are a key consideration for most business contracts, as parties usually want to share information necessary to enable each other to perform their contractual obligations. Just be careful to factor in the data protection rules that apply to you, as these are binding on you regardless of anything you may agree with your counterparty. The consequences of breach are very substantial.

6. Be clear on whose law applies and how disputes are to be resolved

With cross-border business contracts a routine part of business life, it is essential to be clear which country’s laws govern them. This will usually determine which Courts have jurisdiction to handle court proceedings relating to them. With the cost and disruption of court proceedings being so high, consider incorporating into the contract alternative dispute resolution mechanisms, such as arbitration and mediation, that must be exhausted before the parties can resort to more formal court proceedings.

7. And finally, don’t forget to cater for the obvious practical issues

The EU Brexit trade deal may leave several loose ends untied, but it does contain many points of agreement and guidance on important issues such as tariffs, trademarks, data transfer and customs declarations. What it doesn’t cover are contingencies for the obvious practical issues that can make or break a deal, such as border delays, exchange rate fluctuations, cost fluctuations, force majeure, and business interruption. These are things that can and should be anticipated and covered in the contract terms. And make sure your insurers are aware of any significant liabilities you may be taking on, such as liquidated damages, so they don’t play the non-disclosure card if a claim does arise.

In summary, contract law and negotiated terms are developing all the time in response to events such as Brexit and the global pandemic. Taking advice from experienced commercial lawyers should give you access to the latest thinking around these issues and afford you and your business a strong level of risk management and financial protection.