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The effect of Brexit on Commercial Contracts

R (Miller) -V- Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin)

Prime Minister Theresa May announced on 2 October 2016 that Article 50 of the Treaty on European Union will be triggered before the end of March 2017. The High Court has decided that she cannot trigger Brexit without putting it to an MP’s vote in the House of Commons.

One of the many aspects which may be affected by Brexit is contract terms of business.

Prior to Britain’s decision to leave the European Union, the English courts had begun to take a much stricter approach to the interpretation of contract terms. It has become apparent that the language of a contract will be interpreted given its natural meaning with the courts adopting a restrictive approach to terms which it claimed should be implied into a contract.

There are many questions which remain unclear with Brexit looming on the application of tariffs or restrictions on the freedom of movement enjoyed currently. These tariffs, if applied, could render contracts less profitable than intended or even loss making. With contracts made prior to the announcement of the referendum there is likely to be an absence of an express provision for the effect of the exit. It is likely that there will be limited relief for parties adversely effected.

Relief may be sought from provisions in contracts for ‘modifications in legislation.’ More productively it is advisable that in this interim period of uncertainty that key existing contracts are reviewed and new contracts are made future proof. The Government may legislate as to how affected contracts should be dealt with.

Top Tip: Businesses should consider if the terms of any contract they have may be affected by Brexit and if so whether any change can be agreed with the other party.

For advice on your terms and conditions please contact Alan Massenhove director of our Employment and Commercial & Corporate team.