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With Easter recess over, cross-party negotiations on Brexit have resumed in a further bid to break the deadlock over the Prime Minister’s deal with Brussels, but there’s very little ‘new’ news for business to act upon. Following the latest extension to the Article 50 deadline, the UK is now scheduled to leave the EU by 31 October with or without a deal.
But a lot could happen between now and then with the upcoming European Parliamentary elections, Conservative party leadership bids and even a potential general election. There still remains the possibility that the Prime Minister finds a majority for the Withdrawal Agreement, in some form, and it is brought back to Parliament and voted through – in which case the UK would leave earlier. If you’re marking your calendar on UK time, add in 31 May, 30 June, 31 July, 31 August and 30 September as potential earlier dates – and note that these dates would all include a transition period.
Uncertainty remains, but there is now a longer window of time to prepare for exit. Many businesses are now taking this opportunity to assess options they previously didn’t have time to consider – and these include assessing contractual risk to Brexit. In particular, the viability of commercial contracts is now front of mind for many General Counsels and CFOs following the European Medicines Agency (EMA) case.
The EMA was previously located in Canary Wharf, London. As a result of the UK’s decision to leave the EU, the EMA made the decision to relocate to The Netherlands – but had an expensive long term lease to extract itself from. The EMA argued that it should be able to exit the lease on the basis of “frustration”. The High Court rejected this argument in February 2019, indicating that even where Brexit makes a contract uneconomic and less commercially attractive, it will still be difficult for a party to rely upon the law of frustration to avoid meeting contractual obligations. But, earlier this week, the EMA released its grounds of appeal to this decision and so the question of whether Brexit itself can actually frustrate a contract is now working its way through the UK judicial system, with the appeal scheduled for March 2020.
This is just one example of the contractual questions and risks of Brexit that are now leading businesses to take the time to review their contracts specifically with a Brexit lens.
I asked Meera Patel, a lawyer in Deloitte’s Global Brexit Insights team, to outline the key contractual risks and what business could do about them:
Contractual risk is gaining more prominence, and it isn’t something to be considered by the lawyers alone - many of the areas described underpin the commercial viability of an arrangement or business operating model, including personal data transfers, financial terms, communications etc. Changing an Incoterm to ensure a supplier bears the risk might seem like a sensible protection for instance, but in fact it means a loss of control and options over managing and mitigating the supply chain and duty payment terms, so a strategy to change a legal term would also need the involvement of the commercial, finance, procurement and tax teams.
Reviewing contractual risk can turn out to be a significant exercise as the reality is that some businesses operate under hundreds, or even thousands, of contracts (and across multiple business units). Businesses should leverage technology to identify and measure their level of risk with control and speed as we prepare for and anticipate the future trading environment.
Amanda leads Deloitte’s global Brexit insights team based in the UK and co-ordinates Deloitte’s Brexit expertise across the global network of firms. She advises businesses on the spectrum of Brexit related issues, assessing the scale of potential impact under various scenarios and helping clients to plan mitigating actions to minimise impact and maximise opportunity. Amanda is also an International Tax Partner advising on supply chain and trading chain models. She mainly works with the technology, telecoms, media, consumer retail and manufacturing industries. Amanda has held a wide number of roles during her career; including leading client relationships, global representative to the OECD, mentoring, non-executive board roles and trusteeships.