Professional Interpretation

At the beginning of 2013, Cameron, then prime minister of the United Kingdom, called for a referendum to decide whether the United Kingdom would withdraw from the European Union. Today, the United Kingdom has had more than six years of "Brexit". After repeated discussions, consultations and negotiations, the end of the "Brexit" war will still be inconclusive. The uncertainty of the "Brexit" results has caused turbulence in the UK's domestic political and economic situation, the financial commercial market, the British pound exchange rate and national consumption, and also affected the changes in the world's political and economic structure.

In addition, those commercial practitioners who have economic and trade cooperation with the United Kingdom have raised many concerns, including:

- If we choose UK law as the applicable law in the contract, what effect will “Brexit” have on contract performance? And if the applicable law of choice is not English law, do you still need to pay extra attention to the outcome of the Brexit?

The international business department of Beijing Docvit Law Firm hereby elaborates on the contract terms that are prone to the risk of compliance after “Brexit”.

• Contractual terms involving geographical scope

In some commercial contracts, the contracting party often restricts the exercise of rights and performance obligations by geographical scope, or regulates certain standards (quality, preferential policies, licenses, approvals, qualifications, etc.), and some contracts also include jurisdiction clauses and intellectual property protection. Therefore, it is important to pay attention to those clauses that quote geographical scope and to determine whether the application of the clause in the context of the Brexit in the UK is beneficial to oneself.

• Terms relating to taxes and pricing

“Brexit” has already had an immediate impact on the financial capital markets everywhere, and it is more likely that the exchange rate of the pound will fall. It is reported that if the UK withdraws from the EU without a series of trade agreements with the EU, the global central bank with sterling in the foreign exchange reserves may sell more than 100 billion pounds ($127.53 billion) of foreign reserves. Therefore, it is especially important to pay attention to the difference in the currency of the valuation in the adjustment of the income/payment clause.

In addition, the tariff rate, value-added tax and other tax rates may be greatly increased, the UK cannot continue to have the preferential treatment of goods in the EU, which will increase the import and export trade costs between the EU and the UK, which in turn will lead to raw material accessories. When the finished product price rise, the contracting party should rationalize the tax and price terms in time to avoid the derogation of the real profit.

• Terms related to cross-border issues

Cross-border freight logistics will be affected differently due to the Brexit model, which directly affects the fulfillment of various delivery obligations in the contract and the operation of the raw material supply chain. After Brexit, with the changes in the rules of free flow of goods between the EU countries and the UK and the scope of market access, the time and cost of cross-border transportation of goods will increase accordingly. The parties to the contract shall promptly consider adjusting the time limit for delivery obligations and the cost of freight charges, while weighing the need to replace logistics or suppliers.

• Force Majeure and Significant Adverse Change Clauses

Since the principle of universal application of the force majeure clause is based on strict statutory law, after the “Brexit”, the specific agreement of the force majeure clause should be carefully examined according to the applicable law, which specifies or covers the situation of force majeure caused by government actions such as Brexit. can be applied.

The material adverse change clause is more focused on the protection of fairness than the force majeure clause, and it is more dependent on the express contractual agreement of the contracting party. Therefore, it should be noted in the review of the contract clause whether the clause explicitly covers the Brexit situation.

In addition, the applicable premise of the force majeure and major adverse change clauses also includes the unforeseen, inevitable and insurmountable situation of the contracting party at the time of signing the contract. When reviewing the relevant clauses, it should also pay attention to the contracting time and the process of Brexit, risk assessment based on factors such as the identity of the party.

• Terms relating to the selection of applicable law

Since EU law is above the laws of member states, there are also a large number of references to EU law in English law, so special attention should be paid to those contract clauses that choose to apply English law. After the Brexit, the UK is free to adjust its laws and regulations, and the contracting party should consider the legal changes in the legally applicable provisions after the Brexit and its understanding of the corresponding definitions in the contract.

Contract review shall be carried out smoothly in the context of Brexit. It is not only relying on the review of specific transaction documents, but also depends on restarting subsequent negotiations with the counterparty, re-establishing the trading model, trading rules, adjustment of risk internal control structure and other professional work. The trading entity should fully understand the impact of Brexit on the entire market environment, the industry environment, financing channels, the trading partner's goodwill, credit, tax planning and overall organizational structure planning, and effectively reduce the Brexit to itself.