Now the UK has left the European Union [EU], we are likely to see changes to certain commercial contracts, and there are concerns relating to both existing and upcoming deals.
There has also been a level of uncertainty surrounding how contractual disputes will be disrupted as a result of the UK’s departure, with concerns that it may be difficult to enforce English judgement throughout EU member states.
To best understand how commercial contracts will be impacted, it is important to look at the supply of commercial goods and the supply of services separately.
We have set out a breakdown of some of the likely changes at the end of the transition period, and how disputes may be affected as a result.
Commercial contracts for the supply of goods
Although the supply of goods between businesses is mainly governed by UK legislation, Brexit will bring about some significant changes.
The most common changes are goods labelling, pricing, increased haulage costs, import and export licences, changes to VAT rules, and new customs processes and procedures.
UK businesses that import and export goods within the EU will need a UK-issued Economic Operator Registration Identification number [EORI] in order to submit declarations to UK cutoms. Some businesses may already have an EORI, but if it does not start with GB they will need to register for a new one. You may also need an EU EORI number if your business submits declarations to EU customs.
For CE marking of goods, which is a sign that a product meets specific safety requirements, the UK Conformity Assessment (UKCA) will replace the CE marking for manufactured products being sold in Great Britain. Products that currently require a CE marking for sale in the EU will continue to require a CE mark. There should be no change to the current conformity assessment system for CE marking save that from 1 January 2021 any mandatory conformity assessment must be carried out by an EU-recognised conformity assessment body. Products may carry both the CE and UKCA markings provided they are fully compliant with both EU and UK regulations.
When dealing with customs processes and procedures, UK businesses will have to apply customs, excise and VAT procedures to any goods traded with the EU. This will broadly be similar to those that were already in place for goods traded outside the EU.
Commercial contracts for the supply of services
Business to business contracts for services will still, overall, be governed by the UK Supply of Goods and Services Act of 1982, and the same law principles will continue to apply.
It is highly advisable that suppliers dealing with EU customers ensure they have written contracts in place governed by UK law. If they fail to do so, there is the risk of uncertainty surrounding the terms and laws which govern the contractual relationship, and this may lead to disputes.
During the transition period, many questions regarding data protection have arisen because it is unclear whether the EU will give the UK an adequacy decision that will allow the free flow of personal data cross border. Without this decision, businesses will need to rely on standard clauses and other arrangements that may need to be implemented before the end of the year. Currently, there is no fall back deal between the UK and EEA to cover the processing and transfer of personal data between the UK and EEA, but we may see new guidelines emerge. Businesses, including non EU/UK business that process personal data may also need to appoint formal data protection representatives both in the UK and EU to be the conduit between them and the relevant data protection regulators and individuals in relation to the exercise, supervision and enforcement of data protection legislation.
The impact Brexit will have on commercial disputes
The current framework of EU rules will continue to apply to court proceedings issued before the end of the transition period. These provisions apply in both directions, so English and Welsh courts will continue to use the current framework to enforce EU judgements where the court proceedings leading to that judgement were issued on or before 31st December 2020. EU courts will do the same in respect of English and Welsh judgements where the court proceedings were issued on or before that date.
It is unclear how much disruption there will be following the UK’s departure from the EU, but it may lead to increased parallel litigation in the UK and EU, as well as difficulty enforcing English judgement within the EU member states.
Arbitration
The simplest way for businesses to side-step Brexit issues is to opt for arbitration, rather than litigation, as international arbitration is independent of the EU. The choice of arbitration is increasingly easy to make, particularly as some procedures which were exclusive to court proceedings are now also available in arbitration
Arbitration allows organisations who are owed money by clients to collect the debt easily, without committing themselves to lengthy court proceedings. Following the Coronavirus pandemic, we are likely to see an increase in these types of disputes, as many businesses have not been paid their money due to financial difficulties.
For those who have already commenced proceedings, and did not choose arbitration, workarounds in litigation are in place when the defendant is based in another continent, and these may be used when dealing with business disputes within the EU.
There are also helpful transitional arrangements in the Brexit Withdrawal Agreement, which allow disputes already being litigated to continue to benefit indefinitely from the Brussels regime, no matter when the judgement is given and enforcements begin.
Business owners wanting to understand how Brexit will impact their commercial contracts should speak to a lawyer who can analyse their individual agreements and outline any new legalities they must adhere to when providing goods or services to the EU.
In addition, a lawyer can help restructure any current contracts to ensure they are governed by UK law and prevent any potential disputes on jurisdiction.
If a business-owner has concerns surrounding an existing dispute, they should seek legal advice to discuss their individual case and the options available to them.
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