By Stuart Love
Friday Legal Solicitors
THE looming spectre of Brexit has caused uncertainty in almost every aspect of commercial life. One of the unintended consequences of Brexit will no doubt be a spike in disputes relating to breaches of supply contracts coming before the courts.
At the time of writing it is still uncertain how Brexit will conclude. There is, of course, a small chance that by the time this article is published a resolution will have presented itself, and things may look much clearer.
However, if that is not the case, you may want to consider what potential risks your business faces and what you can do now to mitigate those risks.
Supply chain disruption
It seems certain that when/if Brexit does go ahead there will be delays at ports caused by new customs arrangements. If you rely on components from abroad (not necessarily from the EU) you may experience delay and disruption in your supply chain and consequently not be able to meet contractual deadlines to supply your customers.
Increased costs
There could be increases in the cost of delivery of your finished products. Also, new duties or tariffs could be introduced, making your existing contracts uneconomic to perform.
Currency volatility
Exchange rates could move against you increasing your costs of production. If you have not been able to hedge against those fluctuations your costs could increase significantly with an adverse effect on your profitability.
Possible solutions
Review your current contracts both for your sale and purchase of goods or services to see if they give you any comfort. For example, there may be a force majeure (unforeseeable circumstances) clause, which if drafted broadly enough may excuse you from breaches of contract caused by unforeseeable circumstances beyond your control.
If you are entering into a new supply agreement now you could consider including a Brexit clause. Such a clause could potentially alter the parties’ obligations in the event that Brexit takes place.
For example, some Brexit clauses provide an obligation on both parties to attempt to renegotiate aspects of the contract in defined circumstances such as if a tariff is imposed or a cost of supply increases. There is, however, no guarantee that you will be able to reach an agreement, but at least you will have a mechanism to start discussions.
Other Brexit clauses identify a specific event and a specified consequence that will follow. For example, if the £/? exchange rate fluctuates by X, then the price of goods will increase by Y.
However, the best advice that I can give you at this stage is to keep talking to your key suppliers and customers as potential issues arise, to review your existing contractual arrangements and to formulate contingency plans in anticipation of future developments. In my experience, having an open dialogue about issues as they arise and planning ahead are the best ways to maintain a commercial relationship and avoid litigation.
If you are concerned about how Brexit may impact upon your commercial contracts or any other aspects of your business, Friday Legal Solicitors can be contacted on 01536 218888. Alternatively, the writer can be contacted by email at