The result of the EU Referendum has sparked much comment, speculation and uncertainty across most aspects of our personal and business lives but, for me, the BBC’s Legal Correspondent Clive Coleman summed the current position up very neatly when he wrote “the referendum has changed nothing legally but everything politically”.
For now he’s absolutely right because as is now very well known, despite the political upheaval, the out vote does not actually trigger the UK’s departure from the EU. As an aside, there’s a growing legal debate as to whether the vote is legally binding but that’s a topic in its own right.
The exit process proper will not be started until the new Prime Minister Theresa May, gives the EU notice under Article 50 of the Treaty on European Union to start the two year (extendable) window in which the terms for our departure are to be negotiated.
There are moves afoot to obtain court declarations that notice can’t be given without parliamentary approval but, again, that’s another topic and whatever the outcome, until notice has been served and exit terms are settled English law remains just as it did the day the polls opened.
From a litigator’s perspective the practical effect of this is:
- In the absence of a Brexit get out clause in an existing contract you can resist any attempt made to break a deal on the basis of the out vote alone.
- Rights and obligations derived from EU regulations, for example those under the Commercial Agents Regulations and data protection legislation, remain in force and enforceable.
- If you are about to enter into an agreement that might run into any period after the UK actually leaves the EU consider including a specific Brexit based termination option and/or review whether any material adverse change of position or force majeure clause could be triggered either in your favour or against you.
- The fact that something has/may have become more expensive because of the fall in sterling will not entitle a counterparty to break a contract in the absence of an express right to do so being triggered by,for example, sterling hitting a specified price. It’s well established that the court won’t save a party from a bad bargain and I can see this well-worn phrase being rolled out quite a bit in the next few months. Those currently negotiating agreements should think about whether they need the protection of a termination/suspension right tied to currency values.
- Applicable law and jurisdiction clauses will continue to operate and be interpreted as they are now. If you want to pursue European counterparties it may very well be in your interests to do so sooner rather than later while there is still certainty in this area.
- The same holds good for serving court proceedings while the EU Service Regulation remains in force. If its terms fall away in any Brexit settlement service it is likely to become more costly and expensive.
- The position on enforcement is similar. English judgments are currently readily enforceable across the EU regardless of the nationality of the parties to a case courtesy of a couple of EU regulations that contain restricted grounds on which a defendant can base an objection. If these regulations aren’t replaced with equivalent terms it’s a fair bet that European enforcement will become a lot harder and more costly as the rules regarding the enforcement of non-EU judgments of each individual country in which enforcement is sought will have to be checked and followed. The take away point for those looking to enforce a judgment in the EU is thus to act now and take advantage of the current regime while you can.
Regardless of the (current) legal position it will be interesting to see if businesses are prepared to renegotiate existing or proposed terms to reflect the uncertainty we are all facing over the short to medium term. Whatever the impact of those uncertainties, if you are discussing options that might apply once the UK eventually leaves the EU, make sure these are properly documented and included in any contract or variation to one, particularly where an agreement contains an entire agreement clause. These clauses are, as Mr Justice Park aptly put it, designed “to preclude a party to a written agreement from thrashing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim” and are likely to be enforced. At best this will leave a party trying to rely on an assurance that XYZ would be ok if ABC happened with a steep, expensive and risky uphill struggle to prove their case on equitable grounds. At worst they’ll be dead in the water from the off.
Regardless of the rights and wrongs of the outcome of the decision to leave the EU I am sure that businesses will endure and succeed provided they stay abreast of the changing landscape and plan as best they can for it. A ‘new normal’ will emerge. Until then we all have to hold our nerve and to use a uniquely British phrase, keep calm and carry on.