The Impact of Brexit on Commercial Contracts

by Marketing Team | July 05, 2020

The Impact of Brexit on Commercial Contracts

Brexit is getting real and it’s time to evaluate the potential impact on your commercial contracts. A few days ago, the U.K. declared it has no intention to extend the transition period further than 31st December 2020. The U.K. left the EU on 31st January 2020, and the EU law will continue to apply to the U.K. only until the end of the transition period, as stated in the Withdrawal Agreement. 

What is going to happen after, and how is Brexit going to impact on your commercial contracts? 


What to look out for

After the end of the transition period, the EU Treaties, EU free movement rights and the general principles of EU law (such as the single market and the customs union) will cease to apply in the U.K. Prior EU regulations will continue to apply in U.K. law until they are modified or revoked by U.K. regulations.

It’s very important to determine if Brexit is going to have an impact on existing contracts, on which specifical clauses, and if there are grounds for renegotiation. 

Points and clauses you should pay attention to include: 

Increased trade barriers: It seems unavoidable that Brexit will cause an increase in trade barriers and costs. You may want to renegotiate your agreements or reassess your position.

Movement of persons: The freedom of movement of citizens between the U.K. and the EU could be impacted, which is relevant for companies operating in the service industry. Assess if limitations to the freedom of movement are likely to affect your current contracts. 

Currency fluctuations: Pound vs. Euros fluctuations are another possibility, albeit maybe even trickier to forecast. You may want to ascertain if heavy fluctuations may give rise to the application of force majeure, hardship, material adverse changes and the likes.

Territorial scope: If your agreements have the EU as territorial scope, they will need to be amended to reflect the exit of the U.K. from the EU territory. 

Parallel regulatory regime: If your commercial agreements regard the provision of goods and services on both the U.K. and EU markets, this may involve the existence of two parallel regulatory regimes. 

Change in law: What should be considered the applicable law to the contract?  Are there explicit references to EU legislation or principles? 

Spotting these provisions and evaluating the obligations that may arise is not always easy, especially if the formulation of the contract is not explicit. 


Automated contract review to the rescue

Reviewing commercial agreements is one of the activities a law firm should take into account as Brexit is approaching. 

Manually reviewing agreements though is extremely time consuming. It is repetitive, and also tends to be more error prone. Reviewing your commercial agreements in the light of the Brexit changes, entails a substantial dose of risk: the risk of overlooking important provisions and, consequently the risk of a normative vacuum or a substantive imbalance in rights and duties after the transition period is over.  

Machine learning contract review technologies like Cognitiv+ allow for automated, intelligent analysis of the existing contracts. Cognitiv+ can review large volumes of contracts and highlight the information that should be analysed and considered in the light of possible changes due to Brexit. 

Machine learning contract review technologies allow for automated, intelligent analysis of the existing contracts.

Cognitiv+ technologies consists of an “out of the box” solution, the Review Platform, and a highly customizable solution, the GrayBox. The GrayBox can be trained to recognize the clauses, provisions and obligations within your commercial agreements that are more likely to be impacted by Brexit, on the basis of the goods or services you provide.  

After an initial training phase, where Cognitiv+ artificial intelligence system “learns” to identify all those explicit and implicit sections which are “Brexit-sensitive”, the software is ready to skim a large number of agreements to look for those parts that need attention. 

The software is also able to extract the obligations arising from the contract and assign a level of criticality, making it easy to understand what sections need to be addressed first.  

Finally, the results can be extracted into Word and Excel files for an easier, “helicopter view” of the matter.