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The potential implications on new and existing contracts and disputes if the UK leaves the EU

View profile for Christopher Buck
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On Thursday 23rd June 2016, there will be a referendum to decide whether Britain should remain in the European Union. If the UK opts out and leaves the EU, we look at the potential implications on new and existing contracts and disputes…

Contracts

The UK government would to have to decide what approach to take in relation to conflict of laws rules. The UK could choose to leave under the current rules, under the Rome I Regulation (593/2008/EC) (“Rome I”) and Rome II Regulation (2007/864/EC) (Rome II) in place currently.

Thiswould allow for the UK Courts, rather than the Court of Justice of the EU, having the ultimate authority over a matter. It may not have immediate effects, but could potentially lead to alternative interpretations between the UK and remaining EU Member States in the future.

Alternatively, if the UK no longer wish to apply Rome I and Rome II, there would be an assumption that UK courts would revert to applying the rules implemented prior to these regulations. In relation to contractual obligations, these rules were identified inthe Rome Convention(80/934/EEC) as in force until 17 December 2009. These rules are very similar to those found in Rome I, and as such, would not create cause for concern, as material changes to contractual obligations would be unlikely.

Non-contractual obligations may differ more, as the previous Private International Law (Miscellaneous Provisions) Act 1995 does not set out similar provisions to Rome II. In particular, the act does not provide the right to decide upon the applicable law to the non-contractual relations between parties.

New

Implications on new contracts will depend on what legislation the UK adopts. If the UK becomes a member of the European Economic Area (“EEA”), then EU legislation would remain incorporated, but only in relation to matters covered by the EEA Agreement.

It would be advisable, when negotiating new contracts, to consider how the UK leaving the EU may affect your contract and ensure sufficient measures and terms are in place such as:

  • Providing termination rights to the parties upon the UK leaving the EU
  • Ensuring force majeure provisions expressly include or exclude the UK leaving the EU; and/or
  • Allowing and providing for alternative legislature which would apply upon the UK leaving the EU

Existing

The UK leaving the EU may lead to conflicts and disputes regarding current contractual agreements. Therefore, it may be wise to review such documents and agreements in light of any confirmed changes, to prevent any potential disputes where possible.

In some cases, it may even be the case that force majeure provisions are triggered, or the contract becomes frustrated where the UK leaves the EU.

A decision for the UK to leave the EU will start a two-year negotiating period before final confirmation. This means, especially for contracts with shorter terms, there is a sufficient time period to discuss any potential effects on your contract and make any necessary amendments or alterations prior to the final confirmation.

Disputes

An important part of commercial documents is their stipulation as to how any dispute between the parties will be resolved. EU legislation allows parties to choose the courts which have jurisdiction if any dispute should arise. If the UK were to leave the EU, it would be likely to agree to contracts containing provisions, confirming English Courts have jurisdiction. If this is not stipulated in the contract (if the contract is with another EU Member State) they may not wish for English Courts to have jurisdiction – even if that is what was agreed.

Furthermore, should one of the parties to the contract be based abroad and English Courts have jurisdiction, it may also be prudent to include a clause stipulating an agent upon whom any documents for service can be served upon.

Potential enforcement issues should be considered, and new contracts should reflect what is intended to be done upon a dispute arising and where the UK leaves the EU.

If you need any contracts advice, our team can advise you on any potential implications the referendum results may have. Please do get in contact my email me on Christopher.buck@franklins-sols.co.uk or calling us on 01908 660966.

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