Is your business prepared for the unexpected?
From the Covid-19 pandemic to the Suez Canal blockage in March this year, the past year and a half has highlighted the need for businesses to be prepared for the unexpected. Since no one can predict what the future will bring, it is vital for businesses to be able to adapt to rapidly changing circumstances and manage their legal liabilities which may be affected as a result.
One way of doing this is by having robust and up-to-date commercial contracts in place. A failure to have up-to-date commercial contracts in place may inadvertently expose businesses to unnecessary legal and financial liability. Equally, a failure to have contracts in place that can adapt to changing circumstances may hamper any ability to manage those legal and financial liabilities. The recent departure of the United Kingdom from the European Union (i.e. Brexit) emphasises the need for businesses to regularly review their commercial contracts to ensure that they are still fit for purpose.
So, if you are have not reviewed your commercial contracts recently, or are unsure whether they are up-to-date, some of the questions you should ask yourself are:
- Do your cross border trading contracts specify who bears the responsibility for paying tariffs, custom duties and exchange rate changes?
Since the UK is no longer part of the European Union, UK business may no longer benefit from EU wide approval scheme or reciprocal agreements between the EU and the rest of the world. This means that certain goods that are imported into the UK are now subject to customs duties. A failure to specify who is responsible for these additional tariffs, could lead to a dispute between parties - it is clearly better to specify in the contract at the outset where the responsibility lies.
- Do your contracts specify who will handle the customs clearance paperwork and labelling requirements?
As a result of Brexit, the EU no longer recognises the competency of UK-based Notified Bodies to assess products destined for the EU market. This means that any required regulatory conformity assessments for goods that will be put onto the EU market are to be done by an EU-recognised Notified Body. Over time, UK businesses selling to the EU may well need to comply with different regulatory regimes and conformity assessments, likely to increase the costs of supply.
There are also new country of origin rules, where, to qualify for preferential changes tariffs, UK exporters must demonstrate that the exported goods originate in the UK, and, along with other regulatory rule changes, this means more complex customs processes and more paperwork for completion.
- Do your contracts account for border delays?
As the lorry delays at Calais have demonstrated, shipping and border delays are now a post-Brexit reality, even given the delays on the introduction of some checks to give businesses more time to prepare. Contracting parties have an opportunity to address how these delays may impact contractual rights and obligations. Should delivery delays caused by border delays provide relief from a timely delivery obligation and if so, over what period? What may once have been unforeseen consequences may now be foreseeable and therefore capable of being legislated for under your contracts.
Questions which you should consider may include: should a purchaser have the right to cancel a contract with a supplier if they are unable supply a part because they were held up at the border? Should a customer be able to cancel a contract with you if you were unable to deliver their goods on time because it was stuck on a ship in the middle of the Suez Canal? These are all questions business owners must ask themselves.
- Are your contracts subject to the exclusive jurisdiction of England and Wales?
If your contracts are not subject to the exclusive jurisdiction of England and Wales, disputes could arise outside the UK about which court has the right to hear claims. Even with an exclusive jurisdiction clause, proceedings commenced outside of the UK may well be more complex and decisions inconsistent. Local advice may also be required about the enforceability of English court judgments outside the UK. Contracts with a non-UK aspect may well benefit from a timely review at a time when the relationship is going well rather than an assessment at a time when a dispute is pending.
If the answer to any of the above questions is no, then you may wish to consider reviewing your contracts to ensure that they adequately protect your business interests.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.