Brexit clauses in contracts

brexitIt takes time to adjust to a major shock: to recover, to process the information, and to recalibrate. Three weeks after the UK electorate voted, unexpectedly, to leave the European Union, IP Draughts is starting to think more clearly about the implications of the vote for IP practice. To do so, we have to leave behind the lies, the half-truths, and the stirring of ugly emotions in the referendum campaign, in some ways very different to the political process of a general election, and instead focus on the practical.

Some plain talking is now required. Many readers of this blog will fall into a category of people who benefit from international trade, who embrace the cultures of others, and who are prosperous in absolute terms (however much we struggle to pay a large mortgage or look enviously or competitively at others who are doing better than us). We work and often socialise with others who share this perspective, both in our own country and in other countries.

To many people with this mindset – let us give them a name and, for want of a better, use one that was used disparagingly in the referendum campaign, “metropolitan elite” (otherwise known as the London and South East “bubble”) – it is unthinkable that the UK would want to leave the European Union. It would not be in our economic, security, cultural or social interests to do so.

schockBut vote to leave we have, and in processing this information we need to understand the perspectives of those who formed the majority. Of course, there is no single group of Brexiteers. But generalising helps us to focus on what needs to be done. There are the social conservatives, the older generations, the people whose lives are not international. There are those who have been suffering from stagnant salaries over the last decade, combined with worsening conditions of employment. There are those who can’t get access to good medical services or good schools.

In other words, the people that are left behind, through choice or circumstance, in the noisy, difficult, competitive but satisfying ‘global’ world that the metropolitan elite inhabits.

The UK’s new Prime Minister recently made a speech in which she recognised the concerns of the Brexiteers. We should be spending more money on new schools, hospitals and infrastructure. We should be increasing the salaries of public sector workers. In short, we should take steps that are other times would be called left-wing.

Coming back to IP (at last), IP Draughts was at a business dinner this week, sitting next to a senior German IP practitioner. The conversation naturally turned to Brexit. IP Draughts’ dinner companion was sanguine about the prospects for the EU doing a deal with with the UK that was in both parties’ interests. Yet, when pressed, he thought that free movement of people was a non-negotiable issue – it was a subject on which many Germans and other EU nationals felt very deeply. IP Draughts thought and said that this probably meant that a deal was unlikely, as control of immigration was a central theme of the Brexit campaign.

IP Draughts was left with several thoughts. First, there is the (perhaps obvious) point that IP practitioners, and professionals generally, may have more in common with their counterparts in other countries than they do with their fellow citizens who have been left behind by globalisation. Second, and more interesting, that while the metropolitan elite in the UK have had a rude shock and become more aware of the large body of people who don’t share our global perspective, our colleagues in other countries may not be so aware of this issue. This has been noticeable in some of the “advice” that Continental Europeans have given to the UK in IP Draughts’ Twitter feed. It is not that we need to think outside the box; we need to think outside the bubble.

futureTurning to IP contracts, IP Draughts and his colleagues have been thinking about how contracts might be affected by Brexit, and what terms might be included to address this issue. Of course, we don’t yet know what form Brexit will take, as it depends on a negotiation that has not yet started. But contracting parties may want to think through the range of possible implications for their contract of Britain leaving the EU, and perhaps even include a clause or two to address the issue. IP Draughts has previously mentioned on this blog some of the possible situations where contractual terms may need to be revisited. He now wonders whether we need a standard clause to address the variety of issues, many of them not easy to foresee or plan for, to address this issue in more general terms. Such a clause might, for example, provide that:

  1. If performance or interpretation of contractual obligations is substantially affected by the fact of Brexit, or by changes in law arising from Brexit, or by the actions of persons or institutions arising from Brexit or in contemplation of Brexit, then a party can notify the other party that it wishes to renegotiate or terminate the contract to take account of this.
  2. If renegotiation occurs, the objective should be (unless the parties agree otherwise) to put them in as close a position to that in which they would have been if the Brexit-related action or event had not occurred. If they can’t agree, the matter can be referred to an adjudicator who will decide on the appropriate adjustments, or conclude that there are no reasonable adjustments to take, in which case termination may be the agreed outcome.

IP Draughts has not yet drafted such a clause, but it sounds a bit like a combination of a force majeure clause and a severance clause, combined with a mechanism for referring a dispute to an expert or arbitrator under a simplified (quick and cheap) process.

As ever, readers’ thoughts on this subject are welcomed.

 

 

 

8 Comments

Filed under Contract drafting, Intellectual Property

8 responses to “Brexit clauses in contracts

  1. Thank you; fascinating drafting challenges ahead. If, when, performance, interpretation … I imagine folk will need something tighter, or it will be used as a get out of any contract either party regrets having entered. What in fact is ‘the fact of Brexit’? The vote, Article 50, the end of the process ….? The fact the UK voted for ‘Brexit’ (without knowing what it may ever be) is already causing so much uncertainty there are contracts out there many will already be regretting. Sterling devaluation is already a winner/loser for many.
    I am still playing out in my mind the one where EU changes a bit, time passes, we change a bit, time passes, we never trigger Article 50 … but then its summertime, the sun is shining, the birds are singing …

  2. vrkoven

    This was an uncharacteristically political series of points and ruminations, so perhaps a response partly in kind might be forgiven. You are probably right that, on the whole (notable exceptions including public intellectuals like Matt Ridley), the Brexit vote was largely a reaction of those who have been, or perceived themselves to be, losers in the multi-culti world of Londonia. These people have real issues, few of which in all likelihood will be addressed by having the UK out of the EU. These are people who just want to be left alone in their customs and traditions, and don’t want to feel like foreign tourists in their own country. Addressing those concerns, if one wishes to, is a baby vs. bathwater calculation.

    What I find curious in the reaction of PM May is that building new hospitals and schools, and increasing the dole or–good grief!–bureaucrats’ salaries, has nothing to do with these issues, nor are the Brexiteers the sort of people who were clamoring for these kinds of projects. Certainly, EU membership wasn’t preventing the UK from adopting any of them, but puffing up the state is hardly the way to maintain the economic growth necessary to keep Britain afloat. Sadly, that she would make such off-track recommendations is an indication of how out-of-touch Londonia is with the rest of British society, and in this respect is certainly on a level with its Continental peers, whose “advice” (your scare quotes were fully warranted) only bespeaks head-in-sand syndrome: they are none too secure in their own countries.

    Now, as to contracts, I’ve never seen one that specified “EU law” as governing, because there really never was such a thing; it’s the law of, e.g., England and Wales, which up to a point does and after that point does not, include whatever laws were adopted to implement EU directives, regulations and decisions. So no changes would be needed from that standpoint to adapt to the new order. I think what you’re talking about, sensu largo, is a force majeure clause. I often see FM clauses that include changes in law that make performance by a party materially more onerous (an obviously looser standard than changes that make performance unlawful). It may be that this is not standard in UK-based contracts, but if not it would be a reasonable adaptation of a traditional formulation. When such a thing happens (and it’s a bit unclear to me how Brexit-implementing laws would do this), it would necessitate the parties’ reaching an agreement on how to proceed, with the ultimate option of cancellation without penalty. I would not, frankly, anticipate many contracts having to go pop.

    • Vance, as ever your insightful comments are appreciated.

      Some random political thoughts: if Brexit won’t deliver what the Brexiteers really want, then perhaps we need to give them something else and get them to hand back the EU membership toy, ideally before they break it; “keeping the UK afloat” sounds like it is in a bad economic state, which I hope is not true – the rest of the EU seems to be in a worse position; not all public sector employees are bureaucrats – we need to improve salaries for (NHS) nurses both in fairness to them and to make the profession more attractive to a younger generation so that we are less reliant on overseas staff.

      On IP contracts, your suggestions sound interesting. Contracts that might conceivably go pop include some life science agreements if they are dependent on EU funding, or agreed in the expectation that UK regulation of clinical trials is the same as in the EU, or rely on data protection terms that no longer work if the UK is outside the EU. Some of these issues shouldn’t arise if everyone is sensible, but…

  3. All good points, I think. One theoretical problem that may not prove out in practice is that parties may not agree as part of the original deal to let a third party dictate a revised deal ‘because Brexit’. I can also foresee difficulties negotiating the nature and size of a Brexit-related dislocation that opens the door to mandatory third-party revision of the deal.

  4. Chris Beck

    Yep, think that’s a pretty thoughtful summary.

    Chris Beck

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