26 May 2020 - Article
In the event of a no-deal Brexit scenario, the UK would leave the EU immediately on 31 October 2019 with no agreement in place governing the withdrawal or the ongoing relationship between the UK and the EU.
But don’t worry, Withers tech have created three must-have checklists — commercial tech contracts, intellectual property (IP) and data protection — that will help tech companies navigate some of the uncertainties of a no-deal Brexit and come out on top. Check back here each week for a new doomsday ‘no deal’ Brexit checklist.
First up, the essential Commercial tech contracts Brexit checklist.
Commercial tech contracts:
Verdict: Many contracts won’t work as intended. You can come out on top by being pro-active in issuing variations/clarifications to existing customers contracts which may help avoid managing multiple ad-hoc customer requests.
30-second summary: Contracts are likely to contain a number of provisions that were drafted on the assumption the UK would remain part of the EU. Some of these provisions typically include references to EU legislation, territory restrictions, change in law and material adverse effect provisions. Contracts may need to be amended in order to reflect the intention of the parties.
The market is likely to see attempts of unilateral changes from tech companies to vary contracts, as opposed to seeking wet ink amendment agreements to address this issue. The binding legal effect of this will be dependent on original terms governing amendments. Customers may use this as an opportunity to re-negotiate non-Brexit related provisions relying on force majeure, material adverse change or change in law clauses as leverage.
- Contract due diligence: Identify and review the most material contracts that extend beyond the Brexit date. Start with key customers and those with EU-UK cross border elements. Provisions to focus on:
- Compliance: If you are required to hold any licences/permissions to provide the relevant goods or services in the EU, assess whether these will still be valid, particularly important for regulated entities.
- Territorial restrictions: Look for any EU territorial restrictions and assess whether the UK is expressly included (or excluded depending on the intention). Provisions that defines the EU as the member states “from time to time” will result in an exclusion of the UK from the definition. Don’t forget to assess the territorial scope of any IP licences.
- Delivery obligations: Review any delivery commitments and any penalty clauses related to late delivery and assess exposure. Brexit may have an impact on suppliers affected by new tariffs and other trade barriers (particularly important for hardware providers).
- Currency, exchange provisions and taxes: Consider possible post Brexit economic changes, including the possible further fall in the value of GBP and new import tariffs, VAT changes and other costs of trading. Assess whether any currency exchange provisions would result in material fee variations from what was intended.
- Key personnel: Assess whether your listed key employees/contractors have the right to work in the EU/UK post Brexit and amend key personnel provisions accordingly (particularly important if there is a service element to the contract).
- Insurance provisions: Assess whether your existing insurance policy contains the appropriate territory coverage (assess any exceptions around change in law/material adverse changes).
- Material adverse change/change in law/force majeure provisions: Depending on how broadly these clauses are drafted, Brexit may trigger one of these provisions, which may result in additional rights for the customer (including the right to terminate). Assess exposure on key customer contracts and pre-empt renegotiations.
- Governing law and jurisdiction: Consider whether an English jurisdiction clause will continue to be suitable – it may be more difficult to enforce a judgment by English courts in some EU Member States.
Contract variation/renegotiation: consider whether there is any need to renegotiate or amend key contracts following due diligence. Review any change control process to see if it can it be used to force through any changes needed as a result of Brexit. Wet ink amendments for every customer may not be feasible from a timing or administration perspective. Unilateral variations may need to be considered with reliance placed on acceptance by continued conduct, subject to appropriate notification periods (be aware of potential for challenges as to the binding nature of unilateral changes).
Future-proof new contracts/template updates: Update templates now to address any issues identified from the existing contract review process detailed above. Consider adding a clause to expressly cover what should happen in the event of Brexit.