The UK referendum vote in favour of Brexit on 23 June has inevitably raised questions as to how English law contracts will be affected and whether English law remains an appropriate choice for commercial parties.
In fact, Brexit should not have any impact on the willingness of commercial parties to choose English law to govern their contracts. The key attractions of English contract law, including its combination of predictability and flexibility and its respect for ‘freedom of contract’, will not be diminished as a result of Brexit. The core principles of English contract law derive from the common law, and so will be unaffected by the UK's departure from the EU.
Brexit may however give rise to issues as to how particular contract terms should be interpreted in circumstances which may not have been foreseen when the contract was entered into. So, for example, it may not be clear whether references to the territory of the EU should be interpreted as meaning the countries which constituted the EU at the time of the contract, or the countries which constitute the EU from time to time. Parties would be well advised to review existing contracts for terms which may be affected by Brexit and consider whether it may be advisable to seek to agree amendments now to avoid any difficulties in interpretation later.
Parties may also wish to consider whether changes associated with Brexit might enable them to terminate agreements which have become unattractive in this changed landscape. Absent an express right to terminate, there may be other clauses a party can rely on, such as force majeure or ‘material adverse change’ clauses, or a party may be able to invoke the common law doctrine of frustration to put an end to its obligations. However, these arguments are not straightforward: in general terms, none of these routes is likely to succeed simply on the basis that the contract has become more onerous or less profitable as a result of Brexit-related events. For new contracts, if a party wishes to be able to terminate the agreement upon Brexit, it is best to include an express termination right.
Brexit also has implications for jurisdiction and enforcement of judgments as between the UK and the remaining EU Member States. After Brexit, it is highly likely that EU Member States’ courts will continue to respect English jurisdiction clauses and enforce English judgments. The precise position will however depend on the arrangements put in place: so, for example, whether the UK reaches an agreement with the EU on similar lines to the recast Brussels Regulation, or reaches an agreement to join the Lugano Convention, or signs up to the Hague Convention on Choice of Court Agreements. Brexit will not have any impact on arbitration clauses or enforcement of arbitral awards; these matters are dealt with under the New York Convention, which is unaffected by EU membership.
This post is a summary of Herbert Smith Freehills’ briefing which can be found here.