Brexit’s impact on commercial contracts for UK businesses
November 30, 2020
In the latest of our series of articles on Brexit and the changes we can expect come 1st January 2021, Partner Rebecca Kelly looks at the implications for UK businesses and their commercial contracts
There are likely to be significant changes to certain commercial contracts come the 1st January 2021. In order to best understand these, it makes sense to look at contracts for the supply of commercial goods and the supply of services separately.
Commercial contracts for the supply of goods
Even though the supply of goods is mainly governed by UK legislation, within the confines of UK common law, the impending full Brexit deadline will bring about some significant changes in the supply of goods contracts between businesses. Chief amongst these will be the labelling of goods, changes to pricing, increased haulage costs, import and export licenses, changes in VAT rules, and new custom’s processes and procedures. As you can see, it’s quite a long list. Let’s look at the key ones in a bit more detail.
UK businesses that import and export goods with the EU will need a UK-issued Economic Operator Registration Identification number (EORI), or they will need to register for simpler import procedures. You may already have an EORI, but if it doesn’t start with “GB” then you will need a new one.
For CE marking of goods, which is a sign that a product meets certain safety requirements, if we leave without a trade deal then the EU will no longer recognise the UK-based third-party assessment bodies who confirm a product has met various legal requirements. From the 1st January 2021, the UK Conformity Assessment (UKCA) will replace the CE marking for manufactured products being sold in Great Britain. That being said, provided the UK and EU’s requirements for product standards do not diverge, it will be possible for businesses to continue to use the CE marking until 1 January 2022. Guidance suggests that is unlikely that the UK and the EU’s requirements will diverge, but we will have to wait and see.
In order for the CE marking to be recognised in the EU, any mandatory assessment of the products will need to be carried out by an EU recognised conformity assessment body; a UK-based body assessment will not be permitted. .
When it comes to customs processes and procedures, in the absence of an agreement to the contrary, UK businesses will have to apply customs, excise and VAT procedures to goods traded with the EU in broadly the same manner that already applies for goods traded outside of the EU.
Commercial contracts for the supply of services
Business to business contracts for services will still in the main, be governed by the UK Supply of Goods and Services Act of 1982 and, as such, the same contract law principles will continue to apply.
Come the 1st January 2020, treaty provisions on freedom of establishment and free movement of services will no longer apply to UK businesses. However, businesses should be largely unaffected by this. Business to business contracts for the supply of services are governed by the Supply of Goods and Services Act of 1982 and common law principles. That being said, it would be prudent for suppliers dealing with customers in the EU to ensure they have written contracts in place with customers that are ideally governed by English law. If there is no written contract in place governing the supplier and customer relationship then there is risk, particularly if the customer is based outside the UK; it carries uncertainty as to the terms and laws which govern the contractual relationship.
Data protection is a conversation I have had with numerous clients. If a supplier is processing personal data on a customer’s behalf as part of any services, data protection considerations arise when personal data is being transferred from the UK to the European Economic Area (EEA) and indeed beyond. However, at the time of writing, there are indications that a deal may well be struck with the EU on the processing and transfer of personal data between the UK and EEA. We wait to see what happens in the coming weeks.
One final point of note concerns cybersecurity. Any organisation that is subject to the Network and Information Systems Regulations of 2018 must continue to ensure the security of the network and information systems for which their services rely on (regardless of whether they deliver their services directly or through a third party.)
With all of this there unfortunately remains a considerable amount of uncertainty, even with just a few weeks to go. If anything significant is changed or announced I will keep you updated.