BREXIT: Highlighting legal risks for your business (Part 1)
While the parameters of the relationship between the UK and the EU remain to be hammered out in the protracted negotiations between the British Government and the EU, there are many areas that businesses should be actively reviewing in advance of the final status of the UK. Almost all areas of the legal relationship between the UK and the EU will be affected to some degree by Brexit. Due to the number of variables involved we can only speculate on the final taxation, constitutional, financial and legal arrangements; however the following areas should be addressed at an early stage.
General Exposure: is your business dependant on the UK? It would be worthwhile understanding how many of your suppliers, customers and partners are located in the UK or how reliant they are in turn on UK based parties or markets.
Regulated Sectors: it is possible that much of the legislation in highly regulated sectors related to waste, telecommunications, electricity, energy or involving environmental regulation will no longer apply or be materially modified following Brexit. If your business operates in one of these sectors, the likelihood is that the impact of Brexit on current and future contracts will be significant.
Sterling: if a material part of your business costs or revenue are in sterling you may need to consider hedging against exposure to exchange rate movements.
Contracts: are many of your existing contracts subject to UK or English law? This is often the default position in contracts between parties in different EU member states or an EU member state and non EU countries. Many commercial contracts contain a provision allowing one party to terminate or refuse to proceed where a “material adverse event” occurs. These are commonly found in security agreements/guarantees, equity investment agreements and credit agreements. One question that arises is whether Brexit will constitute a material adverse event allowing a party to terminate or re-negotiate the contract? If this was to occur with a significant customer, supplier or partner it could have serious consequences. If you are currently negotiating a contract or extending an existing contract this is an issue that should be addressed.
Choice of Law/jurisdiction: when the UK exits the EU it could be assumed that much EU legislation will no longer apply in the UK. Where UK law and UK jurisdiction are chosen to govern a contract this should be borne in mind. In addition and without going into the technical legal arguments, post-Brexit it may no longer be possible to “passport” a judgment given by a UK Court into Ireland (or vice versa) and have near automatic enforcement of such judgments. It is possible that post-Brexit, judgments of UK Courts will be enforced under the existing Lugano Convention. Alternatively it is considered more likely that enforcement of judgments of UK Courts would be under common law principles which will lead to delays and greater legal costs. Either way, opting for UK law to govern a contract could lead to uncertainty.
Takeovers/acquisitions: many acquisitions of the shares or assets of an Irish company are subject to restrictions under national and EU Competition/Anti-Trust law – Irish Competition law is based on EU law. It is certainly possible that the UK will not join the European Economic Area which would lead to complications under the current Competition law regime in the UK and EU. For instance, in the case of a takeover of an Irish incorporated company with strong connections to the UK (such as market share in the UK) the takeover might need to be notified to and reviewed by both the UK Competition and Markets Authority and the European Commission. Such a double review would be time consuming and might involve two potentially conflicting review procedures and decisions.