What is the impact of Brexit on commercial contracts?
17 August 2021
In the commercial law field, contract audits are advisable and the application of the E-Commerce Directive will be affected.
The UK formally left the EU on 31 January 2020 but was subject to a transitional (implementation) period until 31 December 2020. Therefore, the full effects of Brexit only took effect from 1 January 2021, with the Christmas Eve trade and cooperation agreement between the UK and EU in effect.
Contracts & E-Commerce
- Brexit will have a very limited effect upon English contract law principles, which have been largely unaffected by EU intervention
- However, there is the potential for Brexit to generate problems with the interpretation of contract provisions referring to the EU or EU law, as well as to have commercial or profitability impacts
- UK consumer protection law in respect of contracts has been considerably amended in line with EU harmonisation Directives and case-law, but this is now embodied in UK legislation and regulatory arrangements and will be largely unaffected by Brexit itself. That said, the government has decided, after consultation, to give not just the Supreme Court but also lower courts the ability to depart from EU law interpretations, so case law may start to change in the short to medium term. It is also worth noting that the UK government has recently responded to a consultation on changes to consumer law, which are similar to recent EU changes, but not identical, so traders need to be aware of some upcoming divergence.
- Certain important aspects of the EU E-Commerce Directive may no longer apply to UK-based information service providers from the end of the transition period. The government updated its guidance in this area
- See the ‘Dispute Resolution’ section for separate comments on Jurisdiction, Jurisdiction Clauses, Applicable Law and Enforcement
What are the key changes and what actions can be taken?
- Brexit could raise tricky questions of interpretation of contracts, for example as a result of references to ‘the EU’ or ‘the EEA’ as a territory (do they continue to cover the UK?), or to requirements of compliance with EU law
- Action: if not carried out already, conduct a contract audit to identify problem provisions, and consider discussing with counter-parties whether to amend problematic drafting or to put in place new contractual provisions
- Brexit could continue to have commercial and profitability implications for individual contracts as a result of effects from non-tariff barriers, free movement of people and goods etc
- Action: the courts will often be slow to intervene based upon arguments of force majeure or frustration, but consider taking legal advice where such issues affect high value contracts
- Information society service providers established in the UK but not in the EU are no longer be able to rely upon the regime established by the EU E-Commerce Directive – for example its ‘country-of-origin principle’, prior authorisation scheme and basic information requirements.
- Action: such UK-established service providers instead fall under the individual national rules of each of the 27 remaining Member States of the EU when providing services to customers in those countries, and so country-by-country compliance advice will potentially be needed; (likewise, EU-based service providers must now to comply with UK rules in addition to those of their EU country-of-origin)
- The limitations on liability set out in the E-Commerce Directive also no longer apply to service providers established in the UK but not in the EU
- Action: the UK government has stated it will ensure that UK rules ‘continue to align with the Directive’, including in this respect
- Action: UK-established Information service providers for whom the applicability of the EU ‘country-of-origin principle’ and limitations on liability are important may want to consider whether they can benefit from continued application of the Directive based upon an alternative ‘establishment’ in a continuing EU member state
- UK-based Digital service providers* offering marketplace, search engine or cloud computing services online in the EU (*those of the requisite size under the Network & Information Systems Directive) no longer benefit from being based in the EU
- Action: such service providers are now be obliged to designate a representative in one of the EU Member States served
- Action: likewise, EU-based providers of such services were required to appoint a representative in the UK, by the end of March 2021, confirm this in writing to the Information Commissioner’s Office, and comply with the UK’s NIS Regulations
Following the UK’s departure from the EU, the Trade and Cooperation Agreement sets out the shape of the ongoing future relationship between the UK and the EU and provides some degree of certainty for UK businesses.