As the countdown begins to expiry of the Brexit transition period at the end of 2020, all UK and other EEA-based organisations who deal with each other and/or with consumers in either territory must now figure out how their relationships and processes will be affected. That may mean amending their contracts and/or novating them to new entities. Aside from changes to reflect operational changes, which country's laws will govern the contract and whose courts will decide disputes are among the most critical decisions to making life as easy as possible during the Brexit transition process. Here's a summary of things to consider. Please contact us at Leman Solicitors if you need help with your Brexit-proofing process.
Changes to your operational and contractual arrangements that may be driven by Brexit include: the need to establish a new entity in your chosen EU27 country and getting it authorised or licensed (or appointed as an agent if it's already too late); opening local bank accounts; leasing office premises; transferring or employing management and staff; relocating or purchasing computers and other equipment, stock or assets, and related software and data licenses; as well as re-contracting some of the more critical affected customers and suppliers through their new entity. The legal basis for sharing EEA-residents' personal data with UK operations or suppliers will also need to change, as the European Commission cannot begin the process of deciding whether to make an "adequacy decision" on the UK's data protection standards before the UK left the EU.
This analysis raises numerous tax, legal and accounting issues in their own right - including the fact that governments are still unclear on many official rules, processes and procedures.
The process of amending agreements may also be constrained by a provision in the contract, or by laws that require certain provisions must be included. For instance, the second Payment Services Directive (PSD2) requires a two month notice period for changes, and a right of termination by the customer where the contract allows for changes to be proposed unilaterally by the payment service provider.
Of course, deciding when to give notice of a change has to be co-ordinated with the timing of any software development or operational process changes, which themselves will need to be fully tested and running in good time before that day.
Parties to contracts that need to be switched away from English law will probably want the positions of the parties under the new contract to remain broadly the same, even if certain operationally specific aspects might simply need to be re-negotiated such as billing and payment details, currency and pricing. In these circumstances, choosing the application of Irish law instead of English law to govern at least the commercial aspects of a contract becomes a "no-brainer".
Irish law is substantively very similar to the law of England & Wales - far more so than the law of any other EU country. Ireland is the only other purely common law jurisdiction in the EU today, and will be alone after Brexit. The few technical differences include, for example, the absence of the right for any non-party to enforce a benefit under the agreement, which the UK allowed through statute in 1999, or different monetary thresholds for the jurisdiction of familiar types of courts. But such differences can be either simply flagged and understood or explicitly accommodated if necessary (most parties try to limit or exclude 'third party rights' anyway, but the rights can also be explicitly specified).
So, while the customer is well advised to run a final check of the contract with independent local Irish counsel, it will not face the comparatively awkward and expensive exercise in understanding the numerous substantive differences between English common law and the codified civil law system of other EU member states.
Of course, it remains possible to agree that the commercial elements of the contract and provision for its enforcement are governed by Irish law and courts, even though the regulated activities of one or other party to the contract (and any regulatory complaints) may be governed by the law of another EU member state. But it has been quite common until now for, say, a financial institution established and regulated in another member state to contract with its customers in the English language under English law (or Irish law, for that matter). So customers should have no problem with a switch from English to Irish law on that basis.
Note that the process for transferring English law contracts from one entity to a new one may well require the other party's actual consent, rather than notice of an assignment. Under English law it is not possible for a party to assign its obligations under a contract - just its own rights or benefits (e.g. the right to receive payments). So the transfer of existing contracts to a new entity (and the other changes mentioned) would need to be done by way of "novation", to which the other party consents, creating a new contract in place of the old one. That can be done in a short agreement that annexes the old agreement, while noting certain specific changes; or by restating the whole of the previous agreement with the new party/ies and as otherwise amended.
Please contact us at Leman Solicitors if you need help with your Brexit-proofing process, wherever you're based (and remember those incentives for setting up in Ireland!).
...which country's laws will govern the contract, and whose courts will decide disputes, are among the most critical to making life as easy as possible during the Brexit transition process.