How to Brexit-proof your boiler plate clauses

Brexit will affect the negotiation and drafting of commercial contracts in a number of ways. Standard provisions that may have to be reconsidered include clauses dealing with territory, payment provisions or intellectual property rights. But the effects of Brexit will also extend to the boiler plate or 'midnight' clauses usually found at the end of a long contract. 

If poorly drafted, these clauses can have a very significant effect on both the outcome of any subsequent dispute and also on the process and costs incurred in seeking to resolve the same. They should be carefully considered. 

A good place to begin is your contract's governing law clause and jurisdiction clauses. If a contract will have commercial or operational ties to both the UK and the EU it is important that these clauses are drafted with the potential effects of Brexit in mind. 

Expressly stipulating a governing law avoids wasting time and money on initial determination, or potential satellite litigation, concerning the often complex question of which "default" governing law applies. The clause also goes to the heart of the validity and interpretation of all of the other terms contained within the contract. Being clear on your choice of governing law provides certainty for the parties and clarity (as far as is possible) to the terms that have been agreed. English law is widely adopted as a suitable law to govern international contractual arrangements and their interpretation and we have no reason to expect this to change on Brexit. 

In fact, stipulating your governing law becomes particularly important post-Brexit as the EU Regulations which currently govern this area - called Rome I (in respect of contractual obligations) and Rome II (in respect of non-contractual obligations) - will no longer apply post-Brexit unless they are formally adopted into UK law. 

In any event, Rome I and Rome II will continue to apply to the courts of the remaining EU Member States; therefore, governing law clauses in favour of English law should continue to be upheld by them. As a result, there is no need to change from English governing law to a different EU Member State governing law. 

A poorly drafted jurisdiction clause can also create unnecessary and costly satellite litigation. In addition, failing to select an appropriate jurisdiction can open the door for parties to seek to start proceedings anywhere in the world, at which point you could be at the mercy of unpredictable local courts and their own rules of private international law.

Choose the wrong jurisdiction and you may run up against problems on enforcement especially if you are the party most likely to be in the position to bring an action. It is against this background that it may be appropriate to consider whether litigation is the right dispute resolution method for the contract, or perhaps an alternative, such as arbitration may give the parties greater certainty. 

Following Brexit, exclusive jurisdiction clauses in favour of the English courts are likely to be upheld by the English courts but may not always be upheld by courts of EU Member States. This is because the Recast Brussels Regulation, which governs the law in this area, does not contain obligatory principles of reciprocity in favour of non-EU Member States (which the UK will of course be post-Brexit) in contrast to the position in relation to governing law discussed above.

Parties should consider where their counterparty's assets are located. If they are in an EU Member State an exclusive jurisdiction clause in favour of the English courts may not be ideal following Brexit, as it may be harder to enforce a judgment of an English court in the court of an EU Member State but the enforcing party will still be able to do so¹. Depending on whether you are more likely to sue than be sued you may wish to consider arbitration as a preferred dispute resolution mechanism because arbitration will not be affected by Brexit, provided that your dispute is suitable for resolution using this process.

If your counter-party is based in another jurisdiction you may want to tailor the notice provisions to nominate a process server to serve court proceedings on them. This particularly important in the light of Brexit when the Service Regulation will no longer apply between the UK and the remaining EU 27 member states².  The Service Regulation contains the procedure for service of judicial and extra-judicial documents between member states (including Denmark). By nominating an agent to accept service for both parties any litigation procedure will proceed more quickly and smoothly.

What this means for you?

With little more than twelve months until the formal date for exiting the EU, 2018 will be an important year for defining the future UK – EU relationship. Businesses should be starting to consider, if they have not been already, their options in the new potential commercial and legal landscape. We suggest you conduct an audit of your commercial agreements to map any operational, legal and commercial issues surrounding Brexit. Considering your governing law and jurisdiction clauses is just the beginning.

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¹ It may take longer than now and be more expensive.

² In the revised version of the draft Article 50 withdrawal agreement published by the European Commission and the UK government on 19 March 2018, there is now agreement that the Service Regulation will continue to apply between the UK and the remaining EU 27 member states during the transition period. The transition period will end on 31 December 2020.