No-deal Brexit – What you should prepare for
Recently, the European Commission launched legal action against the UK for breaching the withdrawal agreement. The launch of legal action was caused by the UK government refusing to comply with the EU's demand to abandon the proposed legislation that, in effect, would create a separate internal market for the UK and Northern Ireland.
The uncertainties on the outcome of the above-mentioned legal action, combined with the fast approaching deadline for the parties to agree on the rules for the new UK-EU relationship, it appears more likely than ever that the no-deal scenario will be realised. When the transition period ends on 31 December 2020, the UK will automatically be left out of the EU's main trading arrangements, including the single market and the customs union.
The deadline for extending the transition period has passed, and with the recent development in the relationship between the UK and the EU, companies preparing for Brexit are left with a high degree of uncertainty. In Norway, a free trade agreement with the UK must be ready by 9 October 2020 for it to enter into force on 1 January 2021, but recent reporting indicate that the parties will not make the deadline. Therefore, if you have entered into or will enter into contracts with British companies, you should prepare for a no-deal Brexit.
Prepare a Brexit clause
A no-deal Brexit may affect your own, or your contracting party's, ability to fulfil contractual obligations. If you are uncertain what effect a no-deal Brexit would have on your contractual relationships, we recommend that you prepare a Brexit clause.
For example, Brexit clauses may look like this:
- "In the event that the UK leaves the European Union without an agreement after the termination of the Withdrawal Agreement, the parties to this contract shall be obliged to ensure that the present agreement continues unchanged or as unchanged as possible."
- "If, in the event of a no-deal scenario after the termination of the Withdrawal Agreement, the contract proves to be impossible or exceedingly difficult to perform, the parties to the contract shall have the right to renegotiate or opt out of the contract provided that [certain pre-defined conditions] are fulfilled."
When preparing a Brexit clause, the parties should take into account the specific conditions of each contract and consider regulating more precisely what events would trigger the clause, and what rights and duties triggering it would entail for the parties. A Brexit clause may provide protection against unfortunate circumstances arising due to a Brexit related event, and additionally, it may provide some foreseeability in a generally uncertain situation. Such preparations are especially important as Brexit, in itself, is unlikely to constitute a force majeure event.
Moreover, if you are uncertain what effect a no-deal Brexit would have on your business, you should consider a doing Brexit due diligence outlining what impact Brexit will have on e.g. existing contracts, customs and taxes, employment, and processing of personal data. The Confederation of Norwegian Enterprise (NHO) have developed, in cooperation with Schjødt, a checklist for companies preparing for Brexit. The checklist include other relevant topics of preparation, and you may find it here.
Our Brexit team has in-depth knowledge of the legal and economic implications of Brexit, and with offices in London and Oslo, we are well suited to advice on how to prepare for a no-deal Brexit.