15 Feb 2019

The government's House of Commons defeat on 14 February may have sharpened divisions within the main political parties, but it changed nothing of substance. The legal position is governed by the terms of the EU (Withdrawal) Acts 2017 and 2018. The 2017 Act authorised the UK government to trigger the two year Article 50 notice period, which expires on 29 March 2019. The 2018 Act includes amendments conceded by the government to avert a Parliamentary defeat, and which locked in 11.00pm on 29 March 2019 as the "Exit day". Unless primary legislation is enacted to alter that position, the UK will cease to be a member state of the EU on that date, whether or not there is a "deal".

Barring government collapse, or perhaps an unexpected lucid interval, the next Parliamentary set piece is scheduled for 27 February. However, that may again involve only debate on an amendable motion, potentially leading to House of Commons resolutions calling for anything from indicative votes on a range of potential outcomes, to requests for extension of the Article 50 notice period or a further referendum. 27 February is unlikely to see a "meaningful vote" on the terms of the Withdrawal Agreement and Political Statement, whether in its current form or with amendments to key elements such as the Northern Ireland backstop. That vote may come only days before the 29 March deadline.

From a business perspective, the Westminster stalemate is already proving costly. During the House of Commons debate, various MPs solemnly observed that business requires certainty. That is true, but only to a limited extent. Uncertainty and high risk can generate significant profits, and one person's difficulty may be another's opportunity. However, the role of a responsible government is to promote stability rather than to cause or exacerbate risk.

From a Westminster or Whitehall perspective, the deadline may be some time in late March 2019. Eleventh hour approval of a Withdrawal Agreement and Political Declaration may be trumpeted as a major achievement, snatching victory from the jaws of defeat. However, a last minute House of Commons resolution in favour of a deal would not necessarily succeed in averting a "no deal" Brexit. As Brexit Secretary Stephen Barclay repeatedly observed on 14 February, that will require primary legislation, both to implement any deal and (crucially) to override the current legislative provisions that dictate exit on 29 March in any event. A last minute deal, agreed at political level, would not be sufficient in itself to avoid the "cliff-edge". Equally, no political agreement between the UK and EU to extend the Article 50 deadline could override the UK's primary legislation. There is a material risk that an eleventh hour "deal" would itself be open to legal challenge, leaving the UK's status in doubt from 11.00pm on 29 March until the outcome of a challenge that would be highly likely to reach the Supreme Court. 

With little useful information, and few signs of meaningful progress, coming from Westminster and Whitehall, risk inevitably falls on businesses. We are seeing a marked increase in urgent enquiries from clients seeking advice on how best to mitigate the effects of a "no deal" Brexit. For many, the prospect of a "no deal" Brexit has focused attention on key contractual provisions including:

  • Price adjustment clauses, allocating between the parties the risk of increased costs due to tariffs and other border clearance costs, including likely increases in the fees charged by key intermediaries such as customs brokers or freight forwarders;
  • Clauses to allocate risk for currency fluctuations adversely affecting deals struck in the run-up to Brexit;
  • Clauses to allow termination or suspension of obligations where a "no Brexit" outcome leads to significant delays or disruption in supply chains;
  • Incorporation of appropriate Incoterms, which may be found in documentation other than the main contract (for example, order forms).

Given that government is now unlikely to provide clarity in time for businesses with supply chains involving lead times that extend beyond 29 March 2019, contract reviews and the incorporation of "if Brexit" clauses has now become not just a prudent step, but an urgent necessity.