Distributorship agreements after Brexit – part three

With less than 100 days to go and the increasing likelihood of a no-deal Brexit, have you received, let alone read, your email from HM Revenue & Customs which, the government claims, will explain the impact of Brexit? Or have you looked at the 100 pages of updated advice on possible changes at borders?Certainly, if as a supplier you are one of about 140,000 businesses that only export to the EU, then as things stand at the moment, you will have to register for customs and VAT declarations for the first time.

But whatever the number, the need to give thought as to what Brexit could mean – whether as a supplier or as a distributor – is important. So building on [insert link to last but one blog] and [insert link to last blog], if you have not already done so, thought should be given as to how Brexit may affect those distributorship agreements where the duration is stated to extend beyond 29 March 2019 and which have some UK/EU cross-border aspect.

In this respect, understanding which country’s law governs the distributorship agreement is crucial. Hopefully, there will be a clear statement in the agreement itself. But sometimes this is not the case. If so, ironically, EU law will determine which country’s laws are to apply at least until 29 March 2019.

Which country’s laws apply will be important because of the way in which issues such as force majeure, frustration, and rupture brutale can be interpreted by the courts.

Many distributorship agreements contain force majeure clauses. Often these are poorly drafted. But sometimes………needs must. So, can either supplier or distributor take advantage of a force majeure clause? Again, it depends on the terms of the clause and, of course, whether the effect of Brexit on the particular facts means that reliance can be placed on force majeure.

But it is also a case of be careful for what you wish for. This is because force majeure is often claimed in order to avoid liability for non-performance. As such, is this something that your supplier or distributor could claim?

Although not often found in distributorship agreements, the possibility of relying on other contractual provisions (for example, a material adverse change clause) should not be overlooked. Similarly, the legal concept of frustration although its extent has been constrained by English case law.

In contrast, if your distributorship agreement is stated to be governed by French law, there may be a need to become acquainted with the concept of rupture brutale.

Then there is the issue of the geographical scope of the distributorship agreement. If when the agreement is entered into it was intended to cover the UK as part of the EU, suppliers and distributors alike should avoid jumping to the conclusion that the UK is or is not excluded from the territory covered by the distributorship agreement after 29 March 2019. As ever, it depends on the terms of the agreement.

It is likely that a no-deal Brexit will affect the commercial balance of a distributorship agreement in terms of risk and reward. But also the possibility exists that as a result of Brexit, there will be costs-benefit issues and, possibly, new compliance requirements. Which of supplier and distributor is to have responsibility for the new compliance requirements? Will this give rise to opportunities or threats of reopening other commercial terms?

Meanwhile, what must not be forgotten is the need for compliance with relevant laws, no-deal Brexit or not. This was highlighted only a few days ago with the imposition by the EU Commission of a Euro 40 fine on the US fashion company, Guess, for blocking cross-border supplies by its EU distributors.

Guessing what will happen in respect of Brexit over the coming days is not easy. But with the right advice, informed guessing may be possible.


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