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BREXIT: Exchange rate mechanisms most immediate issue in post-Brexit contracts, says expert


UK companies involved in cross-border trade should first check their contracts for elements dealing with exchange rate mechanisms, commercial law expert  Clare Francis  of Pinsent Masons, the law firm behind Out-Law.com, has said.

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

"Companies might consider where their contacts have an exchange rate mechanism that they could invoke or indeed that may be invoked against them and could affect the balance of risk between the parties," said Francis.

Currency fluctuations are the most immediate risk for most businesses and there will be more time for other aspects of contracts to be checked and renegotiated in the period before the UK leaves the European Union, Francis said.

"Where the territory is described as EU the contract will need to be revisited to ensure it reflects the commercial intention of parties, but there is plenty of time for that," she said.

"Compliance with law clauses are likely to be one of the main issues that have to be resolved. Many contracts state that a party 'must comply with all laws', and if the applicable laws change that could have a serious cost impact. It depends on the contract and how it was drafted: some will let you pass on that cost and others won't," Francis said.

"While we are waiting to see the outcome of negotiations on exit, I would advise companies to prepare by ensuring they have all contracts centrally stored and logged, with a system in place that makes it easy to identify and access all contracts with particular clauses. That will allow them to respond quickly and be in the best negotiating position themselves," she said. 

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