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Can You Call Upon a 'Brexit Clause' in Your Contracts?

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By Casey C. Sullivan, Esq. on June 30, 2016 6:59 AM

Before Britain can begin its withdrawal from the European Union, it will have to invoke Article 50 of the Treaty of Lisbon, which allows EU members to begin their divorce from the Union.

But if you've entered into agreements and contracts that have been frustrated by the Brexit, you too might be able to invoke some clauses of your own. Corporate lawyers may be able to rely on so-called "Brexit clauses" in contract boilerplate to get out of deals that have been soured by Britain's refusal to remain in the Union -- and pretty much every contract has them.

Boilerplate Don't Fail Me Now

No, you don't need a special subparagraph addressing just what will happen in case the Britain leaves the European Union in order to have a "Brexit clause." As NPR's Marketplace reports, many companies can rely on their force majeure or frustration clauses in order to escape contracts fouled up by the Brexit.

Those clauses can free a party from being bound by their contract "either because it can't be, because physical circumstances have changed, that make it impossible or because it suddenly becomes illegal, or otherwise impossible to perform," says Andrew Hood, a lawyer with Dechert.

Invoke Your Brexit Clause or Just Take a Brexit Pause?

When might invoking such a clause be appropriate? Marketplace offers this hypothetical:

Imagine you're considering a deal promising you'll distribute a product, be it widgets, or teddy bears, from London to any country in the EU within 24 hours. You knew the referendum vote was coming, and you were worried about being able to get your goods where they needed to be on time. So you had your lawyer write a generic clause or even a special Brexit clause into your contract.

Now that the referendum has passed and Britain will soon lose easy access to European markets, a company may chose to invoke those clauses.

But, then again, it might not. How the Brexit will effect business and Britain's place in Europe remains fairly uncertain. And, under Article 50, Britain and the EU have two years to figure out their split.

Instead of canceling deals, many companies are simply putting things on hold for the moment. Call it the "Brexit pause." According to Charles Bankes, a partner at Simmons & Simmons, "rather than talking about the deal and how it might impact them, a lot of principals have just stopped for the moment, and are waiting to see what happens when markets calm down."

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