On 23 June 2016, the British people voted in favour of Great Britain leaving the European Union. This decision, which came as a surprise to many in spite of opinion poll results, is going to entail far-reaching consequences in economic and legal terms. However, the referendum as such does not result in Britain’s immediate exit. Rather, it is to be expected that once the official request for withdrawal has been submitted, at least two years of negotiations with the remaining EU member states will be required before a withdrawal agreement can be signed and thus the exit will actually take legal effect.

Unless the EU and Great Britain agree that (parts of) EU law shall continue to apply (the withdrawal agreement must also take account of the framework for the “future relationship of a state with the union”), all the primary and secondary EU legislation will automatically cease to apply upon the withdrawal taking effect. Domestic British law serving the implementation of EU law will remain in force even after the withdrawal, for as long as it is not amended; currently, it cannot be foreseen, however, to what extent and within what time frame domestic British law, too, will change after the withdrawal has been completed. At the current moment, many aspects of the impact on contractual agreements and business relations are therefore unclear; at any rate, though, Brexit entails considerable contractual risks.

In order to optimally prepare for and safeguard against various scenarios, possible legal and economic changes, which cannot be predicted in more concrete terms as yet, such as the potential introduction of new customs duties or taxes, should be adequately taken into consideration in the drafting of contracts and agreements currently being negotiated or expected to be entered into with British contracting parties in future. Appropriate wording and the inclusion of clauses geared specifically to the Brexit event, like, for instance, material adverse change clauses, are useful to counteract risks and find tailor-made solutions for the respective company. It will be particularly important to include specific grounds for termination or rights to adjust agreements in the event of adverse developments ensuing from Brexit; contractual adaptation mechanisms should also be provided for possible currency fluctuations.

Likewise, Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I) will no longer apply once the departure of Great Britain from the EU has been completed. This Regulation determines the law applying to international contracts within the EU (if no choice of law has been made), thus allowing more legal certainty to be created within the EU. As soon as the Regulation ceases to apply, the old principles of private international law would have to be taken account of again in order to determine the law applying to the contract. Therefore, a choice of law should be stipulated by all means when entering into contracts. If possible, Austrian parties should insist on Austrian law being chosen as the governing law and, due to the uncertainties concerning the future legal development, they should avoid agreeing to British law being chosen.

Existing contracts between Austrian entrepreneurs and British contractual partners should be checked on a case-by-case basis as to whether, from the legal perspective, certain contractual adaptations, or in a worst case scenario, the termination of the entire agreement would be possible and enforceable, on the basis of the Brexit event and the contractual clauses that had been agreed for the present contract. It might be possible to substantiate such claims by the clauses agreed in respect of material adverse change or force majeure; in some cases, the contract wording might even permit the termination of the contract for cause. And, last but not least, one could also consider claiming frustration of contract.