"Brexit-proofing": Time for a health check?

With increasing frequency we are being asked by clients what they should be doing in relation to existing contractual arrangements in the face of Brexit. The UK Prime Minister, Theresa May, notified the European Council of the UK's intention to withdraw from the European Union (EU), in accordance with Article 50 of The Treaty on the European Treaty (the Article 50 notification), on 29 March 2017 (see our detailed briefing of the same date Brexit: Article 50 triggered - what next for UK-based fund managers). The countdown is now on for all businesses with contractual arrangements governed under the laws of the Channel Islands (and elsewhere) to consider if, and how, they may be impacted and how any potential risks may be mitigated. In the vast majority of cases we anticipate that no changes or action will be required – however, perhaps Brexit could be a good catalyst for a timely health check?

As Guernsey and Jersey are not part of the EU, and will remain as 'third countries' following Brexit, they will be well-insulated against the potential effects of Brexit. However, the legislative and regulatory environments in the Channel Islands are at least partially harmonised with that of the EU and so it is important to consider any consequential effects of Brexit. For example, the European Securities and Markets Authority (ESMA) has advised that there are no significant obstacles for either Guernsey or Jersey to obtain third country passports under the Alternative Investment Fund Managers Directive (AIFMD). The future of this passport is now unknown given that the UK will become a third country (albeit potentially under different arrangements) following Brexit. However, importantly, national private placement regimes (NPPR) continue to work well for the Channel Islands and there is currently no indication that this path to markets will be switched off, especially given that the third country passport remains unavailable.   

The need to review any contractual arrangements (including standard terms and conditions) will be heavily dependent upon, amongst other things, whether there is an EU resident/registered counterparty.  Thought should also be given as to whether the supply chain for the subject matter of the contract links back to the UK or EU and may be exposed to changes in legislation, regulation or currency fluctuations.

A silver bullet?

Regretfully, there is no catch-all 'silver bullet' clause which can be inserted into a contract for it to be "Brexit-proofed". Individual businesses will need to consider their commercial requirements in light of the anticipated consequences of Brexit and how the contract can provide for them as well as how these provisions are to be triggered. Many of the contractual arrangements that could be included are well founded in law and will not directly refer to Brexit. Some initial considerations are discussed below:

  • Length of contract – Thought should be given as to the contract's anticipated term and the potential Brexit-related events that may occur in this time.  Should the proposed contract term end prior to 29 March 2019, the Brexit-related risks will be reduced as it is very unlikely that the UK will exit the EU prior to the two year time limit granted by Article 50 and therefore, the contract will be exposed to less uncertainty.
  • For longer term arrangements, consideration should be given as to whether it may be more appropriate to utilise shorter term rolling contracts that are automatically renewed with the option of one or both parties giving notice to end the contract at specified a time and/or subject to specified conditions.
  • Defined terms – Defined terms such as "Laws" should include definitive statements as to whether the law at the time the contract is entered into governs the contract or if it is the law of the relevant jurisdiction from time to time.  Brexit creates the risk that significant legislation or regulatory requirements may change without being adequately catered for in an agreement.  As mentioned above, the Channel Islands are relatively well-insulated against this risk given the limited amount of EU legislation that applies without each of the States of Guernsey or Jersey first passing their own domestic legislation.
  • Force majeure and frustration – Force majeure provisions (which will obviate liability for a defaulting party if that default is caused by events happening outside of the control of both parties) may need to be updated to consider any specific risks caused by Brexit.  Frustration provisions (which terminate the contract due to events making the contract impossible to perform) may also need to be included/updated in the same manner. It is worth noting that the courts of the Channel Islands have historically interpreted these clauses narrowly and a contract would be unlikely to be held as terminated due to force majeure or frustration except in exceptional circumstances.
  • Data protection - The General Data Protection Regulation (the GDPR), a wide-ranging reform of data protection legislation, will apply in the UK from 25 May 2018 and the UK government has confirmed that Brexit will not affect its commencement.  The GDPR will also apply from this date to any Channel Island businesses that wish to process the data of individuals in respect of the supply of goods or services to any EU member state.  There will therefore, be no change to the contractual requirements following the UK's exit from the EU. The UK may wish to amend its domestic legislation following Brexit, although it has been suggested that this is unlikely to occur, at least in the short to medium term.

As noted above, the Channel Islands will be insulated from any potential shocks caused by Brexit but will not be immune. Fortunately, the Channel Islands have shown themselves to be remarkably adaptable in responding to new challenges, whilst also providing a stable regulatory environment and depth of experience of service providers.

Whilst Brexit will undoubtedly bring risks, it will also bring opportunities.

About Ogier

Ogier provides practical advice on BVI, Cayman Islands, Guernsey, Jersey and Luxembourg law through its global network of offices. Ours is the only firm to advise on these five laws. We regularly win awards for the quality of our client service, our work and our people.


This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found at www.ogier.com