An 8 minute read
Have you received notification of a price increase or a contract change referring to Brexit? This blog provides you with advice about what to do in the short and long term.
Amid escalating uncertainty around Brexit, Brexit planning still seems impossible for many businesses. Nevertheless, if your business buys and sells from the EU you might already be working on contingency plans which are sufficiently flexible to cope with possible outcomes.
What CAN you do now to prepare for Brexit?
One thing sellers can do is ‘renegotiate’ contract terms with their customers. We use the term ‘renegotiate’ loosely as in reality, a lot of small and medium sized businesses are finding themselves being pressured into signing new contracts. Often this involves considering accepting less favourable terms because:
- they have a limited supply source
- the alternative sources of supply are unsustainable
- they have an unequal bargaining power with the sellers.
Client Case Study
Our client purchases raw materials from a seller in The Netherlands. The Seller wrote to our client notifying them of changes to their current contract terms in anticipation of Brexit, which would apply immediately.
The new terms allowed the seller, in various hypothetical and vague scenarios, to:
- impose any price increase it saw fit to mitigate increases in its manufacturing and delivery costs.
- Relieve the seller from contractual penalties for any late delivery.
- Relieve the seller from non-delivery of goods.
One particularly worrying term allowed the seller to make pricing changes at its absolute discretion in the event of currency fluctuations and changes in freight and customs rates.
As is the nature of the world, currency fluctuations happen anyway, and a term which allowed the seller to impose any price increase for any foreign exchange fluctuation, rather than as a result of a genuine or ‘extreme’ Brexit related fluctuation, was just unacceptable.
Also, under the current terms of trading, our client purchased goods on an Ex-Works (EXW) basis, meaning that it was already responsible for paying the costs of delivery and any import duties. The seller therefore had no reasonable justification for a general price increase on the cost of goods (rather than in relation to the costs of delivery) as a result of an increase in its logistics costs.
At best, it seemed that the seller was trying to deal with Brexit in a ‘one-size-fits-all’ way; at worst the seller saw an opportunity to justify a price increase under the mask of Brexit.
Our client felt backed into a corner.
They felt obliged to sign the new terms, worried that by not signing them, the seller would no longer supply the goods.
The letter didn’t state that if our client didn’t sign to confirm its acceptance of the new contract terms, it would be deemed to have accepted them. Also, the contract stated that any variation to the contract terms had to be agreed in writing.
Our advice was to continue business as usual.
Here are 5 tips to stop Brexit Bullying to sign contracts which include terms unfavourable to you.
- Consider, has the seller informed you that if you
do not respond to a notice of change to the contract terms you will be deemed
to have accepted the changes?
- Check your terms to see if the seller has the right to change or vary the contract terms without your consent. This is usually in a ‘variation’ clause.
- Has the seller stated that if you fail to confirm your acceptance of the changes you will be deemed to have accepted them?
If the answer is no to both, the changes won’t apply.
- Have the confidence to challenge any changes which will take effect in anticipation, or preparation, of Brexit. If the changes are genuinely Brexit related, it is reasonable that such changes should apply at the point of, or post, Brexit.
- Consider your other options:
- Can you negotiate the new contract terms? Some
examples might include:
- Ensuring that Brexit related rights or relief are reciprocal. For example, if a seller has a right to increase the price of the goods due to a currency fluctuation, could you require the seller to pass on any cost-savings arising as a result of a currency fluctuation?
- Limiting the number of price increases that the seller can impose in any 12 month period.
- Negotiating a longer notice period of any price increases.
- Do you have alternative sources of supply? For example, can other suppliers provide you with the same products on similar terms?
- Does your contract include any termination or suspension options which you can exercise without penalty?
- Does your contract require the seller to notify you in advance of any changes? If not, challenge your supplier and request that they give you notice long enough to enable you to:
- consider your other sources of supply
- dispute any changes or negotiate the terms; or
- notify your customers of any changes to your terms of business in accordance with the contractual notice periods.
- Consider whether the changes accurately reflect what happens practically under the contract. For example, is the seller justifying a general price increase on the basis that the cost of importing goods into the UK will be more expensive post-Brexit; when in fact you are already responsible for paying any duties in addition to the price of the goods under the existing contract terms?
In Short: Stop! Don’t sign
Our advice to clients in the situations outlined above is to Stop! Do not be bullied into signing any new contract terms without first consulting us. We offer an initial, no obligation free discussion to explore options open to you.
There is no ‘one-size-fits-all’ answer to Brexit. If you do want advice about your unique business situation, please contact Rachael Piggott, one of our commercial law experts.
One thing you can do is register now for TSP
HMRC is introducing Transitional Simplified Procedures (TSP) for customs. Register to transport goods into the UK without making a full customs declaration, and postpone paying import duties.