2020 has been quite an extraordinary year for the education sector, rising to the challenge of the Covid-19 pandemic, but Brexit and its implications should not be overlooked. The UK left the EU on 31 January 2020 and looking over the horizon, the transition period will end on 31 December 2020. What does this mean for schools, are you prepared for 2021?
By virtue of the transition period in the Withdrawal Agreement, EU law will continue to apply in the UK only until 31 December 2020. After the end of the transition period, the EU Treaties and the general principles of EU law will cease to apply in the UK. Prior EU regulations will continue to apply in UK law until they are modified or revoked by UK regulations. At the time of writing, the future relationship between the UK and the EU is still uncertain, and we may be looking at a no-deal Brexit.
This note anticipates how the end of the transition period may impact on commercial arrangements entered into by schools. Many commercial contracts appear neutral as to whether the UK is an EU Member State and tend to be based on the commercial bargain between the parties. But what if that is affected by the extent to which EU law applies in the UK? We would recommend that, if you have not already done so, you perform an audit of your school’s commercial contracts and begin assessing the potential effect of the UK’s exit from the EU and the end of the transition period on your rights and obligations under these agreements. You should consider the following:
- The end of the transition period may raise questions over the meaning of contracts; for example, whether references to ‘the EU’ will continue to include the UK after Brexit. If the contract defines the EU by reference to its member states ‘from time to time’, that indicates that it will not include the UK after Brexit. In contrast, if the contract defines the EU as ‘France…and the UK’, that indicates that it will continue to include the UK. Any express provision dealing with EU Member States leaving the EU would be decisive. If the language is not clear, the purpose of the clause and the contract, the wider commercial background and common sense become more relevant.
Going forward, contracts should include provisions to deal expressly with modification to legislation; for example, by stating that references to a law include any modification, re-enactment or consolidation of that law. This might indicate that references to EU law include implementing or successor domestic law. If you are in doubt, we can provide legal advice to determine the position.
- Trade barriers between the EU and the UK may increase, meaning that costs when trading in Europe would increase. It is important to assess the commercial impact this will have on your agreements. When negotiating future contracts, you may wish to consider the extent to which prices should include or exclude any new taxes, duties or other similar levies that the UK’s or EU member states’ governments may introduce after the end of the transition period.
- Identify if any of your commercial agreements have the European Union as their territorial scope. The question of whether the UK is carved in or out of types of agreement may now need to be carefully considered and then catered in the drafting.
- If you are contemplating entering into, or are already subject to, long-term commercial agreements (particularly service agreements) you will need to be mindful of the contractual impact that changes in law following the end of the transition period may have. The regulatory regimes in the EU and UK could diverge and might not allow for mutual recognition. This may mean that you will need to comply with different regulatory regimes.
- The Withdrawal Agreement requires the UK to continue applying the EU’s General Data Protection Regulation (GDPR) to some EU originating data, after the end of the transition period. At the end of the transition period, the UK will no longer be treated as an EU Member State, therefore updates may be needed to the wording of contracts and privacy notices.
The UK government has indicated that transfers from the UK to the EEA can continue after Brexit without additional protections being put in place. This is because EEA states will be deemed by the UK to have an adequate level of data protection. The UK government will keep the position under review.
Transfers from the EEA to the UK – in a no-deal Brexit, the UK will become a ‘third country’ under the GDPR. Controllers or processor based in the EEA will only be able to transfer personal data to the UK if certain conditions in the GDPR are met. The two conditions most likely to apply are either the EU Commission making an ‘adequacy decision’ about the UK, or that there are ‘appropriate safeguards’ in place for those transfers. It is unclear if such an ‘adequacy decision’ will be made so we would suggest putting in place ‘appropriate safeguards’ through the use of standard contractual clauses (SCCs). Schools can enter into SCCs on a ‘conditional’ basis so they only apply if necessary.
- In relation to determining the governing law of an agreement, an express choice of law clause in a contract in favour of English governing law will still be followed by the UK courts and those of the remaining EU member states, so that schools entering new agreements can continue to choose English law to govern their contracts.
The position is less clear in relation to the rules which determine the choice of court to hear a dispute and the enforcement of any resulting judgment. The current rules which provide the relevant framework in this area in the UK, will fall away at the end of the transition period.
The UK has confirmed that it will sign up to the Hague Convention on Choice of Court Agreements 2005. This will mean that clauses which choose the exclusive jurisdiction of the English courts should be recognised by the courts of the remaining EU member states if they are entered into after the transition period. However, non-exclusive jurisdiction clauses will not receive the same reciprocal protection. Schools entering into new agreements will need to bear this in mind.
On a practical level, schools should consider whether there is a need to renegotiate contracts to deal more clearly with the implications of Brexit. Contract renegotiation might still be attractive to both parties for so long as the consequences of Brexit are unclear. What happens if you encounter difficulties in a contract; are there grounds to terminate your existing contracts? You could seek to rely on material adverse change or force majeure clauses as grounds for termination but this may be difficult to establish and success will come down to the interpretation of the particular clause.
Changes in a party’s economic circumstances have generally not been held to qualify as force majeure events. It is possible that parties could seek to argue that a contract has become frustrated as a result of the end of the transition period, but again this was not successful in the recent Brexit case of Canary Wharf v European Medicines Agency.
The best way to future-proof against Brexit is therefore to include express provisions to cater for certain events. The expression ‘Brexit clause’ refers to a clause in a contract that triggers some change in the parties’ rights and obligations as a result of a defined event occurring. The trigger events may not be Brexit but the occurrence of events which the parties predict might occur as a result of Brexit, for example, changes to tariffs, customs procedures or new laws.