Why EAC firms must study Brexit clauses

For EAC and Kenyan traders, Brexit clauses ought to be key considerations.

East Africa Heads of State and Government during the EAC Summit in Dar es Salaam, Tanzania, in 2016. FILE PHOTO | NMG 

IN SUMMARY

  • The choice of law is one of the most important terms in an international contract.
  • This in essence provides clear set rules in the event of a dispute.
  • In intra European trade, most countries nominated the European Union laws for some clauses.
  • The effective date of Brexit is March next year and businesses trading with the United Kingdom are including Brexit clauses in their contracts to hedge against any risks that could be associated with the divorce.

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Before the Brexit (2016 British vote to take the country out of the European Union [EU]) most international trade and sale of goods contracts had jurisdiction clauses that nominated the English laws and courts.

The choice of law is one of the most important terms in an international contract. It is the clause that allows parties in different countries to choose which law will apply. This in essence provides clear set rules in the event of a dispute.

In intra European trade, most countries nominated the European Union laws for some clauses.

The effective date of Brexit is March next year and businesses trading with the United Kingdom are including Brexit clauses in their contracts to hedge against any risks that could be associated with the divorce.

It is a prudent move considering that some of the Brexit effects are wide ranging. There are, for instance, some multinationals that are shifting are relocating their offices to other EU countries.

In such a scenario a contracting party may be affected by the such sudden changes if the location is a material term.

There may be changes in law and cost of trading, for example in tariffs that may directly affect contracts. Such changes are deemed to be material and may affect the contract.

It is very important when entering into a contract at this stage, to consider inclusion of a Brexit clause if the other party is likely to be affected.

There are some anticipated changes which can be hedged through contract, but generally it is difficult to ascertain in detail the impact, making it all the more crucial to include the Brexit clause.

Some of the provisions in the Brexit clause should include allowing parties to terminate the contract if it becomes impossible to perform due to an event orchestrated by Brexit. It should also allow parties to renegotiate the contract in the event of indirect changes occasioned by Brexit, for example it can allow parties to renegotiate the price if cost of business goes up. It may also include a choice of law clause.

For EAC and Kenyan traders, Brexit clauses ought to be key considerations. There is a lot of trade between Kenya and the UK and this is secured by international trade contracts as applicable. It may be time to consider inclusion of the Brexit clause in the event material terms of the contract are affected by the Brexit. This will in turn secure both parties from any negative effects.

The Brexit has been a lesson to many regional blocs including the EAC. When it comes to intra-EAC trade it is important to consider the material changes that would be occasioned due to any country exiting the EAC, and including such events in the material changes clause.

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