Is Brexit just a matter of T&Cs?

With the deadline looming for the UK’s departure from the EU on 29 March 2019, it remains uncertain where, on the spectrum between a ‘soft Brexit’ and a ‘no deal’, the terms of that departure will fall. The Government’s recognition (24 September) that a no deal Brexit could indeed mean the suspension of air travel between UK and EU countries, and also the suspension of bus and coach services to the EU, illustrates the potential scale of the issues to be addressed.

What is certain is that Brexit will have a significant impact on business. Any impact assessment will include a review of the effect of Brexit on a business’ ability to continue to perform existing contracts, either at all or on commercially viable terms, as well as any consequential operational changes that may be required, including in relation to contracts that will be entered into (or continue to apply) post Brexit.

In this context, travel businesses should review their existing contractual terms and conditions to consider to what extent, if at all, their terms may help to mitigate adverse Brexit consequences, and what amendments might be considered.

Differences will apply depending on whether the relevant T&Cs comprise supplier (or other) business contracts, or are consumer contracts with travellers (or others). Every travel business will need to consider its own circumstances based on specific issues such as the business location and the location of its destinations and suppliers, the likely impact on exchange rates, and the impact on customers.

The contractual review should be carried out in conjunction with a review of the regulatory impact of Brexit (including, for example, applicable Package Travel, Data Protection, and VAT regulations) on the business’ operational processes and procedures.

Existing contracts in force for periods after 29 March 2019 (or any agreed period of extension) will continue to apply, on their existing terms, whatever the terms of Brexit. If the consequences of Brexit make it impossible, or uncommercial, for the business to complete the contract/deliver the service on the terms agreed, then (unless there is express agreement to vary the terms of the contract) the business will need to see how far existing terms may mitigate the consequences of Brexit.

Most T&Cs already contain a number of clauses that are relied upon to mitigate the consequences of a failure or inability to perform a contract, but in the absence of express Brexit-related language, the prudent starting point would be to assume that general clauses of this nature are unlikely to cover specific consequences of Brexit.

For example:

  • Force majeure (dealing with events outside the control of the parties) – it is unlikely that a general force majeure clause would be triggered in the absence of specific wording contemplating Brexit;
  • Material adverse change – it may be easier to argue that the financial or regulatory consequences of Brexit constitute a material adverse change. However, most general T&Cs do not include such a provision, and even if included, express linkage to specific consequences of Brexit would be recommended;
  • Frustration – the doctrine of frustration, which a party may sometimes rely on to excuse itself from performance of a contract (irrespective of contract conditions) has been consistently applied very narrowly by the courts. It will not apply in circumstances where a contract has simply become more difficult or expensive to perform. In assessing whether to amend existing T&Cs for use in future contracts, a business should weigh up the potentially conflicting considerations of the commercial impact of seeking to impose amended terms on customers, suppliers, and other relevant parties, against making changes that are necessary and appropriate to mitigate the consequences of Brexit.

There is no standard ‘Brexit clause’ that will automatically apply in all cases. It’s more helpful to regard that expression as a generic reference to contractual provisions which are capable of identifying or otherwise applying to specific Brexit-related ‘trigger’ events and the contractual consequences.

At the moment, it’s difficult for parties to a contract to agree on an effective clause that triggers change just by using the simple phrase “if Brexit occurs” as “Brexit” may, in practice, mean different things. Even specifying when Brexit may happen, for these purposes, may need clarifying, for example, to allow for any period of extension beyond 29 March 2019 that may be agreed (but excluding any subsequent transition period).

Examples of provisions that may cover specific Brexit issues include those dealing with the consequences of an increase in costs, an adverse impact on the business’ ability to perform the agreement in accordance with its terms and the law, an unforeseeable change to the business or economic environment in which a party operates, or by any fluctuation in exchange rates.

In the context of consumer contracts (in addition to any applicable regulatory considerations) the overriding principle will be that any changes to the T&Cs, whether allowing the business to increase charges, cancel a booking or otherwise exclude or limit liability for failure to deliver the contracted service, will not be enforceable if they are held to be “unfair contract terms” under existing consumer protection legislation. The T&Cs will have to explain, clearly and explicitly, ‘what, when and how’ the contract may be changed (e.g. increased charges) allowing for reasonable notice of any change (and the ability of the customer to cancel), the ability for the booking to be cancelled by the provider (e.g. where, despite taking all reasonable measures, the business is unable to provide the services that have been booked), what refunds will then be repayable, and in particular (where applicable), clear and explicit notice must be given that in those circumstances no liability will attach to the business for compensation.

‘Fairness’ starts with the consumer being able to make an informed choice to place the booking on terms that have been clearly spelled out in advance; this is obviously critical where the enjoyment of the services may be adversely affected (or lost altogether) by the relevant trigger events.

In summary, it is recommended that any impact assessment of the effect and consequences of Brexit should include a review of current contractual T&Cs, to consider, in conjunction with applicable regulatory and operational issues, what appropriate and proportionate changes may be required, fairly and reasonably, to protect the interests of the business in its relationships with its suppliers and in continuing to deliver effective travel services to its customers.

This article was written for ABTA’s Travel Law Today, 6th Edition which can be found by clicking here.