No- deal Brexit : what should Polish entrepreneurs expect ?

1. No-dealBrexit: whatshouldPolishentrepreneursexpect? Dr. Steve Terrett s.terrett@britishlawcentre.co.uk

2. Hitting a moving target 1. The legal and factual situation is very fluid. 2. Much hashappened (and stillwill…) – thispresentationis not comprehensive. Some simplification is required. 3. Much stillremainsunknown – the story has not finishedyet. 4. I’m less concerned with the impact on the UK than the impact on Polish entrepreneurs

3. Most important disclaimers • The material and discussions today are intended solely for general informational/educational purposes and does not constitute legal advice in any way whatsoever. • You should not act or rely on any information provided at, or in connection with, this lecture without first having sought the advice of an external, suitably-qualified legal advisor who is aware of the full factual and legal circumstances surrounding you, your firm and your legal position. www.wpia.uw.edu.pl

4. Most important disclaimers • Proper legal advice is heavily influenced by the industries and market sectors in which a particular clients operates. • No lawyer is an “off-the-cuff” encyclopaedic expert in every market sector. You shouldn’t believe anyone who pretends to be! www.wpia.uw.edu.pl

5. Most important disclaimers • UK and Polish governments have prepared (good) advice on how to prepare best for no-deal Brexit: • https://www.gov.uk/brexit • https://www.brexit.gov.pl • But it will ultimately be up to entrepreneurs to look after themselves if they breach their contracts, or if they wish to sue the other party. www.wpia.uw.edu.pl

6. What happens if there is a (no-deal) Brexit? • EU Withdrawal Act 2018 [UK legislation – NOT Teresa May’s withdrawal agreement] Retained legislation – i.e. EU law becomes “domesticated” English law BUT… Much EU law depends upon reciprocity. • No general/sectoral agreements • No transition period • Cliff-edge / clean break? www.wpia.uw.edu.pl

7. What happens if there is a (no-deal) Brexit? • UK may unilaterally agree to recognise the legality of goods/services from the EU, but EU MS countries (e.g. Poland) may be under a duty not to recognise goods/services coming from the UK. • UK becomes “another China” (except China-EU trade negotiations exist since 2013) • No ability to impose or enforce obligations on other Member States www.wpia.uw.edu.pl

8. Some examples… • UK farmers would not be allowed to export live animals to Poland, because the relevant EU law prohibits all live animal imports apart from approved third countries. • Even if the UK were quickly approved, all imports must go through approved veterinary stations. No such stations currently exist in the French and Dutch ports that handle UK exports. • UK transport companies/drivers would no longer have valid permits to drive lorries across the EU. www.wpia.uw.edu.pl

9. Some examples… TARIFFS (imports into EU) • "There will be no tariffs or quotas because what we want to do is to get a standstill arrangement under GATT Article 24 until we have negotiated the [free trade agreement]." (Boris Johnson, during PM leadership debate). • BUT – GATT Article 24 only applies if there is a comprehensive free trade deal with the EU. In a no-deal Brexit, the general WTO rules would apply. • UK exports to EU would need to pay the EU’s external customs tariffs. • Very high amounts on agricultural products, some manufactured goods, motor vehicles etc. www.wpia.uw.edu.pl

10. Some examples… TARIFFS (imports into EU) • UK goods would need to comply with customs declarations and related paperwork. • Example of Economic Operators Registration Identification (EORI)numbers: • Only one small step in the customs procedure process • Must be shown on customs declarations documents • 245,000 UK businesses trade with EU. Until recently, only 72,000 had already for an EORI. • Government saw the level of no preparation and started auto-registration • Yellowhammer Papers estimate 50%-85% of UK exporters will not be ready for French (EU) customs rules www.wpia.uw.edu.pl

11. Some examples… TARIFFS (imports into EU) • Yellowhammer Report: • Amount of goods traffic flowing through France will be reduced by 40%-60% for approx. 3-6 months. • Delays up to 2.5 days involving 8,000 vehicles • Which of the contractual parties is to “blame” for this? Can you sue (or be sued by) your contractual partner in such a situation? www.wpia.uw.edu.pl

12. Some examples… TARIFFS (imports into UK) • Surely better – right? Probably not… • If the UK applies 0% tariffs to goods from the EU, Article 1 of GATT (the “Most Favoured Nation (MFN) rule”) would require the UK to then offer the same terms to the rest of the world. • Economic disaster for UK budget. More likely that costs will be passed on to traders. • Who pays the tariffs if they suddenly become payable? • Can the importer terminate the contract because the tariffs make the contract no longer economically viable? www.wpia.uw.edu.pl

13. Some examples… loss of trade deals with 3rd states • EU currently has free trade deals with 70 countries (from which the UK benefits); Brexit means loss of trade deals • Only 13 trade deals (inc. 38 countries – such as Faroe Islands, Liechtenstein) currently “rolled over” • What happens if a UK trader can no longer get (or pays much more for) parts from a 3rd country. Can they pass the increased price on to the (Polish) buyer, or terminate the contract because it has become unprofitable? • What is the exchange rates (£ to PLN) drastically alter? www.wpia.uw.edu.pl

14. Court litigation www.wpia.uw.edu.pl

15. Approx. 30 statutes per year County Court (less than £50k) – approx. 1500 High Court (over £50k) – approx. 100 Court of Appeal – 38 Supreme Court – 12 www.wpia.uw.edu.pl

16. Approx. 2m civil cases lodged per year…. • 11.6% of them are defended • 2.2% ended up with a full trial • The tendency is to settle, because lawyers’ costs are very expensive and courts have great discretion with allocating costs (e.g. if court time is wasted) www.wpia.uw.edu.pl

17. Average time waiting for trial to start: 56 weeks Average length of trial once started: - small claims track (1.2 hours) - fast track (3.5 hours) - Vast majority of cases are dealt with in one hearing www.wpia.uw.edu.pl

18. Money Claim Online • E-“service” of claim. • D responds via web-site. • Judgment and execution orders may be sent via web-site to both parties. • Cheaper than normal court fees (£25 fees) • Available for claims valued at less than £100,000.

21. Default Judgments • If you fail to respond to a claim within 14 days (either admitting liability or filing a “defence/counter-claim”, the claimant will beentitled to a “default judgment” in his favour. The court will send D a court order with details of the compensation and costs he is required to pay. [NB. Failure to follow a court order is a criminal offence.] • If default judgment is given against D, it will be included in a public Register of Judgments, Orders and Fines. This is accessible to credit reference agencies and will make it extremely difficult to obtain credit. It may also affect D’s existing credit relationships (e.g. Mortgages may become payable in full if the borrower is included in the register of judgments, orders and fines.)

22. Summary Judgments • Court may summarily (i.e. without trial) reject/allow a claim on the basis that Claimant/Defendant has “no real prospect of success”. – Summary judgment • Limited rights of appeal. • If appeal is successful, trial will be organised quickly thereafter.

23. Consequences of ignoring the court or court orders • COSTS - Has a party unreasonably refused to participate in mediation? • CONTEMPT OF COURT – including prison. www.wpia.uw.edu.pl

24. Appeals (Poland) Appeals (England) Approx. 2 million civil claims initiated at 1st instance Approx. 1,000 appeals at Court of Appeal level Approx. 0.5% of claims are appealed… • Art 176 Konstytucji: prawo do dwuinstancyjnegopostępowania • 99%? www.wpia.uw.edu.pl

25. Pre-Brexit Post-Brexit Why should the Polish courts recognise/enforce a judgment from the English courts? What if a claim is initiated in Poland instead of the English courts? • Brussels Regulation: A judgment from one EU MS is automatically enforceable in another. No EU MS court can prevent another EU MS court from resolving a dispute www.wpia.uw.edu.pl

26. English law www.wpia.uw.edu.pl

27. Lassez faire market approach – i.e. protect consumers, employees and otherweaker parties BUT… Leave businesses to look after themselves The laws in post-Brexit Britain’s will probably reflect this lassez faire approach 1087 articles 88 pages Art 5: Zasadywspółżyciaspołecznego www.wpia.uw.edu.pl

28. wszelkie kwestie, które nie są szczegółowo uregulowane w niniejszej umowie, podlegają przepisom Kodeksu cywilnego… • Need to regulate everything yourself. • What if you forget something? www.wpia.uw.edu.pl

29. The essence of defining a contractual party’s obligations is to ask how the reasonable person would interpret what was agreed with the other contractual party… • All best efforts… • All reasonable efforts… • All commercially reasonable efforts… The devil is in the detail! www.wpia.uw.edu.pl

30. E.g. Contractual clause for the delivery of goods. • Fails to say: • (i) who pays for the packaging/delivery? • (ii) where does delivery take place? Default position (from Sale of Goods Act 1979) is that: • Seller pays for the packaging/delivery • Place of delivery is the seller’s place of business! www.wpia.uw.edu.pl

31. In life (and in law) the most harm isn’t caused by what you say, it’s caused by what you don’t say… One of the most underrated talents of a great lawyer is knowing when to keep your mouth shut. Large corporations generally have well-developed Brexit contingency plans, reviewe contracts etc. SMEs are more at risk of being unprepared www.wpia.uw.edu.pl

32. www.wpia.uw.edu.pl

33. Specific legal issues to consider when entering a new contract (or reviewing an existing contract) with a UK-based entity www.wpia.uw.edu.pl

34. Choice of law clauses • If possible, try to insist that Polish law applies • Can we expect a revolution in English law in coming years? (NB. Note use of secondary legislation to initiate reforms) • Consider other alternatives (German/French law/)? • United Nations Convention on Contracts for the International Sale of Goods • Consider specifying that a specific English law shall apply, even if the law is subsequently updated. (NB. Parliament may always surprise you by making the new law compulsory!) www.wpia.uw.edu.pl

35. Choice of jurisdiction clauses • If possible, specify that the Polish courts (or arbitration tribunals) have jurisdiction • UNCITRAL Arbitration Rules • International Court of Arbitration (Paris) • London Court of International Arbitration (London) • BEWARE: UK courts can exercise jurisdiction over a defendant even if the case doesn’t seem to have anything to do with the UK, just because the defendant was “served” with a claim form while physically in the jurisdiction (even if only briefly) www.wpia.uw.edu.pl

36. Choice of jurisdiction clauses • UK courts will not be part of the “Brussels Regulation” regime (mutual recognition of judgments) after Brexit; • UK may seek to join the Lugano Convention (which is very similar to the Brussels regime, but has certain flaws: e.g. the Italian torpedo); • It is not clear that the other EU MS would allow the UK to join the Lugano Convention after Brexit (it would be the only non-EU/EFTA country to join); • Traditional English rules on jurisdiction are strange for civil law lawyers and businesspeople (e.g. forum non conveniens; anti-suit injunctions; refusal to enforce overseas judgment against UK assets) www.wpia.uw.edu.pl

37. REVIEW/VERIFY EXISTING CONTRACTUAL TERMS • Check existing choice of law/jurisdiction clauses • “Choice of court agreements” (jurisdiction clauses) are treated as separate from the main agreement. They can be agreed/changed by the parties at a later date (unless this is prohibited/limited by the main contract) • An email/letter sent today (which is agreed to by the other side) can constitute an amendment of an existing commercial contract’s rules on choice of court. www.wpia.uw.edu.pl

38. Strict liability of contractual obligations • Paradine v Jane [1647] 4 (KB): • “when the party by his own contract creates a duty or charge upon himself, he is bound to make it good notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract” • Seller shall delivery by 2pm; or • Seller shall make [all] reasonable efforts to deliver by.. • Seller shall undertake best efforts to… www.wpia.uw.edu.pl

39. Interpretation of contractual obligations • Objective bystander test – it is important to get the wording of contract clauses absolutely right • Negotiations and prior drafts not admissible • Subsequent conduct not admissible • Entire Agreements clauses • Courts will not imply a term if the contract works without it www.wpia.uw.edu.pl

40. Interpretation of contractual obligations Estafnous v LLBC [2011] EWCA Civ 1157 • Commission payable to estate agent upon “finding a buyer who buys [particular property X]”. The property was owned by a company [X Co]. • The estate agent found a Buyer who wanted to buy X Co • For tax reasons, it was better for Buyer if he entered into a share purchase agreement (SPA) to buy X Co and therefore indirectly acquire property X. • Was the estate agent entitled to the commission? www.wpia.uw.edu.pl

41. No general duty of good faith • Caveat emptor (“let the buyer beware”) • Importance of warranties and representations (which are actionable if incorrect – “misrepresentation”) • Importance of being very precise with the scope of contractual obligations: (e.g. a “lock out” clause in a contract, requiring a seller to terminate sale negotiations with any third parties does not imply that the seller must negotiate in good faith with the buyer (“lock-in”). www.wpia.uw.edu.pl

42. Frustration and force majeure • English law has a narrower approach towards vis major (siławyższa) events than Polish law • A contract can only be “frustrated” if an unforeseen event beyond the control of the contractual parties makes it impossible to perform the contract or radically changes the principal purpose for which the contract was entered into. Mere commercial hardship does not suffice. • CanaryWharf v EMA [2019] EWHC 335 (Ch)– European Medical Agency -- £13m-a-year lease of Canary Wharf premises. Lease ran until 2039 and had no termination clause. Did Brexit frustrate the lease? Is Brexit frustrating? www.wpia.uw.edu.pl

43. Looking after yourself in the contract… • Termination clauses (conditions subsequent) or contractual “conditions” • The lease shall expire upon fulfilment of any of the following conditions… • It shall be of the essence of this contract that… www.wpia.uw.edu.pl

44. Looking after yourself in the contract… • Material Adverse Change (MAC) or Material Adverse Effect (MAE) clause: • “Material Adverse Effect: shall mean any event, circumstance, change or effect that, individually or in the aggregate, is materially adverse to… • Include reference to “as may reasonably be considered to constitute an MAC/MAE” www.wpia.uw.edu.pl

45. Looking after yourself in the contract… • Force majeure clauses: Neither party shall be liable for any failure or delay in performing its obligations under this Agreement insofar as such failure or delay is caused by a Force Majeure event. A Force Majeure event means, in relation to either party, any event or circumstance beyond the reasonable control of that party including act of God, fire, explosion, flood, epidemic, power failure, governmental actions, war or threat of war, acts of terrorism, national emergency, riot, civil disturbance, sabotage, labour disputes, strikes (other than in respect of the workforce of the party affected)… etc etc. www.wpia.uw.edu.pl

46. Looking after yourself in the contract… • Retention of title clauses: Title to {the Goods} shall remain vested in {the Seller} and shall not pass to {the Buyer} until the purchase price for {the Goods} and any other sums owed by {the Buyer} to {the Seller} have been paid in full and received by {the Seller}. Until title to {the Goods} passes: • {the Seller} shall have authority to retake, sell or otherwise deal with and/or dispose of all or any part of {the Goods}; • {the Seller} and its agents and employees shall be entitled at any time and without the need to give notice enter upon any property upon which {the Goods} or any part are stored, or upon which {the Seller} reasonably believes them to be kept; • Etc etc. www.wpia.uw.edu.pl

47. Looking after yourself in the contract… • Price variation/escalation clauses: [Seller] shall be entitled to increase the sale price by a maximum of [ ] in the event that… (specify conditions) • Hardship clauses: “if either party suffers substantial economic hardship…” • Agreement to discuss amendment • Agreement to refer issue for independent expert evaluation, and to be bound by the expert’s ruling [NB. Courts have no power to re-write contracts] Use to anticipate possible currency fluctuations post-Brexit. www.wpia.uw.edu.pl

48. REVIEW/VERIFY EXISTING CONTRACTUAL TERMS • Review contracts that can affect your supply/production/sales chains • Seek to amend potentially problematic clauses • Review possibilities to enforce any securities that are based in the UK www.wpia.uw.edu.pl

49. Data Protection Rules - GDPR • The EU (Withdrawal) Act 2018 retains the GDPR in UK law. • BUT – although this means there will be no problems with transfers from UK-EU, it does not mean that transfers from EU-UK will continue uninterrupted. • As a 3rd country nation, the EU will need to adopt an “adequacy decision” about the level of protection of data in UK before data transfers can be made www.wpia.uw.edu.pl

50. REVIEW/VERIFY EXISTING CONTRACTUAL TERMS • Assess what data you transfer to your UK group companies or contractual counterparties; • Adapt existing data transfer procedures to take account of the fact that UK will be a 3rd country which has not (yet) been assessed by the EU as having an adequate data protection regime; www.wpia.uw.edu.pl