Scottish independence – how could it affect your business?

Scotland’s referendum is going to be held on 18 September 2014 and will decide whether or not Scotland ceases to be part of the United Kingdom, and perhaps the EU. The debate on Scottish independence largely focuses on key areas such as banking, currency, oil, defence and the monarchy. However, little attention has been given to contracts already in place for businesses based in England, Wales, Northern Ireland and Scotland, were it to become independent.

Territory

Many contracts have clauses which specifically define the territory over which the contract will operate. Until now, contracts could define the territory as ‘the United Kingdom’ and be satisfied that the obligations contained within the contract would be enforceable in England, Wales, Scotland and Northern Ireland.

However, were Scotland to vote ‘Yes’ in the referendum and not therefore comprise part of the United Kingdom, many of these contracts would be unclear and even unenforceable at times. This is because those obligations which previously extended to the United Kingdom would not now extend to Scotland. The risk of this occurring is that parties may face significant uncertainty as to whether their obligations extend to Scotland, and some may use the uncertainty as an opportunity to walk away from their obligations under the contract.

“Force majeure”

Contracts will often contain a ‘force majeure’ clause which may stipulate that the contract will come to an end or be postponed due to forces outside of the parties’ control, such as natural disasters, wars, strikes and acts of terrorism. However, occasionally force majeure clauses can be sufficiently wide so that Scottish independence would meet its requirements. The risk Scottish independence poses is that some parties may interpret a ‘Yes’ vote as a force majeure event and may seek to stop performing their obligations under a contract. This could have a detrimental effect on the onward supply of goods or services, could damage relationships with customers and could impact reputation.

Product liability

Should Scotland cease to be part of the EU as a result of its referendum on independence, there may be product liability implications for importers of products from Scotland. The ‘first importer’, the party who physically or contractually arranged for the goods to be transferred from outside the EU to inside the EU, is likely to be liable for the importation of defective goods. The importer (instead of the exporter) may be liable for any damage or loss caused as a result of a defective product, because it is their duty to ensure the goods being imported are safe and comply with product standards in the EU. If Scotland becomes independent, an EU importer of, say, whisky from Scotland would be liable were the product to be defective, rather than the Scottish exporter. Therefore, importers of products from Scotland which don’t already address product liability in their contract may face an increased risk of claims in respect of the products purchased.

The issues of territory, force majeure and product liability could be affecting your business, so make sure they are addressed before 18 September 2014.

For more information, or if you would like to receive a full copy of our White Paper on the impacts of Scottish Independence, email blogs@gateleyuk.com.