SaaS suppliers and SaaS customers are becoming increasingly concerned about the effect of “Brexit” upon the terms of their existing SaaS agreements, particularly where contracts are subject to English law or SaaS suppliers or customers are located within the UK. Below is a summary of the main issues that SaaS suppliers need to be aware of that may result in problems arising now or in the future with the terms of their existing SaaS agreements.
Where the EU or the EEA is used:
- To define a territory in which rights are granted to the parties in a SaaS agreement, for example countries in which a SaaS reseller may resell SaaS services; or
- As a general concept, for example in relation to the countries in which a data centre must be located;
The wording may need to be adapted to ensure that this includes or excludes the UK (as necessary).
The use of “EU” or “EEA” is of particular importance where rights are being granted for specific countries, some of which may be exclusive rights or where the applicable law depends upon the location of the SaaS customers being within or outside the EU/EEA.
English law is often chosen as the applicable law in international SaaS agreements. Even after “Brexit” this position should not change as English law:
- Will still be one of the most flexible laws with few mandatory restrictions on liability and other contractual obligations;
- Historically forms the basis of local law in many countries worldwide; and
- Is more similar to US laws and legal concepts than other European country’s laws.
Force Majeure clauses set out special rules that apply if something beyond a party’s reasonable control effects that party’s ability to comply with its contractual obligations. Depending on how a SaaS supplier’s force majeure clause is worded “Brexit” could be considered to be a force majeure event. In most SaaS agreements, a force majeure event entitles the non-breaching party to terminate the SaaS agreement, without penalty and this could be used by a unhappy SaaS customer looking for a reason to terminate the SaaS agreement early.
Application of existing EU based law
Some EU laws apply to the UK directly, for example: interest on late payments and compensation for the termination of commercial agents. Following a Brexit, the application of such laws and UK compliance with such laws may change depending upon the exact circumstances of the Brexit and some laws will still apply extra-territorially to the UK despite a Brexit.
Compliance with new EU based law
Prior to the UK actually formally leaving the EU, the EU will continue to make laws that apply in the UK and the UK will be bound by any new laws at least until Brexit is complete. For example: the UK’s compliance with the General Data Protection Regulation (GDPR) will automatically apply from the 25th of May 2018 but the UK government may then remove the GDPR from English law or adapt its terms after “Brexit” under English law.
Identifying Potential Issues
While there is currently no immediate need for SaaS suppliers to amend existing SaaS agreement terms, as the government’s “Brexit” strategy has not been finalised or published, SaaS suppliers should be aware of the issues and should now be:
- Reviewing existing SaaS agreements to identify potential problems; and
- Addressing problems that are identified within any new SaaS agreements or renewals of existing SaaS agreements entered into with SaaS customers in the interim.
Irene Bodle is an IT lawyer specialising in SaaS, with over 14 years experience dealing with SaaS, cloud computing matters and IT law issues. If you require assistance with any SaaS agreements, cloud computing matters or any other IT legal issues please contact me at:
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