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Breaking down Brexit: a blog

As the UK moves towards Brexit, the changing legal landscape and the various implications affecting business will be summarised by our experts below on our Breaking down Brexit blog. 

 


10 January 2017


Does Brexit mean that the UK automatically leaves the single market? A new legal challenge

Introduction

A judicial review brought by Peter Wilding, the founder of cross-party think-tank British Influence, and Adrian Yalland, a Conservative lobbyist who voted to leave the EU in the referendum, seeking to challenge the Government’s legal position on membership of the European Economic Area (the “EEA”) was dismissed on paper by High Court judge Robin Knowles on 30 December 2016. The claimants assert that leaving the EU would not result in the UK leaving the EEA and therefore the European single market, and they want the government to proceed on this basis. They argue that, “if it can be proven that the UK is a contracting party to the EEA in its own right, and not as part of the EU”, the EU will not be able to force it out of the single market, and the UK will therefore have gained “a cast iron negotiating tool which would previously not have been available”. In spite of the setback, Wilding and Yalland were given permission to renew their case in a hearing scheduled to start during the week of 16 January 2017.

What is the EEA?

The EEA Agreement came into force in 1994. The parties are each EU Member State, as well as Iceland, Liechtenstein and Norway. It created the European single market, which is the tariff-free movement of goods, services, money and people in the EEA. The Agreement provides, amongst other things, for the three non-EU member states to have access to the single market in return for contributing to the EU budget and accepting the free movement of workers. The non-EU member states are however outside of the Common Agricultural Policy and customs union.

Arguments

Central to Wilding and Yalland’s legal challenge is Article 127 of the EEA Agreement:

Each Contracting Party may withdraw from this Agreement provided it gives at least twelve months' notice in writing to the other Contracting Parties.

Immediately after the notification of the intended withdrawal, the other Contracting Parties shall convene a diplomatic conference in order to envisage the necessary modifications to bring to the Agreement.”

Supporters of Wilding and Yalland’s position include Professor George Yarrow, Chairman of the Regulatory Policy Institute, who believes that “there is no provision in the EEA Agreement for UK membership to lapse if the UK withdraws from the EU” and that as a result “the only exit mechanism specified is Article 127, which would need to be triggered.” Jolyon Maugham QC, of Devereux Chambers, has come to a similar conclusion and has argued that “given Article 127 provides an express mechanism for withdrawal, it implicitly excludes other implied mechanisms for withdrawal such as ceasing to be a member of the EU.”

On the other hand, a government spokesperson has insisted that the UK leaving the EU would automatically herald its exit from the EEA. The rationale for this position is that because “the UK is party to the EEA Agreement only in its capacity as an EU member state, once we leave the European Union we will automatically cease to be a member of the EEA.” Kenneth Armstrong, the Professor of European Law at Cambridge University, argues that the UK will not be able remain in the single market “by the back door”, but on a different basis to the government. “The UK’s obligations under the EEA agreement may not lapse when the UK leaves the EU. But the UK only has limited obligations arising under that agreement. For all aspects relating to customs and compliance with the Single Market rules, it is the EU, not the UK, that exercises rights and duties under the agreement.” He further argues that it would be contrary to the purpose of the EEA Agreement for it to regulate relations between the UK, a contracting party by virtue of its EU membership, and the other twenty seven member states of the EU.

Comment

Wilding and Yalland’s argument does not appear to sit well with the rest of the EEA Agreement, for example Article 126(1) says that its territorial scope is limited to the territories to which the EU treaties apply in addition to Iceland, Liechtenstein and Norway. The UK leaving the EU could therefore see it being part of a single market that does not actually incorporate the UK. Of course there could be appropriate amendments made to the EEA Agreement, but one would have to question whether there would be an appetitive to do this among the other signatories, who may not want to so generously accommodate the UK on its leaving the EU.

There is even the potential for the involvement of the EFTA Court in Luxembourg, because the issue essentially comes down to the interpretation of Article 127 of the EEA Agreement. Whilst Wilding and Yalland’s argument could be more convincing, the addition of yet another point of contention to the Brexit discussion creates even more uncertainty and even greater potential for delay.

Contributed by:

 Charles Bankes and Lori Swindells are members of the firm’s Brexit team.

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08 December 2016

“Keep calm and negotiate” - Barnier invites the UK to the negotiating table and sets tight timetable

In his first press conference since he took office as chief Brexit negotiator for the European Commission, Mr Barnier gave an overview of the many contacts he has had with Member States and EU institutions over the last two months and the work done so far within the Task Force that he chairs.

The message is that he and his team are ready to start the negotiations and that time will be short. In that context Mr. Barnier made it clear that the two-year period that starts to run after the UK has served the Article 50 notice includes the preparation of the Council mandate at EU level and the ratification process of the Article 50 agreement. As a result, there will be no more than approximately 18 months left to negotiate a Brexit deal. If the UK serves the Article 50 notice by the end of March 2017, as Prime Minister May has announced, this means that an agreement must be reached by October 2018.

Mr Barnier also reiterated the main principles that will guide the EU27 in the upcoming negotiations. In addition to the “no negotiation without notification” mantra, he emphasised his determination to preserve the unity and the interest of the EU27. Another guiding principle is that EU membership comes with rights and obligations, and that third countries can never have the same rights and benefits as EU members. Finally, Mr Barnier stressed that the single market and the four freedoms are indivisible and that cherry-picking (for instance free movement of capital or services but no free movement of persons) is not an option.

The statement further confirms that in the Commission’s view, the Article 50 agreement will be about Brexit only. The details of the future relationship between the UK and the EU27 will need to be set out in a distinct agreement. Mr Barnier noted, however, that the UK will first need to indicate how it sees the future partnership with the EU27.

The full text of Mr Barnier’s press statement (in English and French) can be read here.

Contributed by:

  Koen Platteau is a member of the firm's Brexit Team.

01 December 2016

Miller and Santos - the Supreme Court and Brexit
Background

On 03 November 2016 the High Court delivered judgment for the Claimants in the case of R (on the application of (1) Gina Miller & (2) Deir Tozetti Dos Santos) v The Secretary of State for Exiting the European Union. As laid out in an article here, the judgment ruled that the Government is not able to make a notification under Article 50 without first securing an Act of Parliament to that effect.

Appeal to the Supreme Court

The Government is appealing the decision to the Supreme Court. The Supreme Court has set aside the 5th to the 8th December to hear the case.

The Government has set a self-imposed deadline of March 2017 to give Article 50 notice. A ruling in its favour will allow this to happen. However, if the Supreme Court were to agree with the judgment of the lower court, the Government will need the backing of Parliament before giving notice. There is therefore the potential that such a notification could be delayed.

The appeal is of such constitutional significance that, for the first time, all available Supreme Court Justices will sit to hear the case (there are currently 11 Justices, rather than the full 12, owing to the retirement of Lord Toulson this year).

New Parties to the Proceedings

Additional parties have joined the case since the judgment of the High Court:

  • The Supreme Court has allowed lawyers representing the Scottish and Welsh Parliaments to make written and oral submissions at the forthcoming appeal. Scotland’s Lord Advocate, James Wolffe QC, will address the Court on relevant Scottish law and devolution issues. He will argue that it would be unlawful for the UK Government to make an Article 50 notification without a legislative consent motion (“LCM”) to that effect from the Scottish Parliament in Holyrood. The majority of MSPs in Holyrood are opposed to Brexit and, in the referendum, 62% of Scottish voters voted for the UK to Remain in the EU.
  • The Counsel General for Wales, Mick Antoniw AM, will make submissions on devolution, parliamentary sovereignty and the rule of law. The Welsh Government wants the UK Government to consult the Welsh Assembly, the Scottish Parliament and the Northern Ireland Assembly before making an Article 50 notification.
  • Two references have been made to the Supreme Court appeal from the High Court in Belfast. The first is by the Attorney General for Northern Ireland from a judicial review by “Agnew and others”, a group made up of members from Stormont, individuals from the voluntary and community sectors, and human rights organisations. The second reference stems from an application for judicial review by Raymond McCord, a victims’ rights campaigner. Both applications were originally dismissed at first instance. They highlight Brexit matters specific to Northern Ireland, arguing that the Northern Ireland peace process and the Good Friday Agreement were based on the membership of both the UK and Ireland to the European Union. 56% of voters from Northern Ireland in the referendum voted for the UK to Remain in the EU.
  • The Independent Workers’ Union of Great Britain (“IWGB”) has also been given permission to intervene in the appeal. The IWGB is a registered trade union founded in 2012, “whose members are predominantly low paid British and migrant workers, many of them citizens of other European Union Member States” 1. The IWGB will ask the Court to rule that the Government should consider the rights of its members in the fields of labour relations, collective bargaining and the rights of migrant EU workers.
  • A group calling themselves the “Expat interveners” have been given permission to intervene on behalf of British expatriates in support of Mrs Miller.
  • “Lawyers for Britain Limited” has been granted permission to file written submissions, but will not speak at the hearing. This group, consisting of legal practitioners and academics, supports Brexit, but intervened to “make sure the exit process is carried out in the best interests of the United Kingdom” 2.

The Supreme Court refused leave to intervene to two other applicants.

Commentary

The hearing before the Supreme Court, with so many interveners, is likely to go further than a second rehearsal of the arguments before the High Court. It invites the Supreme Court to rule on a constitutional issue of continental significance.

Furthermore, the Supreme Court operates differently to other courts in England and Wales. The Court has a different relationship with precedent; it is not bound by decisions of lower courts. It has the power, and perhaps just as importantly the confidence, to distinguish existing case law where it feels it appropriate.

Judgment is expected in early January 2017.

Contributed by:

 

Charles Bankes is a member of the firm’s Brexit team.

 


1 Independent Workers’ Union of Great Britain,“UK Supreme Court permits independent union to intervene in Brexit legal case”(21 November 2016), (accessed 29 November 2016).

2 Lawyers for Britain, “Lawyers for Britain – Who we are”, (accessed 29 November 2016).

28 November 2016

UPC Agreement to be ratified by the UK

UK Government ministers have announced at the Competitiveness Council today that the UK will ratify the UPC Agreement. We infer that the UK Government thinks that it will be able to negotiate with the other contracting states and the EU to permit the UK to remain involved in the UPC after Brexit.

This also means that the UK Government is happy to accept that EU law will continue to apply, and the Court of Justice will still have jurisdiction, after Brexit at least on matters within the narrow jurisdiction of the UPC. These are requirements for the UK to remain in the UPC, for the reasons set out in the Opinion of Richard Gordon QC and Tom Pascoe (see here). It is possible that the Government’s willingness to accept EU law in defined areas may be a pattern for the Brexit negotiations going forward.

The Government will have to agree with the other Member States for certain amendments to the UPC Agreement. It will also have to come to an agreement with the EU which will continue to allow the UPC to refer questions to the Court of Justice under the Article 267 of the TFEU procedure, even though a non-Member State will be involved. Alongside these preparations, the Government will also be negotiating suitable transition provisions in case, after Brexit, the UK has to leave the UPC.

For the UPC to come into effect, only the UK and Germany need to ratify the Agreement. The German ratification is progressing, and it may be in a position to ratify by the early summer. Once they are in a position to ratify, the sunrise period can start (see here). There can then be an orderly progression to the court opening for business six months thereafter.

Contributed by:


Rowan Freeland is a member of the firm's Brexit Team.

24 November 2016

Autumn Statement 2016 - Impact on UK Infrastructure

The Chancellor’s Autumn Statement has acknowledged predictions that Brexit may cost the economy 2.4% in growth in the long term and so he has focussed on raising productivity. UK workers’ productivity rates are below those in several EU countries. The Chancellor reprioritises spending to “build an economy that works for everyone” and “prepare our economy to be resilient as we exit the EU” – this follows on from Government policy that says economic infrastructure (transport, energy, flood defences, water, waste, and digital communications) is crucial for the economy. He is investing in skills, R&D and infrastructure to try to get the UK’s productivity “match fit” for a post-Brexit competitive global economy. The cut in corporation tax (designed to attract and retain Foreign Direct Investment following the Brexit vote), coupled with new infrastructure spending, indicates a keenness to stimulate the economy ahead of triggering Article 50. The Autumn Statement has presented the UK as ‘open for business’ post-Brexit. We believe this focus on investment is good for business.

Juliet Reingold, Partner in our Government Group, summarises and comments on the impact of the Autumn Statement on the Infrastructure Sector. Read more here.

Contributed by:

 Juliet Reingold is a member of the firm's Brexit Team.

24 November 2016

Government to decide whether to ratify the UPC Agreement

It is widely expected that at the meeting of the UPC Competitiveness Council on Monday 28 November, the UK Government will make clear its position as to whether it intends to ratify the UPC Agreement. If the Government does decide to ratify, this will be on the basis that the UK will be able to continue to play a role in the UPC post-Brexit. Following the Gordon QC/Pascoe Opinion (see here), this would mean that the UK Government in principle accepts that EU law can apply, and the CJEU can have jurisdiction, over matters in the UK, albeit limited to the small range of EU law issues within the competence of the UPC. Whatever the Government’s position, it will give an early indication of the extent to which aspects of a “soft” Brexit might be possible and acceptable in other areas.

Contributed by:


Rowan Freeland is a member of the firm's Brexit Team.

21 November 2016

Scottish and Welsh Governments to participate in Article 50 case

R (on the application of Miller & Dos Santos) v Secretary of State for Exiting the European Union, 05-08 December 2016

The Supreme Court confirmed on 18 November 2016 that the following applications to participate in this case have been granted:

  • The Lord Advocate, on behalf of the Scottish Government
  • The Counsel General for Wales, on behalf of the Welsh Government
  • The 'Expat Interveners', George Birnie and Others
  • The Independent Workers Union of Great Britain.

The High Court held on 04 November 2016 that the UK Government does not have the right to give notice under Article 50 TEU without authorisation by Parliament. The UK Government’s appeal will be heard in the Supreme Court from 05 to 08 December 2016, with a decision expected sometime in the New Year.

On 18 November the Supreme Court gave permission for these four parties to be heard in the proceedings, in addition to the Attorney General for Northern Ireland.

The Scottish Lord Advocate, and counsel for the Independent Workers Union of Great Britain, have been invited to address the “relevance of points of Scots Law, so far as they do not also form part of the law of England and Wales.” While the Attorney General for Northern Ireland, who did not need permission to intervene, will speak to the Court on issues of devolution.

The inclusion of these parties raises the prospect of issues being considered by the Supreme Court that were not heard by the High Court. The involvement of the Scottish Government raises the, albeit unlikely, possibility that the Supreme Court will agree with the SNP’s position that the Scottish Parliament should have a veto right over the UK Government’s exit strategy. A decision to this effect would be of enormous constitutional significance, and would also have serious implications on the timetable for giving notice under Article 50 by the end of March 2017.

There are other applications to intervene under consideration by the Supreme Court, the results of which (and a timetable for oral submissions during the hearing itself) will be announced shortly.

Contributed by:

 Charles Bankes and Lori Swindells are members of the firm’s Brexit team.

10 November 2016

European Commission warns companies about “Brexit deals” with UK

European Commission President Juncker warns European companies and trade associations against efforts to obtain custom-made deals with the UK government on their own, before the official Brexit negotiations have even begun. In some countries and industry sectors, attempts are apparently underway to make certain company or sector-specific arrangements with the UK. President Juncker emphasises that such arrangements will not be tolerated by the Commission and that the Brexit terms can only result from the official negotiations that will take place between the 27 EU Member States and the UK.

These remarks were made against the background of the European Commission sending a request for information to the UK government concerning its “support and assurances” message to Japanese carmaker Nissan. The media reported that the UK government gave assurances to Nissan that it could keep investing in its UK plants and retain full access to the EU market, despite the approaching Brexit. The European Commission is now seeking further information on the nature of these assurances, which may amount to illegal State aid. Under EU law, the mere promise of support or a guarantee can amount to illegal State aid, even when no actual funds are disbursed.

These initiatives illustrate that the Commission is determined to keep control over the Brexit negotiation process. They also serve as a reminder to the UK that it should continue to fully comply with its obligations under EU law up to the moment that it actually leaves the Union.

Contributed by:

   Koen Platteau and Nina Mampaey are members of the firm's Brexit Team.

03 November 2016

Gina Miller wins round one

The High Court handed down judgment today in favour of Mrs Miller. In a robustly worded judgment a panel of three senior judges, including the Lord Chief Justice and the Master of the Rolls, held that the Government does not have the power unilaterally to give notice under Article 50. It must secure authority in an Act of Parliament before doing so.

This is a case about the workings of the constitution, the nature of Parliamentary sovereignty and the supremacy of Parliament. It was accepted by all parties that the giving of Article 50 Notice will inevitably have the effect of changing domestic law. The Court was clear that the European Communities Act 1972 did not retain to the Royal Prerogative and thus the Government the power to withdraw from the Community Treaties.

The judgment makes very little comment about the consequences of the June referendum. It points out that there is nothing in the European Union Referendum Act 2015 which would provide a power to the Government to give Article 50 Notice.

The Government has already announced its intention to appeal this judgment. The appeal will be directly to the Supreme Court and a hearing is scheduled for early December. The careful wording of today’s judgment seems to give relatively little space for successful appeal, but it will be interesting to see how the Supreme Court approaches an early opportunity to consider a question of such constitutional significance.

If the Government loses at appeal, then it will need an Act of Parliament. Commentators are already considering the political consequences of that and its potential impact on the Government’s announced intention to give Article 50 Notice before the end of March.

Contributed by:

 Charles Bankes is a member of the firm’s Brexit team.

03 October 2016

The Great Repeal Bill

The Prime Minister announced this weekend that the Government plans to introduce a Great Repeal Bill in the next Parliamentary session. This announcement gives partial answers to two topic questions: what is the role of Parliament in Brexit? And how will English law look immediately after Brexit. This blog looks at the second of these questions.

The Great Repeal Bill will come into force at the point Brexit takes effect. It will repeal the European Communities Act 1972 which implemented EU law in English law. The Bill will convert existing EU laws into English laws which can then be amended or repealed according to Parliament’s wishes. The suggests that there will also be a great “ossification” in that we will be referring back to EU law as it stands on the day of Brexit for many years, perhaps decades, thereafter.

In announcing this Bill, the Prime Minister was emphatic that this will bring to an end any possibility of the European Court of Justice in Luxembourg deciding questions of law in this country.

There is likely to be much discussion about this Bill in the years to come. Three questions immediately come to mind:

First, whilst this mechanism is a pragmatic solution to dealing with the impact of much of the canon of EU law on English law, it will not work perfectly in all cases. For example, there are EU Regulations which refer to subordinate decisions on EU institutions which will no longer apply. In other cases, the EU text will simply make no sense once the UK has left the EU.

Second, if the writ of the ECJ is no longer to run in the UK, the UK courts will be the ultimate body for interpreting all laws, including those which were, until Brexit, EU laws. All the political language suggests that decisions of the ECJ post Brexit which inform the interpretation of those parts of EU law absorbed by the Great Repeal Bill into English law will not be relevant in England. If this is right, it cannot be long before the same words, in the same language, applied for the same purpose will mean different things on each side of the Channel.

Finally, we have not yet heard anything of the Parliamentary processes which will be used to amend or repeal laws inherited from EU laws. The review of these laws is a substantial task (see my first point above). If it is to be done by Acts of Parliament, then this exercise could account for a substantial proportion of Parliamentary time for years to come; but if done by secondary legislation, which would give Ministers a very wide discretion (much wider than that they enjoyed when implementing EU law under the European Communities Act 1972) and raise profound questions of democratic legitimacy.

Contributed by:

 Charles Bankes is a member of the firm’s Brexit team.

30 September 2016

Can “hard” and “soft” Brexit co-exist?

Much of the debate over Brexit in recent weeks has focused on the problem that we will get the same “Brexit” across the board - if we have a “hard” Brexit on our right to control immigration, there must also be a “hard” Brexit in which the City and UK Industry generally has restricted access to the single market; while the price for freer access to single market is free movement of people.

A possible solution to this problem has emerged from the unlikely world of patents. At the time of the referendum, the UK was preparing the ratify the Agreement for a Unified Patent Court (UPC), an international court for deciding patent disputes. The Agreement includes only EU member states, so the question arose whether the UK could continue to be a member after Brexit. I coordinated the IP Federation (an industry association), the Chartered Institute of Patent Attorneys and a consortium of interested law firms to seek an Opinion from specialist EU/constitutional Counsel, Richard Gordon QC and Tom Pascoe, on whether continued participation of a non-EU member State was legally possible.

The Opinion says that the UK can continue to participate so long as it signs up to the full application of EU law (including references to the CJEU), but only within the areas covered by the jurisdiction of the UPC. Of course, we should not underestimate the political difficulties of having an area of UK sovereignty, even if tightly circumscribed, subject to EU law and the rulings of the CJEU.

Nevertheless, this does provide a model whereby one area of national life which would benefit from continued participation in the EU can do so without bringing the full ramifications of EU membership across the board. To me as a life sciences IP lawyer, the obvious other areas where such “islands” of EU engagement could be beneficial are the pharmaceutical regulation system and the European trade mark and design system. Other readers with interests in other areas will no doubt identify other areas of the worlds of finance and business where continued close engagement with the EU would be desirable if it could similarly be limited. Could islands of “Soft Brexit” in a sea of “hard Brexit” be the way forward?

Contributed by:

 Rowan Freeland is a member of the firm's Brexit Team.

16 September 2016

European Commission sets up Brexit Task Force

The European Commission announced on 14 September 2016 that it is in the process of setting up its Task Force for the preparation and conduct of the Brexit negotiations. The announcement follows the earlier announced appointment of Michel Barnier as the chief Brexit negotiator for the European Commission (see blog post from 28 July).

President Juncker announced that the new Task Force will be composed of the Commission’s “best and brightest”. The Task Force will coordinate the Commission’s work on all aspects of the Brexit negotiations and will be able to draw on policy support from all Commission services.

In the same move the Commission announced the appointment of Sabine Weyand as the Deputy Chief Brexit Negotiator. Ms Weyand is a well seasoned Commission official with a particular expertise in trade issues. In her current position as Deputy Director-General of DG TRADE, the Commission’s trade department, she covers WTO matters, trade defence, TTIP and neighbourhood policy.

The Task Force is due to be operational as from 1 October 2016.

Contributed by:

  Koen Platteau is a member of the firm's Brexit Team.

15 September 2016

European Parliament appoints Guy Verhofstadt as its Brexit representative

On 8 September 2016, the European Parliament (EP) appointed Guy Verhofstadt as its “point man” for the upcoming Brexit negotiations. This appointment completes the list of Brexit representatives of the main EU institutions, after earlier appointments of Michel Barnier and Didier Seeuws as the chief representatives for respectively the European Commission and the Council (Please see blog post from 28 July).

The EP brief to Guy Verhofstadt is to keep the EP leaders (the EP President and the Group leaders) fully informed of developments and to help prepare the EP position, in close consultation with the EP leaders.

The role of the EP representative in the Brexit negotiations is not entirely clear. The EP is not expected to play a central or even an active role in the Brexit negotiations, but it will eventually have to give its consent to the Brexit agreement.

This is, however, unlikely to stop the newly appointed EP representative from seeking media attention and from bringing the Brexit discussions into the public forum in a typically provocative style. The foreseeable media coverage may, however, be somewhat disproportionate to the effective influence of the EP in the process.

Guy Verhofstadt is a former Prime Minister of Belgium and an outspoken European federalist. He currently leads the ALDE Group in the EP.

Contributed by:

  Koen Platteau is a member of the firm's Brexit Team.

26 August 2016

Article 50 timings - an update

A number of issues stand between the Government and submission of the Article 50 notice. The timing of the submission is itself a point of contention, with Theresa May’s government balancing the desire to coordinate properly its position in advance of starting the exit clock against pressure from its European counterparts and domestic campaigners to bring Brexit into effect sooner rather than later.

The Government has not yet committed to a timeframe for submitting the notice, though Jason Coppel QC, when representing the Government in the first of the legal challenges to the Brexit process, told the High Court that notification would “not occur before the end of 2016”. Theresa May has stated that she will not trigger Article 50 until she considers that a “UK approach and objectives for negotiations” has been formulated. This “UK approach” suggests the need for some clarity on Scotland’s position, which may not be immediately forthcoming. Nicola Sturgeon has publicly stated that she is exploring options to secure Scotland’s status within the EU and has attended talks to that end with EU officials. Furthermore, we note that the Government’s position that Article 50 notice can be submitted using powers under the Royal Prerogative (see our blog post of 08 July 2016) is currently subject to legal challenge. The on-going litigation provides further grounds for delay in ‘pulling the trigger’.

If the Government does seek to pass an Act of Parliament to ratify Article 50 notification, either as a result of a court judgement or of its own volition, this would have its own timing implications. In theory an Act can be passed relatively quickly, particularly if the Government fast-tracks the legislation . However, the process can take twelve months or more. Any ‘Brexit Bill’ may have a rough ride through Parliament. A majority of MPs supported remaining in the EU and though many have indicated that they will respect the result of the referendum, the model for Britain’s exit from the EU may be considered fair game (Owen Smith, for example, called this week for an additional referendum on the ‘final deal’). A Bill is likely to be heavily debated and scrutinised. Passage through the Lords may be equally fraught. The second chamber is not thought to support Brexit, and although the Lords are unlikely to reject a Brexit Bill , the house may table ‘reasoned’ amendments and delay its passing.

There are risks in stretching the pre-notification timeline. The general consensus is that the mechanics of Brexit are sufficiently complex as to require at least the two-year timeframe envisaged by the Treaty. In particular, formulating the new blueprint for the UK’s trading status is likely to be an onerous task. This timescale raises a number of questions.

Though this post does not consider in detail the relevance of the European political landscape to the timing of the Article 50 notification, we note that elections are due to take place next year in the Netherlands, France and Germany. Depending on the timing of the Article 50 notice, the two-year period may also clash with the setting of the next EU budget (due in 2019) and the next round of European parliamentary elections (taking place in mid-2019). As the European Parliament is responsible for the final ratification of any exit agreement, the acceptability of any negotiated position to a new parliament would present a point of particular uncertainty.

Finally, if submission of the Article 50 notice drifts into 2018, there is a risk that the negotiation period will spill over to the next UK general election . This could invite a raft of additional questions. A change of government could entail a change of position, not only in respect of the negotiated exit agreement, but also the exit itself and the election could be couched on such terms.

The timing of the Article 50 notice is clearly bound-up in the raft of, political, legal, domestic and international issues surrounding Brexit. The route to Brexit remains somewhat obscured and we will watch for more a more definite indication of the probably timings.

Contributed by:

  Charles Bankes and Duncan Green are members of the firm's Brexit Team.

28 July 2016

Commission’s Chief Brexit Negotiator appointed

On 27 July 2016, the President of the European Commission, Jean-Claude Juncker, appointed Michel Barnier as Chief Negotiator in charge of leading the Commission Taskforce for the Preparation and Conduct of Negotiations with the UK under Article 50 TEU.

Mr. Barnier is a former French Minister and member of the Commission (between 1999 and 2004 in charge of the regional policy and from 2010 to 2014 as internal market and services Commissioner). The latter function included the oversight of EU financial markets, which at the time put Mr. Barnier in the front line in a number of difficult discussions between the Eurozone and the UK in relation to the financial sector. There is no doubt that these issues will also be at the forefront in the upcoming Brexit negotiations.

Mr. Barnier will act as the chief Commission representative in the Brexit negotiations. At this stage, it remains, however, unclear what exactly the Commission’s role will be and how it will interact with the Council, which is the EU institution representing the Member States' governments. The Council has its own Brexit taskforce, headed by Didier Seeuws. Certain Member States have already indicated their preference for a more intergovernmental approach. However, even if the Council takes the lead, it is likely that it will call upon the technical expertise of the Commission’s services.

Mr. Barnier will take up his new function on 1 October 2016. He will report directly to the Commission President and will be assisted by a group of Directors-General dealing with the issues relevant to the negotiations. In the press statement announcing the appointment, the Commission again reiterated the “no negotiation without notification” principle. Since the UK’s Article 50 notice is unlikely to be filed before the end of the year, Mr. Barnier is expected to focus on internal preparatory work in the first months of his mandate.

Contributed by:

   Koen Platteau and Nina Mampaey are members of the firm's Brexit Team.

28 July 2016

Council adopts revised order of Council presidency

On 26 July 2016, the Council adopted a revised order of EU Member States holding the Council presidency. This decision was necessary as a result of the decision of the UK to give up its presidency of the Council in the second half of 2017.

In line with the Coreper proposal (see below blog 'Brexit - Change in 2017 Council presidency'), the Council decided to bring forward the order of Member States by six months, starting from July 2017.

The revised order runs until 2030. Further details can be found here.

Contributed by:

   Koen Platteau and Nina Mampaey are members of the firm's Brexit Team.

22 July 2016

Brexit - Change in 2017 Council presidency

From an EU institutional point of view, one of the first items that needed to be addressed as a result of the Brexit vote was the question whether the UK would still take up the Council presidency, scheduled to take place in the second half of 2017.

The Council presidency is important in the EU institutional framework. The presidency is responsible for driving forward the Council's work on EU legislation, ensuring the continuity of the EU agenda, orderly legislative processes and cooperation among Member States. Although normally the UK will still be a full EU member throughout 2017, it was hard to conceive that a Member State which is negotiating its exit arrangements can at the same time take up the presidency and do this in a meaningful way.

The announcement on 19 July 2016 that the new UK government has decided to relinquish the Council presidency in 2017 was therefore welcomed in Brussels.

Several alternative options have been discussed in the meantime. The most likely option is that the rotation schedule will simply be moved forward by six months. This would imply that Estonia, which was scheduled to hold the presidency in the first half of 2018, will hold the job in the second half of 2017, taking over from Malta. The currently agreed rotation would then continue from there on, with Bulgaria taking over in the first half of 2018. Brussels sources report a consensus on this approach in the preparatory Coreper meeting held on 20 July 2016. Other possible options seem to have been discarded.

Contributed by:

   Koen Platteau and Nina Mampaey are members of the firm's Brexit Team.

21 July 2016

Brexit and the Unified Patent Court

The referendum result has generated widespread uncertainty with its attendant economic consequences. But in one area the damage is more direct and immediate.

The Unified Patent Court will be the first major supra-national court for resolving disputes between private litigants. It was on course to open in May 2017. However, UK ratification of the UPC Agreement, a condition precedent, did not take place before the referendum. Although technically the new court will not be an EU institution, membership is at present limited to EU member states, and it is not now clear whether the UK will ratify.

If the UK fails to ratify, the remaining member states will need to amend the UPC Agreement, which will be non trivial (Denmark, which has already ratified the existing agreement, may need a second referendum to ratify the amended version). Anglo-Euro goodwill is currently in short supply, and will not be increased if the UK puts the other states to significant extra work. And renegotiation may open up the possibility of other revisions to the agreement, to remove provisions fought for by the UK government.

UK ratification would defer this debate until the implementation of Brexit, when the court will have been in operation and substantial changes to the court’s procedures will be less feasible. On the other hand, it is hard to identify advantages other than comity for UK ratification in the knowledge that it must leave perhaps two years later.

A working party of representatives of the main UK industry and professional IP associations has been convened by Simmons partner Kevin Mooney to consider the options. There are academic opinions that suggest that the UK can remain part of the UPC even after Brexit, and this, if achievable, would in my view be the best outcome. However, there are political obstacles, and there is an on going debate how this objective can be achieved. To ratify and then negotiate the UK’s continuing membership carries the risk that that the UPC would be established successfully, but would then exclude us, which is regarded by many as the worst outcome not only for the UK professions but also for industry. But can the issue of long term UK membership of the UPC be resolved before the ship sails without us? Time will tell.

Contributed by:


Rowan Freeland is a member of the firm's Brexit Team.

19 July 2016

Employment law and HR implications of Brexit
HR implications

The referendum result causes no immediate change to English law, including employment law. Further, the FCA has confirmed that regulated firms should continue to implement compliance programmes to deal with all EU legislation which is currently in the pipeline and due to be implemented in the UK (e.g. MiFID II, PRIIPS and the GDPR).

In the short term, it is therefore business as usual. Companies should consider appointing an HR lead on Brexit issues, and ensure that regular and clear communications are made to staff in an effort to manage any concerns. They may also want to begin an audit of their documents, structures and staff’s immigration status. Although we won’t know the outcome of the renegotiation for some time, in a number of scenarios organisations may need to implement changes. Having the necessary data immediately to hand will be useful.

Longer term, much depends on the outcome of the UK’s renegotiation with the EU. However, amongst others, businesses may want to consider the following:

  • does the business wish to encourage/sponsor staff to apply for British citizenship (where eligible), permanent residency, or a residence certificate?
  • will the company need to relocate some parts of their business to another jurisdiction in order to continue servicing EU clients? If so, will this trigger a cross-border business transfer, what will employment legislation look like in the new jurisdiction and what arrangements will the organisation put in place to incentivise key staff to relocate?
  • what monitoring and support may the company need to put in place for employees from other EU countries, to provide reassurance and early warning of any potential abuse/harassment whilst tensions remain high? Conversely, will the organisation need to put in place support for those who voted to leave the EU, should there be any indication of backlash against them on the grounds of their political beliefs?
  • does wording in the company’s contracts (for example references to the EU in restrictive covenants) and other documents need to be updated?
Impact on employment law

As both sides highlighted during the campaign, much (although by no means all) UK employment law comes from the EU. However, wholesale repeal of legislation in light of the Brexit vote is unlikely. Instead, any changes are likely to focus on allowing greater flexibility in workforce management.

Possible contenders for amendment include the Agency Worker Regulations (potential repeal); CRD IV (removal of bonus cap); Working Time Directive (repeal of 48 hour working week and rationalisation of holiday rules); discrimination (possible introduction of cap on compensation) and TUPE (simplification of ability to harmonise employees’ terms and conditions post-transfer).

Contributed by:

    Oliver JonesPeter Lockwood and Surabhie Chadha are members of the firm's Brexit Team.

08 July 2016

Is UK Parliamentary approval legally required to trigger Article 50 TFEU?

There is a fierce debate raging as to whether UK Parliamentary approval is required to trigger Article 50 TFEU. The Government has been clear that giving notice under Article 50 TFEU falls within the Royal Prerogative, which are a collection of executive powers held by the Crown since medieval times and now exercised by senior Government ministers. A legal challenge has been launched by a group of businesses who are arguing that Article 50 TFEU cannot lawfully be invoked without a formal act of the UK Parliament.

On the one hand proponents of this theory argue that, given that Article 50 TFEU notification would trigger the process by which the European Communities Act 1972 (the “ECA”) (which is the Act that implemented EU law in the UK after the Government had acceded to the Treaty of Rome under Royal Prerogative) would no longer be applicable in the UK, a further act of Parliament would be required to start this process. The Brexit referendum result itself is not legally binding and the argument is that it would be unlawful for the Prime Minister to invoke Article 50 TFEU without the approval of Parliament. EU Membership has conferred numerous legal rights on British citizens by operation of the ECA and the UK Government cannot use its prerogative powers to overturn these statutory rights. There is also a further strand of argumentation that revolves around the idea that there is a developing constitutional convention that requires prerogative powers to be subject to Parliamentary approval (as was the case in relation to military action in Syria in 2013).

On the other hand, some experts argue that as the decision to leave the EU is a matter relating to the conduct of foreign affairs which falls squarely within the Royal Prerogative. The UK Government itself has taken this position but has stated that the repeal of the ECA would require Parliamentary approval. Furthermore, the language in Section 2(1) of the ECA itself provides room for the exercise by the Government of the Royal Prerogative to invoke Article 50 TFEU. Section 2(1) of the ECA states that “all such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties […] as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom”. The reference to “restrictions from time to time being created or arising by or under the Treaties” which are to automatically given legal affect could be viewed as creating or acknowledging the existence of a space which supports the use of the Royal Prerogative to trigger Article 50 TFEU, even if this leads to “restrictions” (i.e. the ending of the application of the Treaties pursuant to Articles 50(2) and 50(3) TFEU). Other commentators have said that section 2(2) of the ECA, which enables Ministers to make provision for the purpose of enabling rights enjoyed or to be enjoyed by the UK by virtue of the Treaties to be exercised, could be used to argue that this statutory base supersedes the overlapping prerogative power to conduct foreign affairs. According to these commentators, the UK enjoys the new rights of orderly withdrawal from the EU and the right to withdraw unilaterally pursuant to Article 50 TFEU and these rights therefore need to be exercised pursuant to Section 2(2) of the ECA (which would require a further act of Parliament).

We note that all parties in this debate appear to accept that the giving of notice under Article 50 TFEU is an irrevocable step, leading inevitably to Brexit. If this is not the case, then the argument for Parliamentary approval is much weaker.

There are clearly strong political and democratic reasons why an unprecedented decision which will have a greater impact than recent decisions to go to war and which will profoundly change the UK’s legal system should properly be subject to Parliamentary consideration. However we are less clear that a Court, deciding only with the dry legal issues, will conclude that Article 50 TFEU notice must be preceded by a Parliamentary mandate. We prefer the legal arguments in favour of the Royal Prerogative and think it likely that they will find favour with the Court. Nevertheless, we cannot dismiss those in favour of a Parliamentary vote. Time will tell.

Contributed by:

 

Charles Bankes and Ajit Kainth are members of the firm's Brexit team.

07 July 2016

France seeks to attract Brexit leavers

In the wake of the Brexit vote, the French Prime Minister, Manuel Valls, has announced that France intends to enhance its beneficial tax regime for expatriate workers and lower its corporate income tax rate in a move that seeks to make France an attractive location for businesses thinking about relocating part of their business into the EU.

Under existing French rules, a foreign worker is exempt from French income tax on earnings directly related to his days abroad spent working for his employer. In addition, a foreign worker also benefits from exemption for amounts directly related to his assignment to France (such as mobility premium, benefit in kind for housing etc.) up to certain limits. Remaining income will be taxable in France at the personal income tax rate (up to 45%).

This regime currently applies for five calendar years following the year of arrival of the foreign worker in France. The Prime Minister has proposed that this should be extended to eight years.

Equally significantly, the French Government intends to introduce an exemption from payroll tax paid by employers of foreign workers on such assignment-related income.

Finally, the Prime Minister also announced that the corporate income tax rate in France will be cut from 33 1/3% down to 28%.

The announcement are clearly designed to enhance Paris’ attractiveness to businesses thinking of relocating part of their business into the EU from the UK, such as banks and other businesses in the financial services sector where loss of EU passporting may be a significant issue.

Contributed by:

 

Gary Barnett is a member of the firm’s Brexit team.

06 July 2016

Trade negotiations whilst still in the EU

As the UK government considers the implications of Brexit on the UK, one crucial question is if the UK can begin to engage in trade negotiations with the EU in preparation for its eventual exit from the European Union?

First you exit, then you negotiate” was the answer of Cecilia Malmstrom, the EU Commissioner for Trade to this question. In legal terms, Ms Malmstrom is correct. The EU's constituent Member States are not permitted to negotiate separate trade deals with other individual Member States under EU law, so the UK needs to complete its exit process to no longer be a Member State before it can begin to negotiate a EU-UK trade agreement with the EU itself.

Once formally no longer part of the Union, the UK will be classed as a ‘third country’. Articles 216 and 218 of the TFEU cover why and how the EU negotiates trade agreements with third countries. The process begins with the Council giving a negotiating mandate to the Commission. It is worth bearing in mind that there is nothing in the EU Treaties that specifically provides for a similar mandate for negotiations with exiting Member States. The somewhat cryptic reference in Article 50 TEU requiring the Commission to “take account” of the framework for the UK’s future relationship with the EU in negotiating the UK’s withdrawal suggests that the issue of future trade must be considered.

Additionally, any UK-EU trade deal will require unanimity in the Council and ratification of any proposed deal by national parliaments - not only will all remaining 27 Member States need to agree to it (through the EU institutions), all their national and regional assemblies must agree to the deal as well. The pitfalls and roadblocks that this may cause to a potential trade agreement are well documented in the on-going negotiations between the EU and Canada (which began in 2009). As is the case with the proposed EU-Canada trade agreement, any EU-UK trade deal will take some time to be negotiated, agreed and come into force.

Until the UK completes its exit process, the UK is still a member of the EU and bound by EU law. Only once it has exited the EU can it legally begin to establish its own individual trading relationships. There is, of course, a chance that politics will find a way around these issues.

Contributed by:

 

Shachi Nathdwarawala is a member of the firm’s Brexit team. 

29 June 2016

Can the UK now be forced to give notice under Article 50?
Continental European politicians are demanding that, following the referendum, the UK should quickly give notice to the European Union under Article 50. Two questions arise: is the UK now bound to give notice; and if so, when?

Article 50, paragraph 2 provides that “A Member State which decides to withdraw shall notify the European Council of its intention”. If the referendum was a decision to withdraw then, as I said in my previous blog, the “shall” suggests some element of obligation which cannot be deferred indefinitely. However, the referendum was in constitutional terms, consultative and the current position falls short of a “decision” made, as Article 50 paragraph 1 says “in accordance with [the UK’s] own constitutional requirements”. There is currently no obligation to serve notice.

In the light of this, the question of timing is hypothetical at the moment. In any event, Article 50 does not set any timetable for the giving of notice, even once a decision has been taken by a Member State. Clearly a reasonable time must be allowed.

So at the moment, this is a political and not a legal question. It is of great practical significance because, when notice is given, the clock starts to run down and the negotiating dynamics change in favour of the EU institutions – which is why they and the leaders of the Member States are clear that they will not negotiate until notice is given.

Contributed by:

 

Charles Bankes is a member of the firm’s Brexit team.

26 June 2016

Article 50.

Article 50 of the Lisbon Treaty is suddenly the focus of much attention.

Paragraph 2 provides that “A Member State which decides to withdraw shall notify the European Council of its intention”. Most commentators have assumed that this requires a formal written notice. This is not surprising, given the profound consequences of such a step. It has widely been assumed that the UK can take its time in doing so. A European Parliament briefing stressed that the UK can notify the Council at its own discretion.

Both the form and timing of an Article 50 notification are now under scrutiny. If the referendum was a decision to withdraw, then the “shall” suggests some element of obligation which cannot be deferred indefinitely. It has also been suggested that notification can be orally, so long as it is formally recorded in the minutes of a meeting of the European Council. This does not seem fanciful and does suggest that the Prime Minister needs a careful script at Council meetings. The idea that he can serve notice in a speech seems more unlikely.

The ultimate tribunal which, in the event of a dispute, will decide whether notice has been served, is the European Court in Luxembourg.

Contributed by:

 

Charles Bankes is a member of the firm’s Brexit team.

24 June 2016

Brexit - some immediate legal comments.

The referendum was, in constitutional terms, consultative. It does not require any steps by the Government. So what happens next is a matter of politics not law.

The exit mechanism is started by the UK serving notice (under Article 50). The Prime Minister does not require Parliamentary approval to do so. It is within the scope of the Royal prerogative exercised by the Government.

The referendum causes no change to English law. It is the same as yesterday.

Contributed by:

 

Charles Bankes is a member of the firm’s Brexit team.