The implications of the decision of the UK electorate to leave the EU, and the absence of a concrete plan outlining next steps, are causing considerable concern among sections of the business community. Until the Prime Minister and her Government start to negotiate our exit from the EU, businesses will not know the basis for our future trading relationship with the EU (and the rest of the world) or the legislative framework within which they will be operating. Nonetheless, we can speculate on how our laws might look in a post-EU world.
Until the UK formally exits the EU (which is likely to take a minimum of two years), all our current laws continue to apply, including those which implement EU directives. If Parliament decides to repeal any of these laws as a result of leaving the EU, then the EU-derived element would also go.
EU regulations are different: they are directly implemented without the need for an Act of Parliament and so are only effective while the United Kingdom remains within the European Union. On departure, they will no longer be effective unless equivalent domestic legislation is introduced by either the United Kingdom Parliament or the devolved assemblies.
Any trading arrangement with the EU is likely to require compliance with a range of EU regulations, and the process of reviewing all EU-derived law will be difficult, if not impossible, to achieve within the available timeframe. Therefore, we anticipate that the government is likely to enact almost all EU regulations into the UK’s domestic law, allowing Parliament to decide, post-Brexit, whether to repeal, amend or leave them unchanged.
Interpretation of European Court of Justice decisions
Until another arrangement is agreed, the UK courts must interpret EU-derived legislation in accordance with European Court of Justice rulings. On leaving the EU, the European Court of Justice would no longer have jurisdiction and its future decisions would not be binding on UK courts. It seems likely, at least in the short term, that if we retain any laws originating from the EU our courts would still take account of future European Court of Justice judgments as persuasive, but not binding.
Dealings with consumers
The EU Consumer Rights directive 2011 was implemented into the Consumer Rights Act 2015 which regulates consumer contracts under English law. It also gave implementation to the EU Unfair Terms and Consumer Contract directive 1993. As both directives were incorporated into primary legislation, dealings with consumers are unlikely to change in the foreseeable future.
Must the UK continue to comply with European Union law?
Put simply, yes. Until the United Kingdom formally leaves the European Union, either by conclusion of a negotiation or at the end of the Article 50 period, all UK-operated businesses must comply with EU law. As Article 50 has never been invoked before, there is no established protocol for determining how EU law should, or should not, be implemented in the interim period before formal departure.
What if my contracts become bad bargains?
For businesses trading within the EU and beyond, the future implications of the vote to leave are considerable and many will be reviewing their contracts. If a contract becomes uneconomic post-exit, the question has been asked whether the vote amounts to a force majeure event.
English law has historically interpreted force majeure in a very restrictive fashion: a contract must first contain a force majeure provision which defines the event(s) which are outside the party’s control and which would prevent it from performing its obligations. If leaving the EU would prevent the party from performing its obligations then, in theory, the Brexit vote might qualify as a force majeure event, providing it wasn’t reasonably foreseeable when the contract was created and there were no reasonable steps which could have been taken to avoid or mitigate the event.
On balance, although a number of contracts may become “bad bargains”, in the absence of express contractual clauses referring to the United Kingdom leaving the European Union, we think it unlikely a force majeure provision might apply just because currency market changes rendered contracts less profitable than before. Parties considering long term contracts can now take the impact of the vote into account and should consider specific Brexit clauses.
Enforcement of judgments
Currently, all EU members, including the UK, apply common jurisdictional rules so that a judgment handed down in one jurisdiction will, with some exceptions, apply to all member states.
Once we are outside the EU, the trading model we adopt to govern our relationship with the EU will, to an extent, dictate the influence British judgments will have across Europe. It is likely that the current processes will either be extensively amended or replaced with an alternative provision, such as those under the Lugano Convention which currently applies to Norway, Switzerland and Iceland.
We would advise anyone currently engaged in litigation, particularly those with a claim subject to cross-border enforcement, should act to expedite matters under existing regulations. As the UK’s position becomes clearer, businesses could consider incorporating ‘Brexit-proof’ dispute resolution clauses in their contracts.
What does a business need to consider following Brexit vote?
- What are your main markets?
If you sell goods to a third party in a jurisdiction with which the European Union has some form of free trade agreement, then whether or not tariffs will apply in future will depend on the outcome of various trade negotiations which are still to be determined.
- Do you supply goods or services in to the European Union?
Again, what future rights and access you will have to the EU will depend on the trade agreement we adopt. For now, businesses continuing to trade in the EU must continue to comply with all applicable regulatory regimes.
- Do you manufacture within the UK?
If you manufacture within the UK and are dependent on imports to support that business, you need to consider the financial impact of any tariffs which may apply post-exit. That applies to both EU and non-EU imports.
Businesses need to review their principal markets and from where they source their materials. They should also review any contractual provisions and whether there is any flexibility within contracts to deal with future changes. They also need to consider currency of sales and purchases and pricing mechanisms.
- Do you have any long term contracts in place with any parties based or operating within the European Union?
If you do, it is probable that these contracts will be significantly affected in relation to cost, availability of skilled labour, and other logistical concerns. You need to be certain that you can continue to fulfil your contractual obligations while continuing to trade with the EU. This is also the time to carry out a risk-assessment exercise on the future performance of any contracts.
- Are you responsible for any local taxes and duties?
The buyer of goods and services within the European Union is usually responsible for such payments. At this stage it would be advisable to factor tax rate changes, such as VAT, into your calculations.
Businesses would be well advised to assess their current position and put preventative measures in place to avoid future litigation and/or bad bargains which may involve terminating existing contracts and/or renegotiating terms. It is also sensible to understand exactly what individual rights and obligations you have, including future enforcement.
We will keep a close eye on developments; in the meantime, please contact a member of our dispute resolution team if you have any concerns or questions about any action you should, or should not, take.