Legal implications of the UK withdrawal from the EU
There is no precedent for a member state leaving the EU and we can expect slow progress to be made in relation to our exit and the conclusion of alternative trade deals, with estimates for the timescale ranging from two to 10 years. However long it takes, we can be sure that complex negotiations will be required.
There is likely to be uncertainty for some time while the political, economic and legal ramifications of the vote unfold. Organisations will no doubt be considering issues such as investment decisions, possible relocation, the effect of tariffs, the withdrawal of EU funding, the effect of immigration controls on international recruitment and secondment, and the impact on their pension schemes. At a macro level, the potential consequences include the UK going back into recession, a second Scottish independence referendum and a domino effect if other EU member states wish to exit the EU or renegotiate the terms of their membership.
The legal implications depend on the area of law involved and where the main laws in that area come from. Our document sets out the possible ramifications across a range of legal areas:
Civil Procedure Rules Reform
The CPR Committee, at an open meeting on the 17 June 2016, considered reform of the Civil Procedure Rules (CPR). The intention of the reform is to reduce the rules and Practice Direction in both content and complexity. Attendees at the meeting made suggestions as to which rules could benefit from reform. Although not an exhaustive list, a summary of some of the suggested reforms are as follows:
- CPR 3: At present, the powers available to the Court are not easily accessible. In light of the increase of litigants in person; a 'tabular' arrangement was suggested to make it a more simplified format.
- CPR 6: The rules relating to the service of documents are too complex and in-depth. The intricacies that must be observed in order to comply with the CPR, and the frequency with which they are misinterpreted, has given rise to numerous technical points being raised. The recommendations comment that the area would benefit greatly from simplification.
- CPR 7 - 16: These rules, relating to issuing proceedings and alternative procedures for claims, were grouped together with comments that there may be considerable benefit from consolidation of the provisions.
- CPRs 44 – 48: The cost provisions were considered to be unnecessarily complex. However any reform in this area would need to be considered carefully as many of the key decisions relate to specific interpretation of the rules. Accordingly, if a heavy handed approach were to be adopted, it may run the risk of increasing satellite litigation.
A link to the CPR Committee's announcements and consultations can be found at:
EU Review of Key Consumer Protection Legislation
The EU Commission has begun a 'Fitness Check' of EU consumer and marketing legislation to ensure that it is still fit for purpose.
The 'Fitness Check' covers the following Directives:
- The Misleading and Comparative Advertising Directive (2006/114/EC).
- The Price Indication Directive (98/6/EC).
- The Unfair Commercial Practices Directive (2005/29/EC).
- The Sales and Guarantee Directive (1999/44/EC).
- The Injunctions Directive (2009/22/EC).
- The Consumer Rights Directive (2011/83/EU), although this is subject to a separate evaluation.
Commentary: The directives under assessment are the fundamental pillars of consumer and marketing laws in the EU. They govern, for example, marketing practices to consumers, B2B and comparative advertising, and consumer rights in respect of defective goods. Any changes to this legislation following the review could therefore be substantial for businesses. The findings of the review are due to be published in the first half of 2017.
- May – September - Public consultation
- April-November - Structured evidence gathering consultation with all Member States and key stakeholder groups
- October - The 2016 EU Consumer summit dedicated to the Fitness Check
- January - Finalisation of the external studies supporting the Fitness Check
- Second quarter - Publication of Commission report on the results of the Fitness Check
Groceries Code Adjudicator publishes Compliance & Monitoring Policy
The GCA finally published its compliance and monitoring policy on 8 June 2016. The policy sets out how the GCA will implement its duties, including the principles which guide its regulatory activities, in line with the
Regulators Code requirements that regulatory functions should be carried out in a proportionate and effective manner. It will also consider the impact of its decisions and activities on economic growth as required in the Enterprise Bill 2015-16.
A link to the Policy can be found at:
Review of the corporate insolvency framework – moratoriums and more
At the end of May 2016, the Insolvency Service issued a consultation on options for reform of the corporate insolvency framework. As the Government noted at the start of the consultation paper, many of the basic insolvency procedures have remained largely unchanged since 2004 at the latest, since when there has been a global financial crisis (and now Brexit of course) so it is an appropriate time to assess whether they are still fit for purpose.
The Government is now consulting four main proposals which they consider would improve the existing corporate insolvency regime, enabling more corporate rescues of viable businesses and ensuring that the insolvency regime delivers the best outcomes. The four proposals are:
- Creating a new moratorium, which will provide companies with an opportunity to consider the best approach for rescuing the business whilst free from enforcement and legal action by creditors. The proposed moratorium would last for three months and precede any formal restructuring/insolvency process, with the possibility of an extension if needed. During the moratorium creditors would have a general ‘right’ to request information from the Insolvency Practitioner supervising.
- Helping businesses to continue trading through the restructuring process, including making it easier for companies to maintain contracts that are essential for the continuation of the business. This is intended to make it less likely for companies, particularly micro, small and medium enterprises to be held ‘hostage’ by key suppliers seeking to profit from a company’s distress by restricting the right to terminate and obligating suppliers to continue to supply. This would build on the expansion last year of the essential supplier provisions in insolvency legislation by enabling companies within the moratorium to specify exactly what contracts they considered were essential to enable the continuation of the business.
- Developing a flexible restructuring plan to sit alongside the current CVA and Scheme of Arrangement legislation which would enable a rescue plan to bind secured as well as unsecured creditors and introduce a ‘cram-down’ mechanism. Currently, dissenting creditors may, depending on the procedure, have the ability to block a restructuring proposal and the Government is keen to limit that position where the dissenting creditors can be shown to be "out of the money".
- Exploring options for rescue financing. Currently, rescue financing is permitted as an expense in an administration procedure, and the Government is seeking to understand the extent to which the law should be reformed to further develop the market for rescue finance including whether rescue lenders should be given a super priority position and, potentially, overriding first ranking security.
In addition to the Insolvency Service consultation, R3 also issued a proposal in April 2016 for a moratorium of businesses. Whilst sharing many of the material characteristics of the Government's first proposal above, the R3 proposal proposes only a 21 day maximum period for the moratorium.
A link to the Insolvency Service Consultation can be found at:
A link to the R3 Moratorium Proposal can be found at:
The previous newsflash included the news that BHS had entered into a CVA and was reportedly close to selling its flagship Oxford Street store.
BHS subsequently went into administration at the end of April 2016 and following the failure to find a credible purchaser entered liquidation in early June. In that time there have been a number of highly entertaining performances before Parliamentary Select Committees by the main players in the business, such as Sir Philip Green and Dominic Chappell.
With a £571m pension deficit it is understood that the Pension Protection Fund is looking to try to appoint additional administrators to work alongside incumbent officeholders from Duff & Phelps. At the same time investigations are ongoing by the Pension Regulator to understand the reason for the sizeable deficit and whether sanctions can be brought against anyone in respect of the deficit.
In another unusual development the Business Secretary has instructed the Insolvency Service to fast track its investigation into the conduct of the BHS directors and former directors.
Defamation and Privacy
High Court cautions against preliminary issue trials in defamation claims
In the case of Theedom v Nourish Trading Ltd (t/a CSP Recruitment) and another  EWHC 1364 (QB), 15 June 2016, Mr Justice Warby made some obiter observations regarding the practice of holding preliminary issue trials regarding the “serious harm” test.
Under section 1 of the Defamation Act 2013, the claimant must establish that the publication complained of caused or is likely to cause “serious harm” to the claimant’s reputation.
It is not uncommon for defendants to seek a preliminary hearing on whether the publications complained of meet the “serious harm” test. In Theedom, a preliminary hearing took place in December 2015 which found that the serious harm test was met. The case then proceeded to full trial in May 2016 with judgment being given in favour of the defendant.
In his judgment, Warby J commented that the court must be alert to risks of “costly preliminary issue trials on ‘serious harm’ becoming the norm”. He further suggested that costs budgeting could be used to seek to manage the cost risk associated with effectively having two trials.
High Court defamation claims fall by 40%
Statistics published by the Ministry of Justice in June 2016 show that defamation claims issued in the London High Court in 2015 fell by 40% over the previous year.
There is speculation that the number of claims has fallen since the introduction of the “serious harm” test in section 1 of the Defamation Act 2013, which for businesses, means “serious financial loss”.
Intellectual Property Brexit Impact
On the 23 June 2016, a majority of those who voted in the UK referendum voted to leave the EU. David Cameron, the Prime Minister, has indicated as a result that he will resign and leave it to his successor to
decide when to initiate the negotiations for an exit from the EU in accordance with Article 50 of the Treaty of Lisbon. Due to this resignation, negotiation will not begin for at least another three months. During this period, the key points to note in respect of Intellectual Property (IP) rights are as follows:
Business as usual
As of today the UK remains a member of the EU. It is likely to be a number of years before the UK, if at all, formally leaves the EU. Bond Dickinson’s IP team continues, and will continue, to advise and act for clients in all aspects of IP across the EU. In particular, we will continue to act for clients before the European Union Intellectual Property Office (EUIPO) in respect of EU trade mark and design matters.
EU registered IP rights
EU registered trade marks and designs will remain enforceable in the UK. If the UK were to eventually leave the EU, it is expected that some form of conversion process will be implemented to give EU rights corresponding effect in the UK. No action is required at this point, and we will keep you updated with any developments on this.
UK registered IP rights
UK national IP rights will be unaffected by any UK exit from the EU. All UK trade marks, designs and patents obtained through the UK Intellectual Property Office will continue to have effect in the UK.
Clearly, while the UK remains part of the EU the rules relating to the free movement of goods remain in force. Accordingly, IP owners can continue to use their UK and EU registered IP rights to restrain the importation and/or further resale without their consent of genuine goods bearing their marks and designs from entering the EU from countries outside of the EU.
The European Patent Office is not an EU institution, and therefore patents obtained through this office will be unaffected by the UK’s exit from the EU. However, there may be a more immediate impact on the negotiations regarding the Unified Patent Court (UPC). The UPC was expected to be implemented in early 2017. However, as the UK is one of three countries that must ratify the UPC agreement, there may be a delay in implementation.
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