Introduction

The fate of the United Kingdom’s membership of the European Union hangs in the balance.

Britons are due to go to the polls to vote in a referendum on 23rd June 2016 to decide whether the UK should remain a member of the EU. This is one of the most important political decisions the UK will have to take for a generation and could have profound political, economic and social consequences for the British people.

If the UK does decide to withdraw from the EU what will this mean for companies doing business in the UK and their ability to access the European Single Market? Will the uncertainty of a "Leave" vote deter future foreign inward investment or will the UK, and in particular London's status as a world city, ensure it is business as usual? Conversely, could the UK take advantage of its new freedom to negotiate trade deals independently and kick start a new era of profound economic growth?

Withdrawal would raise a major legal issue — what will happen to existing UK law? It is estimated that up to 50% of current UK law comes from EU Treaty obligations or the provisions of, EU Regulations and Directives. How much will be repealed? What will stay and how might a newly sovereign UK develop different laws from the EU in the future?

There are strong feelings on both sides of the Brexit debate. In this bulletin Bryan Cave lawyers from our London office "dust off their legal crystal ball" to see what the legal consequences of an EU withdrawal might be to certain key areas of the economy. We hope this bulletin goes someway to achieving a balanced and analytical view and proves a useful tool in decision making by organisations and individuals.

Background & Timetable

Trade and Competition

Business and Investment

Banking

Structured Finance

Labour and Employment

Tax

Disputes

Background & Timetable 

Whether the UK should have a central role to play in "Europe" has been a hot political topic since its accession to the European Economic Community (EEC) (the predecessor organisation to the EU) in 1973. The leadership of the opposition Labour Party opposed the UK's entry into the EEC and were joined by Conservative Party rebels in an unsuccessful attempt to prevent the UK's accession.

Labour won re-election in 1974 promising to renegotiate the UK's membership and put the revised terms to a referendum, which saw a majority for remaining within the EEC. Labour went into opposition in 1979 and fought the 1983 general election on a manifesto promise to withdraw from the EEC.

Since then, neither major party has favoured withdrawal, but opinion in the UK as a whole remains more polarized than opinion in Parliament. In moves reminiscent to the 1970s the Conservative Party fought the 2015 General Election with a manifesto promise to renegotiate the UK's membership of the EU and put the renegotiated terms to a referendum.

The European Union Referendum Act 2015 was given Royal Assent on 17 December 2015. It provides that a referendum is to be held to decide whether the UK should remain a member of the EU. The referendum must be held no later than 31 December 2017. 

The ballot will ask " Should the United Kingdom remain a member of the European Union or leave the European Union? ", with a choice of two answers:

  • Remain a member of the European Union.
  • Leave the European Union.

The precise date of the referendum has now been chosen: 23rd June 2016.

The Act also requires the Foreign Secretary to publish two reports:

  1. The first setting out a statement as to the outcome of negotiations relating to the UK's request for reforms to address concerns as to its EU membership, and
  2. The second setting out the rights and obligations which arise as a matter of law because of the UK's membership of the EU, together with examples of countries which do not have EU membership but do have arrangements with the EU, describing the arrangements each country has with the EU.

The right to vote in the referendum is slightly different from the usual poll. UK residents who are British, Irish or Commonwealth citizens may vote. UK residents who are citizens of other EU countries will not be allowed to vote unless they are citizens of Ireland, Malta or Cyprus (Malta and Cyprus being Commonwealth countries). The voting age is 18 — the usual provision for UK elections.

Until the Lisbon Treaty came into force in December 2009 there was no formal procedure for an EU Member State to leave the EU.

Article 50 of the Lisbon Treaty provides a mechanism for a Member State to leave the EU. A Member State wishing to leave must notify the European Council (the Heads of Government of EU Member States) of its intention to secede from the EU. A withdrawal agreement will then be negotiated between the EU and the Member State in question. The Member State would leave the EU on the date of that agreement, or failing that, within two years of the notification unless the Member State and the European Council both agree to extend this period. The agreement is to be concluded on behalf of the EU by the European Council and shall set out the arrangements for withdrawal, including a framework for the Member State's future relationship with the EU. The agreement is then to be approved by the European Council (by qualified majority voting) and requires the consent of the European Parliament.

What exactly will happen if the referendum is won by " Leave " is as much a matter of politics as a matter of law. As mentioned above, nothing actually obliges the UK government to obey the result of the referendum. The government would be subject to political pressure rather than legal sanction if it was seen to be defying popular will. The next General Election must take place before 7 May 2020, so any process not completed by that date might be amended or ended by a new government. It should also be remembered that Member States have held further referenda onoccasions when their electorates have failed to ratify demands for further EU integration. Analysis suggests the following options may be chosen by the UK government following a " Leave " vote:

  • Serve an immediate notice under Article 50 and seek to negotiate an agreement with the European Council;
  • Seek to negotiate departure terms prior to serving a notice under Article 50;
  • Negotiate "twin track" departure arrangements and revised terms of EU membership to be put to a further referendum.

Trade and Competition 

Trade

Trade is one of the most important and central issues which is posed by a potential exit of the UK from membership of the EU.

Trade is imperative to the UK’s future prosperity outside the EU. Some foreign companies will be basing significant inward investment decisions into the UK upon the premise of free trade access to the wider European market. Others have said they will stay regardless of UK membership.

But what sort of deal could the UK negotiate? It is not a foregone conclusion that a free trade deal awaits an EU exit. A spurned EU might make problems. Comparisons with Norway (who never completed EU membership, following a negative domestic referendum) and Switzerland (who is like Norway, a member of the European Free Trade Agreement (EFTA) but not a current European Economic Area ((EEA)) member) ignore the reality of 40 years membership and a contentious exit.

Conversely, many believe it’s in the interests of both the EU and UK to maintain trade in the event of Brexit. However contentious a departure may be, too much money and too many jobs in both the EU and the UK would be at risk if trade barriers were put in place.

So what might this new relationship look like?

The least disruptive option would be to join the EFTA with Iceland, Lichtenstein, Switzerland and Norway and re-join the EEA. The UK would be allowed to access the EU Single Market at the same time as negotiating trade deals with countries outside of the EU. However, under this scenario, the UK would crucially still be bound by some EU laws. It could be argued that the UK would lose influence as the UK would no longer be part of the EU legislative process as a Member State. 

The next option is to adopt the Swiss style approach to an EU relationship. Switzerland is not a member of the EEA but it is a member of EFTA. Switzerland uses bilateral treaties to underpin its relationship with the EU which were negotiated between Switzerland and the EU after the Swiss voters rejected EU Membership in a referendum in 1992. This model would give the UK the opportunity to negotiate UK specific agreements in which it retains some EU laws. Those in favour of exiting believe the UK is well placed to negotiate a favourable trade arrangement with the EU and it is in no one's interest to be vindictive in a post-Brexit scenario. 

The final option would be a complete detachment from the EU, not being a member of EFTA, nor the EEA but rather relying on World Trade Organisation rules and individually negotiated bilateral treaties with the EU. This is seen as the nuclear option and is not advocated by many.

Those in favour of withdrawal argue that the EU is holding back British interests in negotiating crucial trade deals with emerging markets such as South East Asia as it is shielding sections of EU industry which have nothing to do with the UK. But would a wider world be anxious to deal with or accommodate a UK without a free tariff access (if that turns out to be the case) to the crucial and lucrative single European market? Brexit would certainly create some short term uncertainty for UK trade.

Competition

UK competition policy is unlikely to change radically in the immediate aftermath of Brexit, if that is the result following the referendum. Many believe the EU competition rules, designed to protect the single market from anti-competitive behaviour, abusive monopolies and state interference, are one of the most attractive features of the EU and are unlikely to be departed from, even upon Brexit.

However, if the UK did decide to follow an entirely detached policy from the EU, there would be a loss of legal certainty and the UK authorities would be required to handle an increased workload of merger and antitrust cases as current larger UK mergers cases handled in the EU would now be assessed in the UK. Under this dual system, there would be a likelihood of divergence between the merger decisions of the EU and the UK. This would be bad for business and a possible deterrent to UK investment. 

An exit vote would also see the UK lose its position as a favoured forum of EU wide competition damages claims.

If the UK remains a member of the EEA or manages to negotiate a bilateral free trade agreement with the EU, the price may be observance of the "EU acquis" — the body of EU legislation which is essential for all members of the European trade zone to comply with for the proper functioning of the zone. That includes the rules on competition. The UK would find itself bound by the EU competition rules and EU merger control legislation in Regulation 139/2014. In addition the UK would continue to observe rulings of the European Court of Justice under Section 60 of Competition Act 1998 and the supremacy of that law to domestic competition law. UK law would continue to track and observe the requirements of EU competition law and adopt similar interpretation in the enforcement of UK competition law.

A recent study by the UK Government on the Balances of Competences between the EU and the UK Government found that "competence should remain at an EU level in order to best create a level playing field required for the creation of the Single Market" (Para 4.46 of Balance of Competences between the UK and the EU Review 2015).

However the sting in the tail for UK competition law in the context of leaving the EU is that the UK Government will have less influence with the EU as the champion of free markets and as an advocate for competition law and enforcement decisions based solely on competition grounds. Those member states which advocate a greater role for industrial policy and industry national champions would have greater freedom to put their policies in to practice. The UK could only stand “on the touch line” and watch if it followed EU competition law as a non-EU member.

Nevertheless, arguably the most potential profound effect on UK competition law would be felt if the UK completely detached itself from the EU and EU competition law. If such an event occurred it would result in uncertainties within the UK competition law landscape.

This uncertainty would be felt in a number of different areas.

EU Safe Harbour legislation: The EU block exemptions such as the Vertical Agreements Block Exemption will cease to have direct effect following a separation from the EU. The UK could introduce individual block exemptions under Section 10 of the Competition Act 1998, but doubt would remain as to the nature and scope of the parallel legislation.

European Cooperation: Interaction with European competition bodies will be necessary after any Brexit. Therefore dedicated cooperation agreements will need to be entered into between the UK, and the EU and its member states. These agreements will allow for the exchange of information and the coordination of enforcement activities by competition authorities. Such agreements exist between the EU and the US, Canada and Japan.

Enforcement objectives of the Competition and Markets Authority (CMA) currently mirror those of the EU Commission. Post Brexit there is a question as to the extent to which this may continue. This is particularly if there are pressures from UK legislators that dictate that UK companies should be protected against post Brexit European competitive pressures.

There will no longer be any supra-national presiding Court like the ECJ to guard against national protectionism, but equally, UK courts would have complete freedom to depart from what are often perceived as illogical ECJ rulings. The EU and UK courts are likely in time to have different interpretations of competition legislation even though the principles underpinning Article 101 and 102 and the Competition Act 1998 had common origins.

Merger Control: The UK will lose the right to influence EU merger control with an Article 9 request or even to give submissions to the EU Commission on potential detriments to a UK business from a merger by two of its EU competitors.

The current parallel EU merger control system is described as a "one stop shop." Large scale mergers having Community Dimension as defined by reference to turnover thresholds that fall within the exclusive competence of the EU Commission. Those falling below are subject to national merger control. In the UK the regime is principally enforced by the CMA.

An EU exit (and voluntary UK withdrawal from EU competition law) will see the end of this one stop shop bringing with it greater uncertainty through the risk of contradictory decisions if both the UK and the EU authorities must give merger clearance to the same transaction. This would be bad for business.

Such an altered procedure is also likely to place a greater burden on the CMA and the national courts. Over the last ten years the EU Commission has been notified of approximately 3000 mergers while the UK authorities have dealt with only about a third of that number. It is likely post Brexit that a part of the EU Commission’s workload would fall upon the shoulders of the UK authorities necessitating an increase in resources to process the notifications.

In addition the UK authorities are likely to see an increase in the number of behavioural competition cases post Brexit. Of the cases the European Competition Network (a committee of regulators formed of the EU Commission and EU national competition authorities) has dealt with over the last decade, 77 have been dealt with by the UK and 281 by the EU Commission. At present, infringements having an EU affect are investigated by the EU Commission. However, post Brexit this is likely to change with concurrent CMA and EU Commission scrutiny required. This will require the UK authorities to handle a greater number of cases.

The UK along with Germany and the Netherlands are the preferred fora for both standalone and follow on competition law damages claims. However, this position may be threatened by Brexit. The departure from EU membership is likely to lead to a loss of legal certainty that draws claimants to England and Wales.

In addition the UK authorities may also no longer be bound by any finding of infringements of competition law by the EU Commission. The directly applicable provisions of Article 101 and 102 would lose their direct applicability into English law.

Business and Investment 

While it is difficult to anticipate the detailed consequences of a Brexit for international companies and financial institutions with a primary or significant base in the UK, the uncertainties that could arise from it are such that some would prefer not having to deal with them. 

Even outside the EU, the UK would continue to have significant locational advantages for international businesses. It would remain physically integrated within European transport and trade systems, as well as media, cultural and sports communities. Its unique role as the gateway to Europe for the global English speaking community would continue. Home grown UK companies, financial institutions and other entities would adapt just as they have had to with other such major events in the past and still play on the world stage.

For those that have chosen the UK as their base assuming EU membership, particularly financial groups, fresh evaluation of their choice would be inevitable, although some significant financial and manufacturing groups have already stated that they would remain. 

With the increased mobility of global capital facilitated ever more by technology, an increasing number of diversified financial groups, and even more specialist ones, have viable alternatives to being in London for their EMEA activities. For manufacturing and distribution enterprises, the absence of a physical presence within the EU would be even more of a concern.

Particularly in the sphere of large cross-border corporate, financial and commercial transactions, London, together with its associated network of international financial, trade and services communities, has achieved a unique clearinghouse status for the region. As we discuss above if the UK were to leave the EU, it leaves behind a common base of trade treaties, financial services regulations, tax treaties, legal enforcement mechanisms and the like that have been fundamental to its clearinghouse role. It may be possible to replicate this through a host of special agreements with EU members, but the UK would forego the ability to influence their future direction as a major EU member state.

Let us now turn to the particular watch list items that could impact pending and outstanding transactions:

  • Would a Brexit constitute a "material adverse change" under a transactional agreement?
  • Would London based fund managers and sponsors need to apply anew for registration under MIFID and AIFMD?
  • Would the UK need to re-negotiate treaties covering enforcement of judgements, cross-border bankruptcy, agency/distribution agreements, et. al?
  • Would London-based trade and financial bodies have reduced influence in the drafting and interpretation of standard industry commercial agreements (e.g. LMA loan documents, ISDA swap agreements, ship chartering agreements)?
  • For those companies that have established their European headquarters in the UK, would they automatically lose the benefits of the internal corporate and tax regime for their EU subsidiaries and affiliates?

Banking 

The below identifies the adverse consequences for the UK if the “Leave” vote wins. The campaign for leaving, on the other hand, suggests that the financial sector would be better off without EU interference, chief among those the alleged reduction of EU legislation and the threat to the City of London. 

Passporting – loss of, or restricted, access to the EU single market 

The right of UK authorised firms such as banks, investment firms, asset managers, insurers and payment services providers, to carry on business in another EU member state, with or without a branch, known as "passporting," might be lost. It will depend on how the exit is structured. 

If the UK is treated like any other non-EU entity, i.e. as a "third country," the consequences will have to be considered by reference to each relevant legislation. For example, under the EU's MiFID (Markets in Financial Instruments Directive) II, member states can require non-EU entities to establish a local branch before conducting regulated business. For full access to the EU markets, setting up a subsidiary in the EU might be necessary, which will give the benefits of the EU passport but might have significant capital implications. Some entities might find they need to move part of their operations from the UK to the EU if they want to conduct regulated business in the EU.

Similar issues would be faced by EU entities currently "passported" into the UK or which subsequent to the UK's exit want to do business in the UK. In short, the impact on London as Europe's leading financial centre could be significant, although some commentators argue there is little prospect of London being dislodged from that position and that the EU would be a loser as well. 

Consequential amendment to laws in the UK 

Most UK financial services legislation over the last 10 years has EU legislation as its source. Indeed, many EU rules have been made by way of a regulation rather than a directive and as such are directly applicable in the UK.

If the UK was to leave the EU then unless alternative provisions were made, EU financial services legislation which was directly applicable would no longer have effect. The UK would need to consider the extent to which such EU measures should be replicated following the UK's exit.

It seems unlikely from a practical point of view that a UK exit would lead to a mass overhaul or repeal of EU-based financial services legislation. This is particularly the case where the legislation is recent and has involved costly systems and operational changes. An example would be MiFID II (a substantial piece of EU legislation which repeals and replaces the existing EU legislation concerning the regulation of investment business and other matters).

In some cases, the measures meet an international commitment — for example, EMIR (European Market Infrastructure Regulation) is the EU's response to the G20 commitment relating to the transparency and clearing of derivatives.

A UK exit would however be an opportunity for the UK to repeal certain specific EU legislation regarded as unsatisfactory, such as the EU's proposals for a Financial Transactions Tax which is widely seen as hindering the competitiveness of UK banks.

Looking ahead, if UK regulation was to diverge significantly from the EU approach, this would create further burdens for entities with cross-border interests which would have yet one more set of regulatory requirements to comply with.

Possible resulting legal uncertainty for some existing banking transactions 

The rules concerning governing law, enforcement of judgments and insolvency proceedings are examples of EU legislation directly applicable in the UK which will cease to have effect on a UK exit from the EU unless steps are taken to retain them. This may cause uncertainty for someexisting transactions at the time of a UK exit – will the EU rules applicable when the contract was entered into still apply? As a result, some credit decisions might need to be revisited. 

Movement/re-location of banking professionals 

A UK exit from the EU may make moving professionals more difficult. Considerable uncertainty exists in this area, given immigration and visa issues are one of the most contentious areas of UK-EU relations and would likely be subject to change and negotiation upon a British exit.

Structured Finance 

Most financial regulation has emanated from international bodies and institutions such as G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO). This is true for the UK as much as it is for any other country operating in sophisticated capital markets. In or out, the UK, in order to transact with the rest of the world, would need to align itself with any new regulation put forward by think-tanks within such non-legislative bodies.

Before highlighting any specific issues Brexit might create, it is important to appreciate that much of the affected financial regulation was drafted in a manner that gives material preference to countries in the EU, rather than those outside of it. This is, understandably so.

Countries outside of the EU are often referred to as 'Third Countries'. Countries that have enjoyed a more co-operative approach as to their country specific bilateral agreements with the union have done so for most part because their intention appeared always to be to join the European Union at some stage.

There are numerous other aspects and industries that Brexit would affect, (which are addressed elsewhere in this note), and we recognise the effect of Brexit in other bigger cities within the UK. However, the below not in any particular order of precedence, focuses on the City of London and the financial markets alone.

Prospectus Directive (PD) 

The Prospectus Directive states that Member States shall not allow any offer of securities to be made to the public within their territories without prior publication of a prospectus. Once a prospectus has been approved in one member state, that prospectus may be used for purposes of a valid offer to the public or admission to trading throughout the union. If the UK was to leave the EU, there would be no EU wide automatic approval of prospecti approved in the UK. This is an important consideration for all Bryan Cave clients looking to list in Europe. 

European Market Infrastructure Regulation (EMIR) 

Under EMIR, very much like PD above, Central Counterparties (CCPs) which are authorised in one member state are treated as being authorised in all. If the UK was no longer in the EU it would be considered a Third Country CCP. As a Third Country CCP, the UK would need to apply to be recognised under EMIR so as to avoid disruption to the way it offers its services within the union. 

Normally, we would not ever assert a notion of emotion into a discussion about financial markets. However, in this instance, any recognition process involving a recently parted UK, could in all likelihood be severely hampered by politics. (This notion may regrettably affect all possible negotiations with the EU if the UK exits. The notion that you can leave the club but cherry pick afterwards which facilities you can use, may not be very well received by the EU). The UK is one of the leading global jurisdictions for derivatives trading, but derivatives are by their nature very mobile and such business could just leave Europe.

Without due authorisation, any Bryan Cave client currently trading in, out of or with the UK, would be affected. 

Markets in Financial Instruments Directive II (MiFID II) 

The concept of Third Countries gains momentum within MiFID II. Firms in Third Countries wanting to sell their products and services to retail investors within the European Union are obliged to open a branch within the EU. Any such branch would be regulated by the home country's supervisory bodies who would in turn fully co-operate with the host country. As a condition precedent, the EU Commission would need to, at the very least, recognise the regulation of such Third Country as equivalent and the branch would still need to meet EU capital requirements. 

Undertakings for Collective Investment in Transferable Securities (UCITS) 

UCITS only exist within the EU, all other access is denied. 

Anyone seeking to rely on unrestricted access to the single market in this regard would need to, in essence, change everything — their funds' location, operations and/or business model. "Passporting" would no longer be applicable; renegotiation would be the only option. If such negotiations failed, it is possible such funds could be re-domiciled instead and be subject to being authorised again under the UCITS Directive. It is also possible that they would entirely cease to continue as UCITS. The cost to any Bryan Cave client could be substantial. The loss of access to the single market, which underlies all of the concerns from the point of view of the City of London, is the biggest risk that the City of London faces. 

Alternative Investment Fund Managers Directive 

The position here is very similar to UCITS above. If any non-EU alternative funds would still need to comply with the EU capital requirements and pay guidelines, the 'equivalent' authorisation test would apply the same way.

Labour and Employment  

If the UK were to leave the EU, one significant advantage which is often cited (by those who wish it to leave) is the recovery of control over its own employment law.

Throughout the history of the UK's membership, the influence of EU legislation and case law has steadily grown. A Brexit would, on the face of it, leave the UK free to reshape a significant proportion of its employment legislation. The recovery of its ability to do so, rather than to implement Directives on which it had very limited influence, and of the power of its national Courts to interpret employment law without reference to them, will be seen by some as very important in itself.

At this stage we can only speculate what the effect of a Brexit might be. However (whatever the politicians say) the immediate practical effect of any changes made to Employment law in the aftermath of exit will be fairly limited.

What would the UK's relationship with EU look like? 

Much will depend on whether the UK would join the EEA and EFTA (like Norway) or just EFTA (like Switzerland). As part of these the countries' negotiated arrangements for access to the EU single market, each had to agree to grant free movement of EU nationals and to comply with EU employment law. The UK, as a larger economy, might be able to negotiate different arrangements, but it also opens up the possibility that the UK could suffer the worst of all worlds: having to remain bound by EU employment law, and without the benefit of the (limited) opt outs and the (arguably very limited) influence which it enjoys at present.

Possible targets for reform 

High on the list would probably be the Working Time Regulations. Employers have found the obligations to keep records burdensome and unnecessary. There is continued concern that the UK's opt out from the 48 hour maximum average working week will eventually be removed, which survey evidence suggests would be deeply unpopular with a majority of the workers it claims to protect. Brexit would also enable the UK to limit the accrual of holiday entitlement during long periods of sick leave, including the right to carry it forward each year.

The complicated and unpopular TUPE Regulations would also be a target, making it easier and simpler for employers and workers to harmonise terms and conditions after employers have changed or combined — but it is interesting to reflect that the UK has in some respects passed legislation which has gone further than the EU Directive requires of it. 

Changes to discrimination law would be highly sensitive — and it is important to remember that the UK had much discrimination law in place even before it joined the EC (as it was then). One possible change after Brexit would be to re-impose a maximum cap on damages awarded in discrimination cases — a cap which was ruled unlawful by the European Court of Justice. 

Tax 

The precise tax impact following Brexit would depend on the agreement that is reached between the UK and the EU. However, Brexit is likely to afford the UK more freedom in legislating for tax although it may create more administration for UK companies. 

VAT 

The EU is treated as a single market for VAT purposes in an effort to promote competition and remove obstacles to trade within the EU. EU law governs the UK's VAT regime and the relevant VAT directives have been implemented in the UK with domestic legislation. It is unlikely that the UK would abolish VAT (or if VAT was abolished it would be replaced with a similar sales tax) but the UK would have freedom to set the rate of VAT and determine which goods should be subject to a reduced rate of VAT. There would be ramifications for cross-border supplies of goods and services.

Import VAT and Customs Duties 

As the UK would no longer form part of the EU, goods imported into the UK from mainland Europe would be subject to import VAT and customs duties.

EU Directives 

Although a Brexit would have no impact on the UK's network of double tax treaties, it would have an impact on the EU Parent Subsidiary Directive and the EU Interest and Royalties Directive.     

If the benefits of these directives are lost any interest, royalties or dividends paid from e.g. a UK company to an associated EU company may become subject to withholding tax. The UK may need to negotiate third country treatment under these directives or to negotiate new double tax treaties with other EU member states (as required) to avoid the imposition of withholding tax.

State Aid 

The EU seeks to impose a uniform system to prevent the distortion of competition and trade in the EU. The UK would no longer be bound by the EU’s rules in respect of discriminatory incentives and reliefs, but would not have recourse if EU law operated to the disadvantage of UK businesses.

It is possible that the UK would lose the clear framework within which it is able to operate currently, however, it would have much greater freedom to establish its own tax policies and laws and would not be subject to the EU’s mounting pressure to further harmonise taxes within Europe. 

Disputes 

Future withdrawal of the UK from the EU would be very likely to both generate a higher number of disputes and affect how certain disputes are dealt with.

Brexit would bring with it a multitude of changes to the legal and regulatory landscape. There will be a considerable period of uncertainty as to the status of certain parts of English law. Such uncertainty will increase the number of disputes, because parties to contracts and trading partners are likely to seek to avoid unfavourable contractual obligations; issues of frustration, force majeure and material adverse change will almost certainly be closely examined in a variety of cases. Parties who might benefit from avoiding performance of contractual obligations, may try to find justification in the uncertainty which would follow an exit.

There is also likely to be uncertainty as to the extent to which EU law, which was part of English law prior to an exit, should continue to affect English law and whether judgements of EU case law would be relevant in English cases.

One thing we can say with some certainty is that arbitration with a London seat will not be affected by possible Brexit because the UK will remain a party to the New York Convention, along with all the other EU member states. 

However, in relation to litigation, Brexit would mean that EU legislation concerning Jurisdiction and Enforcement of Justice (the Brussels Regulation) would no longer apply within the UK. In the event of Brexit, we expect that the UK will seek to negotiate separate agreements with the EU Member States on these matters and, eventually, arrangements will be made which will mirror those in place at the moment. A result of an exit may be that the UK joins EFTA. In such a case the Lugano Convention could be adopted and would regulate jurisdiction and enforcement issues as it currently does for Denmark and the EFTA countries.

In any event, English law (common law) has always had its own rules on conflict of laws, private international law, jurisdiction and enforcement of judgments, which are applied by the English courts in international cases not involving EU parties. It is therefore, almost certain that the same rules will apply in those international cases which involve EU parties. Further, English conflict of laws rules traditionally respect the parties choice of court in the context of commercial relationships and, therefore, we do not expect to see any changes on this front either.

In terms of enforcement, at the moment the mutual enforcement of judgment from EU member states’ courts within other EU member states is simplified. If the UK is outside the EU, enforcement will most certainly be more complicated. 

Overall, there will be some uncertainty, parties to contracts may seek to take advantage of any uncertain new environment in order to exit undesirable contracts and there may be, hopefully only temporary, issues with enforcement of judgement. London seat international arbitration will not be affected.