Brexit: The possible legal implications of a UK withdrawal from the EU
Karen Plumbley- Jones
Practice Development Lawyer
T:+44(0)175 267 7903
T: +44(0)207 788 2392
On 23 June 2016 the British people will vote on whether the UK should remain a member of the EU or leave the EU.
As our clients would expect, Bond Dickinson takes no formal view on the EU referendum. However in this document, we have set out what we see as the possible legal implications of a vote to leave the EU, organised by practice area.
If the British people decide to remain, the EU will go about delivering on the commitments it made in the draft deal with Prime Minister David Cameron in advance of the referendum.
If they decide to leave, the Government will request the EU to start the Article 50 process of the Treaty on European Union – the only mechanism that exists for the exit of a member state. European Council sanctioned negotiations will then follow between the other 27 member states and the European Commission, before a vote of the European Parliament is called.
The UK would enter detailed negotiations about both the past and the future. Agreements would need to be concluded on how to "unwind" previous rights and obligations, with decisions taken on how the UK and the EU would interact in the future. These negotiations would need to fit within the two year period set out in the Treaty on the European Union, failing which the remaining 27 member states would need to agree to give the UK an extension.
While Article 50 has never been used by a member state, the conclusion of the EU referendum would mandate the European institutions to facilitate the British exit. The Government would need to conclude the exit negotiations as swiftly as possible, in order to proceed with trading negotiations with the EU and additional trading negotiations with non-EU countries. The time frame set out in the Treaty for a Brexit is two years but the Government has suggested that this would merely be the beginning (and not the end) of a Brexit. Some commentators have suggested a 10 year period from beginning to end but the time frame would depend entirely on how quickly the negotiations proceeded.
The legal consequences of a Brexit could be considerable: subject to the terms of new trading arrangements with the EU, EU treaties, directives, regulations and decisions of the European Court of Justice (ECJ) could cease to apply to the UK, unless specifically preserved by UK law; the ECJ would no longer have jurisdiction over the UK; the UK would no longer have the right to participate in various EU agencies; and agencies that are UK-based would probably move elsewhere.
The Government would have to find an alternative to membership of the EU. It has already set out a number of possible models for the UK outside the EU: the Norway model; a negotiated bilateral agreement, similar to the one between Switzerland and the EU; the Canada model; and the World Trade Organisation–only model. In the first two examples a trade-off had to occur between the relevant country and the EU between the level of access to the single market and the obligation to comply with key EU principles, such as the free movement of people. Norway and Switzerland also contribute to EU spending.
We hope that you find the following information useful. Please get in touch with your usual Bond Dickinson contact if you have any queries.
Banking & Financial Services
T:+44(0)2380 208 046
Those pro-Brexit argue that increased autonomy would allow Britain to be more flexible in its regulatory approach; affording banks an international competitive advantage.
However, EU membership has seen Britain, more specifically London, become one of the largest financial markets in the world and the EU financial centre, often leading key reforms.
Banks and the markets are undoubtedly concerned about the real risk of a Brexit – there is no precedent to follow here. Therefore it is unclear how, post-Brexit, Britain would have access to its largest customer (the EU) and what the legal, trading and regulatory implications would be. The consequences for banks are therefore equally unclear.
The genuine fear is that exiting the EU would cut trading activity and make doing business with the EU (which currently takes almost half of Britain's exports) more expensive and time consuming.
The 'Passporting' rules that enable EU headquartered banks to carry out business in other member states would no longer apply in the same form. This leaves two choices:
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The terms of any bespoke arrangement cannot be accurately predicted and it would not necessarily be a negotiation Britain would lead. However, two things are clear:
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T:+44(0)207 788 2349
Regulatory & Environment
T:+44(0)117 989 6779
Parties to contracts with a term that will extend beyond the date of an exit would be well advised to consider whether the consequences of a Brexit would affect the operation or performance of their contracts. For example, if in practice a contract can only be performed because of some feature of EU law, such as free movement of goods, then a result of the UK leaving the EU may be that the contract is frustrated or performance excused because of its force majeure provisions.
Alternatively, one of the parties may find that the contract can be performed but (for example because of import duties which are imposed following a Brexit) it is no longer profitable for it. In such event it is likely to want to look for some means of terminating the contract or suspending performance and so will need to analyse whether the force majeure provisions in the contract allow it to suspend performance and eventually terminate the contract. The other party to the contract may well take a different view on whether a Brexit constitutes a force majeure event.
Such issues are bound to lead to disputes and in order to pre-empt them parties should review their contractual arrangements in order to assess whether a Brexit is likely to have unplanned (and undesired) consequences for each contract.
For new contracts being negotiated between now and the referendum (and a Brexit, if that is what follows), parties should review the implications for the contract of a Brexit and consider expressly stating in the contract whether the UK leaving the EU entitles a party to terminate and whether it is or is not to be considered an event of force majeure.
Many UK trading laws derive from EU legislation such as regulations governing product safety, unfair commercial practices and consumer rights when buying online.
The implications of a Brexit on such issues will depend on the nature of the UK's exit from the EU and how legislation has been incorporated into UK law. For example, Acts of Parliament, such as the Consumer Rights Act 2015 that governs consumer rights and remedies in respect of contracts for goods, services and digital content, are standalone pieces of legislation that would remain following an "out" vote.
However, many EU trading laws are incorporated into UK law by secondary legislation under the European Communities Act 1972. If the 1972 Act is repealed following the UK's exit, any secondary legislation passed under it would fall away unless the Government takes steps to save it. Key trading laws falling within this category include:
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It is impossible to predict at this stage how and which EU-based trading laws would be amended, repealed or remain as is. If the Government has the ability to make sweeping reforms, we consider that it would be unlikely to do so, at least in the short term, due to the uncertainty and disruption it is likely to create. A review on a piecemeal basis is much more likely. In any event, exporters to the EU will still need to ensure that their products are compliant with the applicable EU standards.
Associate (PDL) Commercial Disputes
T:+44(0)117 989 6945
Disputes about existing contracts
A UK exit may impact on existing contracts, particularly those based on EU legislation. Parties may try to avoid contractual obligations or renegotiate a contract in the event of a UK exit. With regard to existing contracts (that govern relationships beyond the two-year window before the UK would formally leave the EU), parties should review relevant clauses such as force majeure and material adverse change. Parties may consider including a 'Brexit' clause in any new contracts so that the parties agree in advance what would happen in the event of a UK exit.
Disputes about English law
A UK exit would mean that some English law may be repealed or amended. This may lead to a period of uncertainty over both UK legislation and how pre-exit EU case law impacts on the UK courts post- exit. These uncertainties are likely to lead to disputes.
Jurisdiction and enforcement
Unless decided otherwise, a UK exit would mean that the Recast Brussels Regulation would not apply to the UK. It may be that the UK and EU would enter into a parallel arrangement on the same/similar terms as the Recast Brussels Regulation. Alternatively some or a combination of the following regimes may apply:
Unless an agreement is reached, a UK exit would mean that there will be no automatic enforcement of judgments between the UK and EU. Without such agreement, enforcement between the UK and remaining EU member states is likely to take longer, cost more and generally be more difficult.
The current protection against EU parallel proceedings would not apply on a UK exit. If the UK accedes to the 2007 Lugano Convention, some protection against EU parallel proceedings will apply, however not the recent changes introduced by the Recast Brussels Regulation giving precedence to the courts of the country that the parties have agreed have exclusive jurisdiction (blocking the tactic known as an 'Italian torpedo').
Parties with an English jurisdiction clause concerned about enforcement within member states would be advised to make sure that they have an exclusive English jurisdiction clause.
On exit the conflict of law rules currently set out in the Rome I (contractual obligations) and Rome II (non-contractual obligations) Regulations would not apply in the UK courts. It may be that the Government decides to continue with the current rules but with the English courts taking the role of the ECJ. Alternatively they could revert to the pre-Rome I and II rules
contained in the Rome Convention (contractual obligations) and the Private International Law (Miscellaneous Provisions) Act 1995 (non- contractual obligations). The Rome Convention is very similar to Rome I and most commercial contracts contain an express choice of law clause in any event. However, the old rules governing non-contractual obligations do not allow parties to choose the law that applies to non- contractual relations, which may lead to a different conclusion than that under Rome II.
The remaining EU member states would continue to apply Rome I and II.
A UK exit would mean that the EU Service Regulation would not automatically apply and permission to serve proceedings out of the jurisdiction may be required. This would increase the time and cost of service out of the jurisdiction. Parties doing business with non-English parties should make sure they appoint an agent for service in England where they have agreed to the jurisdiction of the English courts.
The English courts may issue an anti-suit injunction if the court of a remaining member state fails to recognise an English jurisdiction clause. Since 2004 these injunctions have not been allowed by the ECJ.
The UK will remain a party to the New York Convention. The English courts may decide that they can issue anti-suit injunctions to protect a London arbitration, as the West Tankers case (which prevented anti-suit injunctions in support of arbitration) was a decision of the ECJ.
Head of Competition & Regulation Commercial
T:+44(0)207 788 2326
If the UK were to leave the EU and EEA, UK competition law is unlikely to be very different in the short term. The Competition Act 1998 is self- standing but is based on EU law and the substantive application of competition law mirrors European law. On this basis the nature of competition law in the UK will remain largely unchanged. However, over time there is the possibility that UK competition law takes a different approach than that which is practised in the EU and EEA. However, EU competition law would still apply to UK companies trading in the EU. Competition law enforcement may also result in parallel investigations in both the UK and EU.
Exit from the EU is likely to end the "one stop shop" merger clearance regime that currently exists. This would require some transactions being notified both at the UK and EU level if they qualify for consideration under both competition regimes. M&A deals that trigger notifications in both the UK and EU means merger filings would potentially become more time consuming, complex and costly to notify and clear.
EU public procurement and state aid rules may no longer apply to the Government but it would still be bound by World Trade Organisation rules on state subsidies.
Construction & Engineering
T:+44(0)207 788 2358
The effect of a Brexit on the construction sector in the UK could be enormous in some respects and negligible in others.
International labour force
The construction sector is hugely reliant on skilled immigrant labour from the EU, perhaps more than any other sector except agriculture. In the absence of free movement of workers from the EU, the cost of construction in the UK will rise. In addition and perhaps even more significantly, the UK's infrastructure pipeline will become impossible to deliver because demographic changes in the UK mean that there simply are not enough skilled workers entering the construction workforce. Could the sector have delivered the 2012 London Olympics without this labour? Will the sector be able to deliver future mega-projects, like EDF's new Hinckley Point nuclear plant?
Design and manufacturing standards are international. Construction materials imported into the UK will almost certainly comply with EU standards and construction materials manufactured in the UK will need to comply with EU standards if they are to be exportable. Similarly, design standards are international. The UK has been working through a process of conforming British standards to the EU's Eurocodes, eg British Standards for the design of structures implemented the Eurocodes in 2010. While there may be no legal reason for the UK to continue to implement these standards, it is difficult to see why the British Standards Institution would seek to turn the clock back or allow the UK to fall out of step with the rest of Europe.
From a purely legal perspective, the impact of a Brexit would be less apparent and certainly less immediate. EU legislation can be directly effective but in the UK it is almost always implemented via UK legislation. The UK is one of the most compliant states in the EU so the UK would need to actively repeal or amend UK legislation implementing EU legislation before the law in the UK changed. To take a specific example, the Work at Height Regulations 2005 implement European Council Directive 2001/45/EC. It is unlikely that the UK would devote resources to amending this.
Legislation yet to come
Following a Brexit, the UK would need to negotiate a series of bilateral trade agreements with the EU in order to access the Common Market. The experiences of Norway and Switzerland suggest that these agreements would require the UK to implement a great deal of EU legislation in any case (without the benefit of having had a hand in writing it). It is therefore likely that not only would the UK retain existing EU legislation, it would be obliged to continue enacting it.
Associate (PDL) Corporate
T:+44(0)1752 677 805
As with many areas of law, the precise impact of a Brexit on corporate law and transactions remains unclear at this stage. A few areas that may be affected, depending on the exact terms negotiated post-Brexit, are considered below.
Impact on M&A
There is much debate around the impact of Brexit on investor confidence and their appetite for M&A. The UK legal framework for private M&A transactions itself is not typically subject to much EU regulation. Brexit is therefore unlikely to have a significant impact on the legal framework (subject to the impact of Brexit on the competition regime and TUPE in the context of asset sales. Please refer to our competition and employment sections respectively for more on these topics).
There are EU measures in place to facilitate cross-border M&A transactions via the Directive on Cross-Border Mergers of Limited Liability Companies. This provides a framework for cross-border mergers to take place between companies in the UK and companies from other EEA states. The UK will be unable to take advantage of these provisions following a Brexit if it becomes a non-EEA state but this may be the subject of negotiation.
Impact on equity capital markets
The precise impact on UK equity capital markets will depend on the terms of a Brexit and whether the UK seeks to maintain the current regime in order to protect the London Stock Exchange's status as one of the leading international securities markets.
EU legislation such as the Prospectus Directive, the Takeovers Directive, the Transparency Directive and the Market Abuse Directive has been implemented into UK law. We expect that many of these measures would initially remain in place post-Brexit but the regimes may diverge in future. This would depend on the specific terms negotiated and the approach taken by the Government and the Financial Conduct Authority.
Please refer to the financial services section for more on the regulatory angle and, in particular, the impact of a Brexit on passporting rules.
Impact on company law
The main piece of legislation in the UK on company law is the Companies Act 2006 and related secondary legislation. Some of the provisions of the Companies Act 2006 are based on EU Directives such as the Accounting Directives, the Shareholder Rights Directive and the Company Law Directives but company law is mostly regulated by individual member states. The Companies Act 2006 has only recently been reviewed and amended following a lengthy consultation process. We do not anticipate that company law would be identified as a priority area for reform following a Brexit. The purpose of the Companies Act 2006 was to repeal, simplify, modernise and consolidate existing company law. It may be that these aims would be revisited following a Brexit with a view to further reducing the regulatory burden on companies originating from EU law.
Corporate groups with both UK and EU incorporated companies will need to adapt if and when EU and UK company laws diverge following a Brexit.
A European company (or Societas Europaea) is a European public limited company subject to EU-wide laws, which can be created and registered in any one of the EEA member states. Such entities incorporated in the UK may be affected by a Brexit and may need to relocate their registered office if the UK becomes a non-EEA state following a Brexit.
T:+44(0)2380 208 213
EU citizens and their families currently have the right freely to travel, live and work across the EU. If the UK leaves the EU then this could have wide ranging implications, as UK citizens and EU citizens of other member states would no longer enjoy this automatic right of free movement to travel, live and work in EU/EEA member states. This restriction on movement would have a significant impact on current and future labour and trade markets in the UK and the EU and global trade outside of the EU.
If the UK leaves the EU then it could impose its own controls on who was admitted to the UK and under what circumstances. EU nationals could be subject to the same visa rules and requirements that currently apply to non-EU nationals. If it is no longer bound by free movement law, the UK may have more powers to deter and restrict the presence of certain categories of EU migrants and more powers to remove/deport national immigration offenders. The flip side is of course that while the UK could impose its own controls on EU immigration, the rights of UK citizens to travel, move to or work in an EU member state would be restricted by any visa entry requirements or restrictions that EU member states chose to impose.
If the UK were to leave the EU then it is unlikely to result in any immediate changes as there would be a complex and lengthy transitional period. The UK would need to negotiate and agree on arrangements for its future relationship with the EU. Some EU nationals may have acquired rights to stay under UK legislation. For others, there could be reciprocal arrangements agreed between other EU countries so that EU nationals already working in the UK may be granted permission to stay in the UK and UK citizens working in other EU countries would be granted similar permission to stay in return.
Managing Associate Corporate
T:+44(0)117 989 6949
A Brexit would have certain implications for taxation in the UK. Some aspects would be more particularly affected, such as VAT, whereas other taxes could be more indirectly affected. Of course, this all depends on how the UK would actually deal with these taxes and also how any agreed system of VAT or parallel form of it was agreed between the UK and remaining EU.
VAT is an EU tax and has been imposed in the UK since accession in 1973. It is subject to EU directives, and although there are a number of individual state derogations, treatments and rates, the underlying system and alterations to it are EU in origin. Due to its revenue generation, VAT would not be abolished. However, its operation for importers and exporters could be affected. How UK exporters would deal with VAT applying to both business and end consumer customers in the EU would need to be negotiated as part of a Brexit agreement. Also, non-EU exporters thinking of operating through an EU entity (such as for electronically supplied services) would need to monitor how any UK/EU agreement would deal with services arising from the UK.
Direct taxes, such as corporation and income tax, are not subject to EU regulations and directives. However, the underlying principles of the EU such as freedom of movement of capital have impacted on issues such as loss relief (eg the Marks & Spencer case), as well as the treatment of distributions. Also, State aid rules have been used to ensure that unfair tax benefits are not conferred on favoured or domestic businesses. Initially, one may think that leaving the EU could allow greater flexibility for domestic tax policy (in that freedom of establishment principles and State aid rules may not apply). However, any trade deal with the EU may mean keeping these rules (and future EU interpretations) in place. There are also other international principles (such as from accounting boards and the OECD) that are promoted by the EU and which would generally be expected to apply to the UK in any event, as they would be applied by international convention.
T:+44(0)191 279 9286
It is very unlikely that any exit from the EU would cause widespread changes to employment law overnight – the majority of the employment law we have that comes from the EU would still form part of UK law unless and until it was amended or repealed.
This is because legislation from Brussels comes to us in two main formats: regulations and directives. Regulations made in the EU are directly applicable and automatically binding in the UK from the day they are made. Regulations in this field are comparatively rare – one example is Regulation (EEC) 1408/71, which deals with the application of social security schemes to workers and their families moving within the EU.
The majority of EU law relating to employment comes to us as directives, which contain objectives to be achieved by a given date. The individual member states must then draw up national legislation to conform with the directive within a certain time frame. In the UK, directives are usually implemented by statutory instruments and occasionally by Acts. The terminology can also be confusing – what we in the UK call the TUPE “Regulations” 2006 and the Working Time “Regulations” 1998 actually come from the Acquired Rights Directive and the Working Time Directive, and are not EU Regulations at all.
In recent years, the Coalition and Conservative Governments have been trying to remove what they call “gold-plating” of legislation – removing from the statute book those aspects of employee protection that go further than the basic objectives required by the original EU directives. These provisions were largely implemented by the previous Labour Government. For example, the Working Time Directive gives full time workers 20 days of paid annual leave, while the UK Working Time Regulations provide an entitlement to 28 days. The TUPE regulations also go beyond what the EU requires, with the addition of the concept of a service provision change, as do the Agency Workers Regulations 2010.
It is likely that if the UK did leave the EU, this gradual process of amendment and/or repeal would continue and could be significant, being dictated by the political aims of whichever political party was in power. Areas likely to be the focus for change include agency worker rights, annual leave, collective redundancy, discrimination legislation, part-time worker rights, fixed-term worker rights, paternity, maternity and parental leave, and protection of employment following the transfer of an undertaking.
An immediate large scale repeal of the employment laws that originated in Brussels is very unlikely, as that would cause massive disruption and cost. The impact on employers of a restriction on the free movement of workers is likely to be much more immediate and is covered in the corporate immigration section.
Consultant Oil and Gas
T:+44(0)117 989 6961
We will cover the potential impact of a Brexit on three of the main strands that make up the energy sector, namely power and renewables, climate change and oil and gas. We will look at each of the three strands separately as there are fundamental differences between them and, if there is a vote to leave the EU, it is likely to affect each of them very differently.
Power and renewables
At present, the core underlying obligation for the UK to source 15% of its energy requirements (which include electricity, heat and transport) from renewables by 2020 comes from the Renewable Energy Directive, which has direct effect in the UK. So a vote by the UK to leave the EU would clearly have an impact on the effectiveness of this target. However, for electricity at least, the value of the target has almost been realised by projects that have already been deployed or are in the course of construction.
The path beyond 2020 at EU level is not clear. The UK has lobbied for a number of years for a carbon rather than a renewable energy target and, given that the Paris Agreement enshrined a decarbonisation target, that direction of travel might be reinforced.
For the broader power sector, there have been a number of recent developments establishing a common regulatory network and trading rules across the EU. Whether the UK would wish to continue to be a part of these after Brexit is an open question but in practical terms, the position of Ireland would require the UK's participation in the scheme given the physical realities of the Interconnectors between the UK and Ireland and between Ireland and the continental countries.
At present, almost all UK initiatives require State aid clearance (see the Projects and procurement section for more information) so whether it is to remain subject to the ongoing EU State aid rules could make a significant difference to the timescale for certain projects. As an example, the Hinckley Point project is still subject to a State aid objection by the Austrian government and, if EDF seeks additional support from the French state, then a further round of State aid clearance may be required.
Furthermore, the EU also sought to lead developments and encourage security of supply both through the evolution of carbon capture and storage and through the complex issue of gas storage. For carbon capture and storage, the EU provided funds to assist developers commercialising this new technology and the failure of that scheme had more to do with the position of the relevant projects in the UK market than any fault of the EU itself. On the question of gas storage, the physical fact remains that the UK is a net gas importer at the end of the existing pipeline structures and must therefore rely on other countries making their gas storage available if circumstances demand it. The UK's current gas storage facilities are small, a problem that is partly driven by the current lack of demand for these facilities.
Climate change is a complex topic. In the context of carbon trading, the UK has transposed the European Directive into the Greenhouse Gas Emissions Trading Regulations. So, while the regulations governing carbon trading in the UK are domestic and would remain in force, the trading scheme itself is run on a European wide level. Ongoing participation in this scheme would therefore be required unless the UK attempted to set up its own carbon trading scheme.
The UK does have a track record of taking an initiative in this area; the carbon price support mechanism was initially introduced to provide a floor price for carbon in the market. However, in the March 2016 budget, the Government elected to continue its freeze on the level of carbon price support making it clear that this initiative was not going to be pursued on a unilateral basis.
The position on decarbonisation more broadly across Europe remains an open question. As noted above, the outcome of the Paris Agreement was a 2030 decarbonisation target across Europe as a whole so, in the event of a Brexit, an allocation would be required for the UK to have its own target. However, in some respects, the Europe wide position is matched by domestic UK legislation (enshrined in the Climate Change Act 2006) so, provided that the Government does not seek to repeal that legislation as well, the underlying obligation to continue with decarbonisation of the economy through to 2030 and beyond to 2050 would remain in place.
Further key steps to decarbonisation, including the closure of all coal fired plants in the UK by 2025, are domestic initiatives rather than originating from Brussels. Whether the replacement of coal fired plants with gas fired CGTs is a long term solution is a separate question.
Oil and gas
Unlike the above two strands of the energy sector, oil and gas is fundamentally an international business not driven by Europe and, as far as the North Sea is concerned, the EU chose (largely) to adopt the UKCS regime when legislating on the industry. As a result there should not be far-reaching implications for our clients in respect of their operations in the North Sea as a result of a Brexit. That said, our clients will be affected in the same way as other businesses by the legal implications highlighted by the practice areas (such as employment, commercial, corporate, competition, corporate immigration and regulatory) covered elsewhere in this document.
However, as noted elsewhere, a vote to leave the EU is likely to reignite the Scottish independence debate with the consequent implications that would have for the UKCS regime; opinion is mixed as to whether that debate would lead to a second Scottish referendum.
Regulatory and Environment
T:+44(0)1752 677 703
The need for countries to respond to the challenges of climate change, greenhouse gas emissions, resource scarcity, waste management and biodiversity depletion has developed during the UK's membership of what is now the EU. The vast majority of environmental legislation in the UK derives from the EU, although not all of it does so (see for example the Climate Change Act 2008 and the Climate Change (Scotland) Act 2009).
Along with urban planning, housing, economic development and agriculture and forestry and fisheries, competence for environment policy and law is devolved to each of Scotland, Wales and Northern Ireland. Prior to withdrawal from the EU new legislation would be needed in all UK jurisdictions to avoid vacuums in existing environmental law.
The future direction of environment policy and law in an independent UK would be heavily influenced by new trading arrangements (especially with the EU), international treaty obligations, devolution and politics. It is not just about protecting the environment - environmental law requirements can encourage investment in innovation, new markets and technologies, and the generation of employment and economic growth.
Treaty and Regulations
Treaty provisions and European Regulations (which have direct effect in member states) would cease to apply from the time that the UK stopped being a member of the EU. However, the EU often uses Regulations to set product standards and prohibit the entry into the Single Market of any products that do not meet these. UK businesses seeking to export to other member states would need to ensure compliance with EU product standards, such as those set by Regulation (EC) No 1907/2006 of the European Parliament and of the Council on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), whether or not the legislation was introduced to keep such standards in all or parts of the UK.
Directives, which identify objectives but leave member states some flexibility over how to achieve them, are usually transposed into UK law by statutory instruments. Virtually all environmental directives are transposed under powers granted by section 2(2) of the European Communities Act 1972. Following a Brexit vote and prior to the UK's withdrawal from the EU, all four UK jurisdictions would need to legislate to avoid vacuums in environmental law and also to ensure that the UK complied with obligations under international environmental treaties. The sheer scale of environmental law within the UK and its reliance on EU law would make a law-by-law assessment of changes a significant and time consuming piece of work. Legislating that all European law should continue to have effect unless revoked or amended could be an alternative option.
The extent to which changes to European environmental law after a Brexit might be accommodated would need to be addressed, as would the status of decisions of the ECJ on the interpretation of European environmental law. It is unlikely that access to the EU Single Market would
be agreed by the EU under conditions that enabled the UK to gain a competitive trading advantage by reducing environmental standards.
Influence over EU law and policy
European environmental policy is developed by the European Commission in consultation with member states. The UK is active in contributing to EU environmental policy and law. At best, this influence would be diminished, even though trading arrangements with the EU could require compliance with some, if not most, EU environmental law.
UK environmental policy following a Brexit could empower England, Scotland, Wales and Northern Ireland to develop their own environmental policies and laws, to the extent compatible with new trading agreements. However, unless power is ceded back to Whitehall to enable the establishment of a joint UK environmental regulatory framework post Brexit, loss of the common EU framework could lead to greater differences between UK jurisdictions, increasing red tape for business.
Enforcement of environmental law could be weaker without the ECJ. The litigation by ClientEarth - in which the Government has been required to take steps to improve air quality in areas that currently breach EU standards - relies on EU derived law and ECJ decisions.
Town and country planning
Within the EU, town and country planning is largely left to member states under the subsidiarity principle. Two aspects of environmental law that have an effect on development control within member states concern the provision of environmental information to inform consenting decisions and the attainment of specified standards, eg on air quality, water quality, habitats and species.
The process of environmental impact assessment (EIA) is intended to ensure that, prior to the granting of development consent for projects that are likely to have significant environmental effects, full information on such effects is gathered from the developer, statutory consultees and the public and taken into account in deciding whether to grant or refuse consent.
The Habitats Directive and the Wild Birds Directive are seen by some as vital for the protection of important habitats and species across the EU but by others as impediments to development since the grant of consent is prohibited in specified circumstances. New development is required to meet certain EU environmental standards and measures, eg ambient air quality and water quality
It would be up to each of England, Scotland, Wales and Northern Ireland to retain as much or as little of EIA, habitats and species protection, air quality and water quality as they wished or agreed, subject to international environmental treaty obligations and any provisions regarding cross border environmental standards and decision-making processes that may form part of the new trading arrangements with the EU.
Banking & Financial Services
T:+44(0)207 788 2334
A vote to leave the EU could have a profound impact on financial services regulation in the UK. Financial institutions (including banks, investment firms, insurers, insurance intermediaries, fund managers, mortgage and consumer credit firms and payment services providers) that have cross border operations would be impacted by a change in the regulatory regime they operate under. The extent of this impact would of course depend on the success of the Government's negotiations with the EU.
EU law is the bedrock of financial services regulation in this country and a Brexit would raise huge questions of the UK legislature. Lawmakers would be faced with the task of deciding whether to replicate or diverge from the current state of affairs that has seen decades of enormous effort and investment in implementing EU law. For example, the EU's capital requirements regulation (and all other EU regulations for that matter), which is directly applicable in the UK, would cease to apply on a Brexit and would need to be re-assessed and re-enacted in the UK if it was to continue to apply.
Many assess the biggest benefit of the single EU regulatory framework as the 'passporting' regime and a number of the world's biggest financial institutions have adopted a business model based on passporting their EU-wide operations from the UK. The UK is the EU's largest financial centre and financial institutions are currently able to take advantage of the ability to 'passport' their services around the EU without having to establish expensive fully-fledged local operations in other member states. When combined with London's advantageous time-zone, access to talent and capital, it is seen by many to be a draw to the UK for jobs and investment. It remains unclear if a similar regime would exist if Brexit was to win-out and it may result in restricted access to EU markets by firms based in the UK. It could also raise expensive questions of where firms should base their operations.
Having to relocate operations would unlikely be the end of firms' investment and strategic considerations. Product terms, distribution agreements and marketing literature would likely need to be reviewed to consider whether these need to be amended or replaced as a result of any regulatory separation.
Practice Development Lawyer
T:+44(0)207 788 2352
A Brexit would impact the law affecting the insurance market in the areas of regulation, underwriting, policy wordings and claims issues.
The freedom to provide insurance and reinsurance services from one member state into another member state stems from the EU Insurance Directives and the Reinsurance Directive (all now replaced by the Solvency II Directive), which provide that if an insurer is authorised to carry on insurance in the member state where it has its head office, that authorisation is valid for the whole of the EU. There are similar but not identical arrangements in place with countries in the EEA.
These rules allow international insurance groups to trade in the EU from a subsidiary authorised in the UK. The exercise of this right is called "passporting".
In theory, passporting into the EU from a UK authorised insurer would no longer be possible following a Brexit unless the UK became part of the EEA or bilateral arrangements were negotiated, such as those currently enjoyed by Switzerland. In order to continue trading in the EU, insurers would have to establish authorised subsidiaries in mainland Europe and obtain local regulatory approval to trade.
The main focus of the regulation of insurance business in the UK is on the solvency of insurance companies and the integrity and competence of their senior management and controllers.
The EU Solvency II Directive, which involved a wide-ranging reform of the EU insurance solvency regime, was implemented in January 2016 so is now part of UK law. Another major piece of EU legislation affecting the insurance sector is the Insurance Distribution Directive (IDD). IDD came into force on 22 February 2016 and member states have two years in which to transpose it into national law. Although the referendum is set to take place before implementation of IDD by member states in 2018, a Brexit would likely take place later than the deadline for implementation of IDD into national law.
In the event of a Brexit, the UK would no longer have to comply with Solvency II; however the FCA and PRA have already implemented Solvency II requirements and UK regulators have been involved with and influential upon the design of the Directive, so it is likely that a similarly high standard of regulation would continue in the UK. This is particularly the case as the UK would wish to be granted regulatory equivalence so that UK authorised insurers could benefit from the advantages under Solvency II that this brings to third-country insurers.
An example of the effect that EU legislation can have on new lines of business is the EU-wide changes which are to be brought about by the EU Data Protection Regulation and the EU Network and Information Security Directive. These pieces of legislation (both of which are expected to be applicable/implemented within about two years) respectively require
the mandatory reporting of personal data breaches and cyber security incidents for certain industries. These developments are likely to increase the uptake of cyber insurance policies and will also provide better data to enable more accurate pricing of cyber risks.
In the event of a Brexit, would the UK still mandate this level of reporting, which indirectly benefits the cyber insurance market? Possibly not if the UK decides that the regimes are too burdensome.
In certain areas, such as health and safety and environmental reforms, EU regulation benefits liability insurers by helping to improve risk management, which in turn reduces the frequency or severity of claims. For example, much UK environmental law depends on EU regulations that are currently directly effective.
Policy wording and claims issues
Insurance contract law in England is not governed by EU law but has been shaped by UK derived law, such as the Marine Insurance Act 1906, the Insurance Act 2015 (coming into force in August 2016) and the Consumer Insurance (Disclosure and Representations) Act 2012, so no changes to these regimes would be expected in the event of a Brexit.
Just as with other disputes governed by English law and jurisdiction, insurance disputes would be affected by the impact of a Brexit on the issues around governing law, jurisdiction, parallel proceedings, service of proceedings out of the jurisdiction and recognition and enforcement of judgments.
In addition, there is an insurance exception to the general rule under the Recast Brussels Regulation that only affects the insurer/insured relationship. This means that the insured has the option of bringing proceedings in his own domicile and the insurer is restricted to suing the insured in the insured's country of domicile. The ability to circumvent the rules by a jurisdiction agreement is very limited, as the rules are there to protect the customer who is seen to be in a weaker position.
In the event of a Brexit, where the Recast Brussels Regulation would no longer apply, the English court would likely uphold express clauses between the parties conferring jurisdiction on the English courts. However, the question of how other EU member states would view such clauses, which would be a matter for the laws of those member states, could give rise to considerable uncertainty. It may be prudent for insurers to follow the provisions in the Recast Brussels Regulation anyway (and write them into the policy) in order to be seen to be treating customers fairly under FCA principles.
T:+44(0)113 290 4464
It is difficult at this stage to assess what would be the impact of a Brexit on the UK’s intellectual property (IP) system since much will depend on whatever bilateral arrangements the UK enters into post its departure. However, because of both the unitary nature of some European wide intellectual property rights and the international nature of intellectual property systems, in all likelihood even with certain specific bilateral arrangements being put in place, such as those that already exist
between Norway and the EU, it is safe to say that the effects in this area
Trainee Trade Mark Attorney Commercial
T:+44(0)113 290 4433
of the law are likely to be profound.
European Union trade marks and community designs
The European Union trade mark (EUTM) and Community design (CD) systems are unique property rights that spread across the EU. The rights, which are very much a creature of the EU, provide the opportunity for applicants to file a unitary trade mark or design that covers all 28 member states, including as of today, the UK. The laws that currently govern the EUTM and CD systems are the EU Community Trade Mark Regulation (207/2009) (EUTM Regulation) and the EU Community Design Regulation (6/2002) (CD Regulation) respectively.
Article 1(2) of the EUTM Regulation states that “…A Community trade mark shall have a unitary character. It shall have equal effect throughout the Community: it shall not be registered, transferred or surrendered…save in the respect of the whole Community….” The CD Regulation contains an identical provision at Article 1(3) in relation to the unitary character of CDs.
Given the wording of these provisions, if the UK were to exit the EU, by definition EUTM and CD registrations would narrow in geographical scope and no longer have any effect in the UK. In the event that owners of EUTMs or CDs did not have corresponding UK trade mark or design registrations, subject to any bilateral transitional arrangements that might be put in place, a Brexit might leave them devoid of any registered rights. However, unregistered rights could remain, such as the Berne Copyright Convention, which would allow UK companies to enforce certain rights across the EU.
This scenario is unchartered territory, although by analogy there have been a number of instances where the EU has expanded its membership, such as when the Czech Republic, Cyprus and Croatia acceded to the EU. However, while the EUTM and CD Regulations do specifically carve out provisions for what is to happen when countries become members of the EU, the legislation is silent on the effects of a member state leaving the EU.
It is unlikely that the EUTM and CD rights would continue to cover the UK since if they were to do so, such an arrangement would fly in the face of the unitary nature of such rights. One possible bilateral agreement would be for the EU and the UK to give mutually reciprocal recognition of the national and EU wide rights.
Given the absence of a provision in the legislation detailing the impact and effects of countries leaving the EU, a possible option would be for
either the UK or EU to introduce transitional provisions to allow owners of EUTM and CD registrations to obtain corresponding rights in the UK. This was previously seen in 1921 when Ireland left the UK. In this instance, provisions were introduced to enable owners of UK trade mark registrations to maintain their UK mark while also converting the registration into a national Irish mark. This allowed owners to maintain the filing date of their earlier UK registration on the payment of a fee.
A new EUTM Regulation came into effect on 23 March 2016, which brought about various changes, both legally and procedurally, to the EUTM system. The changes proposed in the new regulation have to be adopted by all member states by 2019 and implemented in to their national law. If the UK were to exit the EU there would be no obligation for the UK to adopt the new regulation. However, given that the process of EU trade mark reform has been ongoing for a number of years, it would be unlikely that the UK would reject the new regulation and not implement the changes into national law. If the UK were to leave the EU, the implementation of the new EUTM Regulation is a matter that would need to be monitored throughout the negotiation stage.
A Brexit would probably result in increased costs for the obtaining of registered rights for trade mark and design owners. It is likely that any transitional provisions, converting a EUTM or CD into a national UK right, would carry a fee, as was the case when Ireland left the UK. Also, given the high prospect that EUTMs and CDs would no longer cover the UK, trade mark and design owners would need to apply to register in two territories, the UK and EU, thereby paying two separate fees to enjoy the same protection as they have under the current system. Further, this cost would increase if Scotland were to separate from the UK after a Brexit and then not subsequently re-join the EU (as discussed below), as rights holders might need to obtain a Scottish national right, again to obtain the same protection they currently have.
Exhaustion and parallel imports
At present, IP owners can, under the principle of regional exhaustion, prevent the importation and resale into the EEA, which comprises all EU member states in addition to Norway, Iceland and Liechtenstein, of genuine goods which were not put on the market of the EEA by the IP owner or with the owner’s consent (parallel imports). Once the goods are in the EEA with the owner’s consent, the owner cannot prevent their resale and importation across the EEA. This principle of regional exhaustion flows directly from the EU’s principle of the free movement of goods.
It is unclear to what extent after a Brexit the UK would restrain parallel imports from the EEA. Much would depend on the extent to which the UK would sign up after its departure to the principle concerning the free movement of goods.
Unitary Patent and Unified Patent Court
The European patent system is currently being reviewed and the proposed changes are likely to have a significant effect for all users of the current system, with the possible introduction of the unitary patent (UP) and unified patent court (UPC).
The benefits of a UP include the possibility of reduced costs for those who currently, or have future wishes to, acquire European patent protection. The reduced costs are caused by the loss of the high number of translations that are currently needed (one for each country where
languages differ) and the ability to be able to renew the patent for a single annual fee. Under the present system, separate annual fees are required for each country.
Another positive aspect of the UP is that it has the possibility to provide patent protection in 25 out of 28 EU countries (Croatia, Spain and Italy are currently not participating). In the case of a single infringement in any member state, the claimant would be able to recover damages from any EU country where an infringement was present. This is possible through the creation of a new UPC, which would have jurisdiction over all countries who are participating in the UP system.
On 2 March 2016, the Government fully approved the statutory instrument that will implement the UP and UPC in to UK law. This was one of the two statutory instruments required to enable the UK to fully ratify the UPC agreement. Edward Vaizey, Minister for Culture and the Digital Economy, stated that the "new court and patent will be ready for business in early 2017".
Whether or not the UK leaves the EU will have little impact on the legality of the UPC and UP system, as it does not need the UK to be a party in order to operate in the long term. However, it is unlikely that the UK will have fully ratified the UPC and UP agreement before the referendum, which means that a decision to leave the EU may mean that the UK never signs up to the new system.
Edward Vaizey has speculated that, "if we left Europe as a result of the referendum, I suspect it would be a decision for the UK Government whether they wanted to re-join the European patent court. Of course, we would have to rely on our European partners to decide whether the UK could be a member."
If the UK were to leave the EU, there would be a lengthy period of negotiation during which the role of the UK in the UPC and UP system would be uncertain. The UK is currently one of the three countries (along with France and Germany) required to ratify the UPC agreement, therefore during the negotiation period if the UK exits the EU, the UPC and UP system would effectively be in limbo. On the official exit of the UK, it would be replaced by the Netherlands as one of the mandatory signatories of the regime, however again this would not be in the near future.
As with the EUTM and CD system detailed above, patent holders are likely to be impacted by additional costs if the UK were to leave the EU, without joining the proposed UP and UPC system. The UK would be an entirely distinct jurisdiction, in which right holders would need to obtain a separate patent registration and therefore pay separate fees.
If the UK were to leave the EU, the progression of the UPC and UP system is another area that should be monitored throughout the process of the exit.
The Scottish Government has indicated that, if the UK were to leave the EU, it would campaign for another Scottish independence referendum. This would pose even greater uncertainty surrounding the national UK, EUTM and CD system, as well as the UK patent system. There are a number of ways in which this could play out. First, Scotland could remain part of the UK, which would not alter the status quo between Scotland, the UK and EU.
The second option is if Scotland left the UK and then subsequently rejoined the EU. There would be many questions arising from this situation, such as in the interim between Scotland leaving the UK and then joining the EU, would UK national trade marks, designs or patents extend to Scotland? Also if Scotland were to join the EU, EUTMs and CDs would automatically extend to Scotland. In this case, would Scotland have its own national trade mark, design and patent system and law?
The third option is if Scotland left the UK but then did not join the EU. Again, it would need to be clarified whether UK national trade marks, designs or patents would extend to Scotland. It is likely that similar transitional provisions would be implemented to those that applied when Ireland left the UK in 1921. In any event, it is probable that a Scottish national trade mark, design and patent system would need to be established.
Even though these are important considerations, as stated previously, if the UK were to leave the EU it would not be instant but rather a lengthy process of negotiation. The Scottish referendum would be after the definite exit of the UK from the EU, therefore it would not be taking place in the near future. However, this is one aspect that needs to be monitored throughout the Brexit process.
As detailed above, there would be a significant impact on UK and EU IP rights and laws if the UK were to leave the EU. At the moment it is unclear how the rights would be affected and to what extent the scope of current and future rights would be narrowed or altered.
However, in the event of a Brexit, there are a number of issues that IP rights holders would need to monitor throughout the negotiating process, as any transitional provisions or decisions on the scope of the protection of rights are likely to have major implications.
John Bradley Dick
Corporate & Commercial Services
T:+44(0)191 279 9252
A vote to leave the EU in June’s referendum would have little immediate effect on UK pensions law. While an exit from the EU would affect pensions law in the long term, the result would likely be a more gradual evolution of legislation over time rather than an instant change.
However, the impact on financial markets, with knock on consequences for scheme funding, is already being felt.
Scheme funding: market volatility
The immediate impact of the referendum concerns pension scheme funding. Market volatility, both in the lead up to the referendum and the aftermath, could prove a challenge for trustees and administrators of UK workplace pension schemes. The uncertain outcome of the referendum is likely to affect the value of the pound and equity markets. As a result, scheme investment performance could be detrimentally affected, leading to a deterioration in scheme funding in the short term.
Views as to whether a Brexit would be a good thing for pension schemes (as opposed to the economy as a whole) are divided. While market volatility is predicted to continue if an exit occurs, some commentators suggest that pension schemes could see some benefits – for example that there could be an increase in Government borrowing costs, which might mean that pension funding levels would improve (as increasing bond yields would result in a reduction in the value of the scheme’s liabilities).
Pensions legislation: a gradual evolution
Considering now the more gradual impact on legislation, while a substantial amount of pension legislation derives either directly or indirectly from European legislation, this has mostly been enshrined into UK law. Consequently, if a Brexit were to happen, there would be no sudden change to UK pensions law as it stands on the date of exit.
What would change, however, is that UK pensions legislation would no longer be required to be interpreted by reference to EU law or be subject to the jurisdiction of the ECJ. This would lead to greater autonomy for UK jurists to re-frame UK pensions legislation in a post-EU context.
While it is not possible to predict potential post-Brexit policy, some commentators have suggested that the treatment of pensions on a TUPE transfer is an area that may be amended. Legislators would be free to introduce legislation tailored solely to the UK jurisdiction, rather than the supranational, one-size-fits-all approach of EU policy.
Cross-border pension schemes
The Institution for Occupational Retirement Provision (IORP) Directive permits pension funds to operate across the European single market. Such schemes are, however, subject to more stringent funding controls than those that operate only within a single member state. To protect scheme members, cross-border pension schemes must be fully funded at all times. UK funds participate in relatively few cross-border schemes, primarily concentrated on arrangements between the UK and the
Republic of Ireland. Such arrangements require approval by the Pensions Regulator.
It may be argued that a Brexit, which would take the UK out of the scope of the IORP Directive, may make participation in cross-border funding arrangements with the UK more attractive. This could give schemes greater economy of scale, with the further benefit of not being subject to the IORP Directive’s funding controls. Instead, such arrangements would be subject to new funding controls agreed between the Government and individual states.
A Brexit would impact on state pension provision for UK citizens living in other EU member states. Currently there exist specific rules that co- ordinate social security entitlements for workers moving within the EU (which also apply to the EEA countries and Switzerland). These rules allow, for instance, a pension accrued in one member state to be drawn in another. Also, a UK pensioner resident in another EEA country will currently receive an annual increase to his state pension. Elsewhere, the UK state pension is only uprated if there is a reciprocal social security agreement requiring this.
To co-ordinate social security entitlements for ex-pats following a Brexit would require the UK to broker reciprocal arrangements with individual states. The impact of a Brexit on state pensions would therefore be largely dependent on the UK’s relationship with individual states.
Partner & Notary Public Private Wealth
T:+44(0)191 279 9698
At the moment many UK citizens have holiday homes in European countries, in particular Spain and France. If the UK left the EU, in theory UK citizens would be treated like non-EU citizens in relation to these properties, potentially having to apply for a visa in order to visit. If so, this would mean more intrusive questions about various matters including how long they were going to stay, their income and health insurance position. There could also be a risk of higher taxes being applied by EU countries to properties owned by non-EU citizens. These points could in turn make the destination less desirable and lead to a reduction in property values.
However, there can be a great difference between what is theory and what is reality. It may be the case that if there is an exit, bilateral agreements would be put in place between the UK and either the EU or individual countries so as to help establish a working system for UK expatriates and holiday home owners. If such agreements were not put in place, the EU's strict immigration rules could make the ownership and use of such homes difficult or impossible.
In reality, the EU may wish to encourage visitors from the UK and therefore would be open to agreeing more favourable arrangements such as those negotiated with other European but non-EU nations such as Switzerland.
In turn, EU citizens who own property in the UK would face similar issues and potential barriers to ownership if the UK was to leave the EU and no similar arrangement was put in place.
At the moment an EU citizen can obtain a European health insurance card (EHIC) free of charge, giving them the right to access state-provided healthcare on temporary stays in EU countries at a reduced cost, or sometimes for free. This covers immediate and clinically necessary state- funded treatment including cover for pre-existing medical conditions and routine maternity care, provided the reason for the visit is not specifically to give birth or seek treatment. If the UK left the EU this would no longer be available.
Taxation and succession
The UK currently has very different tax rules from most European countries, so for the vast majority of individuals the position will remain the same whether or not there is an exit.
However, there is potential for change in certain areas where tax reliefs are currently applied to EU assets as well as UK assets due to the UK’s EU membership. For example, gifts in wills to EU charities are currently
free of UK inheritance tax but there is some speculation that this might be restricted to UK charities following a Brexit. Agricultural land in the EU can also currently be inherited free of inheritance tax due to the operation of Agricultural Property Relief and again this could be curtailed so that the potentially valuable relief is limited to UK land. If either of these changes were to come about they would have significant implications for UK taxpayers.
Finally, it is important to mention the European Succession Regulation, which came into effect on 17 August 2015, and affects both UK citizens with property in other EU countries and EU citizens with property in the UK. Its purpose is to provide certainty in cross-border succession situations. The rules are complex, but in terms of which law applies to the succession of their assets a key provision is that an individual can choose that the law of their nationality will apply. The UK has opted out of the Regulation, so individuals with UK-only assets are unaffected, but it is still relevant where UK citizens own property in EU countries. The application of its terms is likely to remain the same whether or not the UK remains within the EU, but this is still an area of considerable uncertainty so professional advice should always be obtained.
Legal Director Projects
T:+44(0)191 279 9767
EU public procurement rules
The EU public procurement rules have been implemented in the UK by the Public Contracts Regulations 2015 (along with the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016, which come into force on 18 April 2016). If the UK were to leave the EU, although the EU Procurement Directives would cease to apply to UK contracting authorities and utilities, the UK legislation that implements the EU rules would continue to apply unless and until repealed. Given the current scrutiny of the use of public money in the UK and the pressure to use public funds effectively and efficiently, the EU procurement regime principles of seeking to obtain value for money for public sector spending by running some form of competition for works, supplies and services is likely to remain, although the cross border interest test may no longer apply. The UK has supplemented the EU Procurement Directives in a number of areas, including specific provisions on ensuring accessibility for SMEs. The Government is therefore unlikely to adopt a wholesale repeal of the legislation. It is also unlikely that simplification of the current UK procurement legislation will be a top priority for the Government if the UK leaves the EU. Public procurement is likely to remain “business as usual” for UK contracting authorities, while UK businesses competing in the EU may lose the benefit of the application of the EU public procurement rules by EU contracting authorities, although the UK may negotiate a separate trade treaty to give some protection to UK businesses trading in the EU.
Many public sector projects and activities involve an aspect of EU funding and public and other bodies in the UK can currently apply for regional and social funding through the European Regional Development Fund and European Social Fund. In the current round of funding (2014 to 2020), the EU has emphasised research and innovation, transport and energy as key areas for the EU’s future where funding is available through the European Structural and Investment Funds. In order to qualify for such EU funding, applicant organisations must be established in the EU so such funding would no longer be available to UK bodies, although a non-EU organisation can still participate as a subcontractor or collaborating partner. Whether an exit from the EU would trigger clawback of any EU funding already granted to UK public bodies (as the recipient would no longer be established within the EU) would depend on the terms and conditions of each individual grant and whether the EU would seek to enforce the terms of such grant funding.
The main aim of the EU State aid rules is to maintain a level playing field between competing businesses from different EU member states. The rules do this by seeking to prevent public money from being used to unfairly support or otherwise advantage any business or other trading
entity where such support could potentially distort competition and affect trade between the EU member states. Whether the UK would continue to have a State aid regime post-Brexit would depend on the eventual trading model that the UK adopted. For example, an EEA/EFTA model would mean retaining a broadly equivalent State aid regime to that which currently applies to the UK under the EU rules. Even the World Trade Organisation has subsidies rules that the UK would need to comply with if it sought to rely on the WTO regime alone. The issue, therefore, would be whether public authorities in the UK would have to continue to consider the State aid implications of their actions and what effect this would have on competition within the UK, post-Brexit.
As a member of the Council of Europe, the Government is a signatory to the European Convention for the Protection of Human Rights and Fundamental Freedoms (Convention). Under the Human Rights Act 1998 (HRA), public authorities and other organisations when they are carrying out functions of a public nature have a duty not to act incompatibly with the Convention. An exit from the EU does not mean that the UK would cease to be a member of the Council of Europe nor cease to be a signatory to the Convention so the repeal of the HRA is a separate issue to exiting the EU. The duty on public authorities is likely to remain in some form if the UK remains a signatory to the Convention.
Managing Associate Development & Investors
T:+44(0)2380 208 336
While a Brexit could result in some changes in the regulation that envelops the sector (see the Environmental and planning section for detail), many of those principles are driven by global concerns not just European red tape. The approach to real estate law in Scotland, England and Wales is already unique and at its heart is not affected by Brussels – a Brexit would not change that. The property industry's concern is thus focussed less on law and more on barriers to investment.
Whichever way the vote goes on 23 June, as the British Property Federation acknowledges, there is likely to be some slowing of the market ahead of the result, as was experienced in 2014 around the Scottish independence vote. Certainly our recent experience in Cannes would suggest that, over the next few months, many investors will be playing a waiting game (especially while some are also grappling with the SDLT challenges coming out of the budget). If we vote to exit, this uncertainty would continue – Strutt & Parker's Stephanie McMahon (Head of Research) has been quoted as saying there would most likely be a hiatus in the commercial market at that point, while new trade agreements were negotiated and businesses came to terms with the new order.
A recent CBRE survey highlighted concerns that outside of the EU, Britain would lose its status as Europe's top choice for commercial property investment, if trading across borders becomes more difficult, the banks become more cautious or London loses some of its appeal as a financial centre. Conversely many key UK based investors have European funds that may be indirectly affected by a Brexit and are already taking a more cautious approach to new investments or even placing a moratorium on them.
The other side of the coin is the potential effect on trading within Britain – if retailers struggle to trade then their property base will inevitably suffer, potentially hitting the sheds, estates and high street markets. The boom seen in leisure, student accommodation and PRS (the private rented sector) may also suffer if it becomes more difficult to move around Europe. 54% of the hotel professionals surveyed in the European Hotel Market Survey believed that M&A activity and/or RevPAR (revenue per available room) would be adversely affected by a Brexit – piling on the pressure already existing from the rise in non-traditional accommodation such as Airbnb. This prediction is in turn backed by researchers at Credit Suisse, who have forecast an initial fall in house prices on the back of weaker incomes followed by, in the medium term, a drop in housing demand because of lower immigration and the change in the UK's status as a financial hub.
What is clear is that the real estate market flourishes in a stable, growing economy, be that inside or outside the EU.
Regulatory & Environment
T:+44(0)1752 677 802
Trainee Solicitor Commercial
T:+44(0)191 279 9933
Regulatory law in the UK has a broad scope. Approximately 50 statutory bodies are established with competency to regulate activities ranging from financial services to food standards, nuclear power to nursing. EU law permeates the regulatory spectrum to varying depths.
The Coalition Government’s deregulation agenda continues to develop under Conservative leadership, with rumours of a move from a “one in two out” to a “one in three out” policy towards secondary legislation; for every new measure that is introduced, measures amounting to three times its financial impact would be repealed. To the extent that EU membership imposes pressure on policy-makers to introduce new regulation, a Brexit may help facilitate the implementation of the deregulation agenda in the UK.
While new EU regulations and directives would have no direct impact on an independent UK, it is likely to prove impossible and even undesirable for the Government to abolish a significant amount of EU law in many areas of regulation.
The health and safety regime is one of the more substantial areas of regulation in the UK and is indicative to a large extent of the way in which EU and UK law interacts. We take a closer look to illustrate some of the issues and implications of a Brexit for regulatory law.
The UK’s health and safety regime is one of the most robust and successful in the EU, with workplace fatalities lower than any other member state in 2012. The regime is overseen by the Health and Safety Executive (HSE) and is built on the Health and Safety at Work etc Act 1974 (HSWA), which imposes broad general duties on employers and provides a framework within which many pieces of subordinate legislation have been introduced to fill out the detail.
HSWA predated the EU Occupational Safety and Health (OSH) Framework Directive, which was adopted in 1989. Although many secondary measures have since been enacted that overlap with and implement EU requirements, these have largely been made under HSWA rather than under the European Communities Act 1972 and would therefore not be subject to automatic repeal in the event of a Brexit.
The HSE has put forward a number of suggestions to the European Commission (EC) for streamlining health and safety legislation, as part of the EC’s evaluation of 24 OSH directives, which was undertaken between 2012 and 2015. These suggestions included a number of amendments to and repeals of existing directives that were felt to be overly cautious or inflexible in view of the UK’s well-regarded proportional risk-based approach to regulation. An independent UK would give the Government a free hand to act on the HSE’s recommendations in these areas, without the need to negotiate with other member states.
However, the UK has on occasions adopted higher standards than are required by EU legislation, for example around asbestos (a practice known as “goldplating” as opposed to the “copy out” approach to implementing EU directives). In these areas, it is Government policy that has a bigger impact on health and safety regulation than EU policy and a
Brexit is unlikely to prompt a reduction in standards. It is suggested therefore that the health and safety regime would remain largely unchanged, providing industry with a degree of compliance and cost certainty in respect of continuing health and safety obligations.
Similar conclusions could be applied to many other areas of regulation, for example consumer law; the Government made a recent indication of intent in the Consumer Rights Act 2015, which implemented aspects of a number of EU directives and regulations but had wider aims of consolidating and clarifying consumer protections. A Brexit would be unlikely to involve winding back the clock on this policy.
Ultimately it is not realistic to imagine that the perceived burden of EU regulation would simply be allowed to fall away following a Brexit. In the first place, much regulatory law at EU and national level exists for good reason, as discussed above. Secondly, the many areas of EU regulation that affect imports and exports, for example the exacting standards of the REACH Regulation, would have to be continually applied by national businesses if the UK was to continue to trade with the EU; the internal market accounts for an estimated 45% of all UK exports. However the Government chose to legislate following a Brexit, it is clear that compliance with EU regulation would remain a commercial necessity in many arenas.
Legal Director Restructuring & Insolvency
T:+44(0)117 989 6927
English insolvency and restructuring law and procedures are significant at both the European and world level. In recent times lenders, debtors and many others have sought to take advantage of the varied, flexible and fair procedures available in our jurisdiction. This has resulted in a flow of individuals from countries such as Ireland and Germany seeking to make themselves bankrupt in the UK to take the benefit of what is deemed a more restorative and entrepreneur friendly process, while at the same time the courts have taken a pragmatic, commercial view towards expanding the availability of the scheme of arrangement process to companies with only limited connections to this jurisdiction. It remains to be seen what impact a Brexit could have on these positions and others; the terms of an exit would be key to understanding what impact there may be on the insolvency and restructuring world but it is likely that in the short term the UK would not be seen as quite the safe haven it currently is.
In the early part of this millennium the EC Regulation on Insolvency Proceedings (ECR) was introduced and immediately changed the world of cross-border insolvencies within Europe, providing a mechanism for the recognition, structuring and interrelating of different insolvency processes across the continent applying to the branches of the same company; it is scheduled to be recast in 2017. Subsequent legislation was also introduced to cover areas not covered by the ECR in respect of credit institutions and insurers. These three pieces of legislation were introduced by way of Regulation and therefore on a Brexit, the UK would no longer be a party to this legislation and, without anything further, would be forced to rely on a mish-mash of existing laws with each separate member state. It seems likely therefore that the Government would seek to replicate the position under ECR (and the other regulations) where it could directly with member states, although how quickly and easily this could be achieved following a Brexit is open to debate.
It is important to note that, as schemes of arrangement are not included within the ECR, this thriving area of UK law would not be directly impacted and the position might even be made more straightforward by the dis-application of the European Judgment Regulation, which has been a material issue in recent cases.
One possible benefit of a Brexit could, however, be that the UK may no longer need to be involved in the ongoing project to harmonise certain insolvency laws in the EU.
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