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When surreal becomes real: Brexit begins

Slaughter and May

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European Union, United Kingdom January 24 2017

“Sad process, surrealistic times but at least a more realistic announcement on #Brexit”

Donald Tusk, European Council President

“We’re not leaving Europe, we’re disentangling ourselves from the treaties of the

EU. We can remain powerfully committed to Europe with a new European partnership...

whilst also going forward with an identity as Global Britain.” Boris Johnson, Foreign Secretary

“We welcome the level of detail provided in the PM’s speech and her commitment to providing

certainty wherever possible. We now know that we will be leaving the single market, and while

there will be firms who regret this, they will at least be able to plan on that basis.”

Allie Renison, Institute of Directors, Head of Trade and Europe Policy

Spring is not yet upon us and yet the seeds sown

in 2016 are already bursting forth with life. (Even

if no-one quite knows what the fruit will look

like or how it will taste.) In the United States, a

certain Donald J. Trump has assumed residency

in the White House. In the United Kingdom, after

much frenetic work behind the scenes, and

much furious debate in the Supreme Court, the

judges have had their say and the wheels of

Government are now cranking into gear. In the

first of our Brexit Essentials briefings of 2017,

we cover the key events of the past few weeks,

including the Supreme Court's Miller judgment

today and Theresa May’s pivotal speech last week,

and attempt to anticipate the coming months

and years.

Miller judgment

“[Withdrawal] will constitute as significant a constitutional change as that which occurred when

EU law was first incorporated... by the 1972 Act. ... We cannot accept that a major change to

UK constitutional arrangements can be achieved by ministers alone; ... the bullet will have left

the gun before Parliament has accorded the necessary leave for the trigger to be pulled.”

Lord Neuberger, President of the Supreme Court

In an upholding of Parliamentary sovereignty, and

by a majority of 8-3, the Supreme Court today

ruled as follows:

• The withdrawal of the UK from the EU,

together with the consequent removal of

existing domestic rights of UK residents,

constitutes a fundamental change in UK

domestic law.

• The only way recognised by the UK constitution

to effect such a change in law is by way of

Parliamentary legislation.

• As such, the Government cannot trigger the

Article 50 Notice, so commencing the process of

taking the UK out of the EU, without legislation

from Parliament authorising it to do so.

The Government has confirmed that it will accept

this ruling and will table an Article 50 Brexit Bill

within days. Opponents may look to amend the Bill,

but their ability to do so is likely to be constrained,

at least to some extent. Substantive amendments

regarding, for example, single market access

are likely to be ruled out of order as subjective

and potentially binding the Government’s hand

in the negotiations. Any amendments seen to

be frustrating the will of the people risk being

politically toxic. For those reasons, most proposed

amendments will probably focus on process,

transparency and a meaningful final vote, rather

than seeking to dictate the terms of exit.

When surreal becomes real: Brexit begins 2

The Supreme Court also unanimously concluded

that the UK Government does not need to obtain

the approval from the devolved governments

of Scotland, Wales and Northern Ireland to pass

the Article 50 legislation. This is unlikely to

deter the devolved governments from seeking

significant influence over the process and the

eventual outcome.

May’s speech

“She proceeded with remarkable skill. Almost unnoticed, she accustomed the British to a total farewell

of Brussels. Whether this is sufficient to lead the country into the uncertain post-Brexit era without

social upheavals and without political setbacks will be assessed later.”

German newspaper, Allgemeine Zeitung

Theresa May has been consistently clear that she will not divulge any information that she regards as likely

to hamper Britain’s negotiating strategy. As a result, her speech was very much principles-based. It did,

however, present a 12-point plan (see below) and articulated the following clear concepts:

• Britain will leave the single market. It was

made clear that the Government’s “red

lines” of (1) controlling immigration and

(2) rejecting the jurisdiction of the ECJ are

incompatible with remaining within the single

market, and that partial membership of the

EU or “cherry picking” was not in Britain’s

interest. The Government will instead look to

retain the greatest possible access to the single

market through its own negotiated free trade

agreement, with Britain re-establishing itself

globally, rather than as a member of the EU.

• Britain will establish its own trade tariffs.

Whilst this might mean a reduced form of

membership of the customs union, rather

than leaving the union entirely, the base

line outlined in May’s speech is that Britain

wants to be free to establish its own tariff

schedules with the World Trade Organisation,

incompatible with full customs union

membership.

• No “cliff edge” for financial sector. Whilst

Britain would not generally look to establish

a lengthy period of transitional arrangements,

May stressed that it would look to negotiate a

phased implementation of its Brexit strategy,

giving the financial services sector in particular

a period to prepare for inevitable changes to

the regulatory landscape. A “special deal” for

the City remains an option, though the status

of the City’s key issues (such as passporting,

access to market infrastructure (e.g. clearing)

and the applicability of EU regulations more

generally) remains uncertain at this stage.

So Theresa May has articulated a clear high-level vision for Brexit. Of course, as she is acutely aware,

that vision will be challenged at home and abroad, by, amongst others, political opponents in the UK,

special interest groups, the “EU27” (who are “united and ready to negotiate”), the potentially harsh

reality of trade negotiations with the US and others, and, if and when a deal with the EU is agreed, by

Parliamentary scrutiny. Quite how the Government’s vision will evolve (if at all) in the face of these

challenges remains uncertain.

When surreal becomes real: Brexit begins 3

What next?

With these concepts now laid down by the

Government, and the certainty of a Parliamentary

vote on the final Brexit deal, the next step for the

Government is to table the Article 50 Brexit Bill and,

assuming Parliamentary approval (the likelihood

of which is bolstered by the overwhelming (if

non-binding) vote of the House of Commons in

December 2016), to serve the Article 50 Notice.

There remain possible impediments, both to the

overall process and to the delivery of the Article

50 Notice. More legal challenges may appear on

the horizon, but at the moment the following two

cases are expected in the courts.

• The Article 127 case: The pro single market

think tank British Influence is leading a fresh

legal challenge in the High Court regarding

the UK’s membership of the EEA (by which

the UK has access to the single market). The

key argument in this case (refuted by the

Government, which contends that the UK’s

departure from the EU will automatically

result in an exit from the EEA) is that the

UK’s membership of the EU is separate from

its membership of the EEA and, as such, that

Article 127 of the EEA membership agreement

must be triggered separately from Article 50,

and with Parliamentary assent. This case is

expected to be heard in the High Court in early

February 2017.

• A Brexit exit strategy?: Another potential legal

challenge waiting in the wings is being pursued

by Jocelyn Maugham QC, whose strategy is to

initiate a claim in the Irish courts concerning

the UK’s (mis-)treatment by other EU members

since the referendum in June 2016, with the

ultimate goal being a referral to the ECJ. The

key question that Maugham then looks to

discuss is whether Article 50 can be revoked

once it has been triggered, with the aim of

giving Parliament an exit strategy if the public

mood were to be reversed. Legal proceedings

are expected to commence in late January or

February 2017.

1. Certainty – to be provided whenever possible throughout the process

2. Control of Britain’s laws – i.e. no more ECJ jurisdiction

3. Union within the UK – work with the devolved governments and not establish

new barriers

4. Irish land-border – maintain Common Travel Area with the Republic of Ireland

5. Control of immigration – “red line” for the UK, which precludes remaining

within the single market

6. Rights for EU nationals in Britain, and British nationals in the EU – as early

as possible, and must be reciprocated

7. Protect workers’ rights – build on the values created by European legislation

8. Bold and ambitious free trade agreement – retain greatest possible access to

single market whilst retaining independence of negotiation

9. Britain to be a global trading nation – with an open mind as to how to

achieve a customs agreement with the EU

10. Britain to be a focus for science and innovation – continued collaboration

with EU partners

11. Co-operation in the fight against crime and terrorism – close co-operation is

intended post-Brexit

12. Smooth, orderly Brexit – phased implementation to avoid the “cliff edge”

May’s 12 point Brexit plan

January 2017

OSM0009759_V02

© Slaughter and May 2017

This material is for general information only and is not intended to provide legal advice.

For further information, please speak to your usual Slaughter and May contact.

May has made her timetable for exit clear and, in

particular, has stressed that it will not be affected

by a failed deal with the EU – no deal is better

than a bad deal. The expectation is therefore

that, come what may, Britain will cease to be a

member of the EU by March 2019. This timetable

will inevitably come under considerable pressure

from many sources. Below shows the Government’s

indicative timetable for certain key actions and

events, alongside certain other considerations

which could have an impact. But Brexit is now

gathering inexorable pace; time will tell if the

winter of our populist discontent is made glorious

summer in Europe and beyond.

Timing Action / Event Other considerations

Pre-March 2017 • A50 Brexit Bill: draft, submit to both

Houses of Parliament, deal with

amendments

• Trade discussions (formal

negotiations not possible while

Britain remains a member of the EU)

• Opponents/pressure groups may seek

to amend Brexit Bill to reflect specific

demands (e.g. for single market access)

• Involvement of UK’s devolved

governments in the Brexit Bill to be

determined

• Current court cases (re. Article 127 and

Article 50 – see above)

• Possible additional legal challenges

to efficacy and/or content of A50

Brexit Bill?

• Banks and other relevant regulated

entities may prepare contingencies e.g.

setting up EU subsidiaries; obtaining

licences; relocating employees

March 2017 • Parliamentary approval of A50

Brexit Bill

• Serve A50 Notice

• Commence negotiations with EU

• Commence / continue trade

discussions with others

• May be further legal challenges following

service of the A50 Notice

• Capacity constraints – what can be run

in parallel?

Autumn 2018 • Agree free trade agreement (FTA)

with EU (practical deadline so as

to enable deal to be effective by

March 2019)

• Likely to be “mixed” agreement – will

need approval by all Member States (and

relevant regions)

March 2019 • Parliamentary approval of FTA /

terms of Brexit

• FTA becomes effective

• Phased implementation for

financial services and other relevant

sectors begins?

• Formal negotiation of other trade

deals commences

• Approval by European Parliament and

Member States / regions to have been

obtained

• Possible implementation of further

contingency planning for banks a


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