While the risks of a no-deal Brexit on the 31 October 2019 have greatly diminished, a no-deal Brexit is still firmly on the table for that date or, perhaps more likely, a future date.

Our updated Brexit Legal Guide addresses in detail the legal position if the UK leaves the EU with or without a deal – looking at key sectors as well as key cross-cutting issues (from contracts, corporate law and data protection to state aid and tax). It also has a number of useful explainers such as the Withdrawal Agreement Q&A and the UK’s new legal order post-Brexit: A new class of UK law.

This blog post provides a shorter overview of key areas covered by our Brexit Legal Guide, focused solely on the implications of a no-deal.

Section A (An abrupt end to the UK’s participation in the EU) references at a high level the key component arrangements that the UK would be abruptly leaving in a no-deal.

Section B (Impact for Business) looks at what a no-deal Brexit means for business in a number of key areas (alphabetical order). In this blog post you can click on each area in turn to reveal the relevant information contained in this post.

For each area there is also a link to the relevant section of our Brexit Legal Guide which contains more detailed information.

Section A: Abrupt End To The UK’s Participation in the EU

A no-deal Brexit would mark a break with 46 years of economic integration between the UK and the EU, with, amongst other things, an abrupt end to the UK’s participation in the:

  • EU’s single market (with its ‘four freedoms’: free movement of goods, persons, services and capital);
  • EU’s customs union (which eliminates tariffs on goods traded between EU members and a common external tariff for goods entering the EU from outside);
  • EU’s Common Agricultural and Fisheries Policies;
  • EU’s Internal Energy Market; and
  • European Atomic Energy Community.

A no-deal scenario would take the UK abruptly from having one of the deepest sets of trade ties in both goods and services with the other 27 EU Member States to being in the same position as most of the EU’s third country trading partners with whom no special trade agreement has been negotiated. The benefits of membership of the EU include the free circulation of goods between members, without tariffs, customs formalities or other forms of border control.

Members also enjoy wide-ranging rights to sell services without discrimination, for example by establishing operations anywhere inside the single market. A shared regulatory framework facilitates trade, with rights protected by EU law and enforced by EU and national courts.

Conversely, a no-deal Brexit also implies the removal in relation to the UK of the corresponding obligations of single market membership, including regulatory harmonisation with the EU in many areas and acceptance of free movement into the UK of goods, services, labour and capital of EU and EEA businesses and nationals.

The UK would also be free to adopt import duties distinct from those of the EU’s Common Customs Tariff, to develop its own international trade policy and to diverge from other EU regulatory frameworks.

It is also worth remembering that the UK also trades in goods with many countries around the world on terms agreed by the EU, which include in many cases provisions on harmonisation of standards in line with relevant single market rules. The UK Government has agreed continuity deals with some of these countries. Until the UK has agreed new trading terms with all relevant countries, tariffs and standards issues will hinder trade flows and may, in some cases, be sufficiently serious to block or greatly reduce trade.

The Future EU/UK trade relationship section of our Brexit Legal Guide has more background on what a ‘no-deal’ Brexit would mean for EU/UK trade and what ‘trading on WTO terms’ would mean in practice.

Section B: Impact for Business

Anti-trust and merger control

"One of the main issues that will need to be addressed in the context of both antitrust and merger control, is the need for transitional arrangements which provide clarity on the allocation of existing and post-Brexit investigations, processes and remedies" – Dorothy Livingston

  • The EU Merger Regulation, with its one-stop-shop regime under which a transaction is either subject to the EU or UK merger control regime but not to both regimes, will be revoked on exit day and the EU and UK merger control regimes will run in parallel. A transaction that qualifies under the EU Merger Regulation may also be subject to UK merger control (provided the jurisdictional threshold for UK merger control is met).
  • For anti-trust cases the impact of the UK exit from the EU will also be that there will be many more cases where both the EU and the UK could in parallel open an investigation and impose fines and other remedies for anti-competitive conduct affecting both the continuing EU and the UK.
  • EU decisions adopted after exit day will no longer be binding on UK courts in follow on damages claim. Decisions adopted before exit day will continue to be binding, even where they only become final (after any appeals have been exhausted or the time for bringing an appeal has expired) after exit day.

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Aviation

"Airlines will need to keep a close eye on the status of traffic rights agreements between the UK and third countries to check whether their planned operations continue to be permitted by these agreements post-Brexit. In the event of a no-deal Brexit, they will also need to consider whether their planned operations involving EU and UK destinations in the coming months are permitted by the contingency arrangements and guidance published by the EU and UK for the transitional period post-Brexit" – Kim Dietzel

  • The Basic Air Connectivity Regulation ('BACR') grants first, second, third and fourth freedom traffic rights to UK carriers until 30 March 2020 – so that they can continue to overfly, make technical stops in the EU, and serve direct routes between the UK and EU. For a period of 5 months post-Brexit, UK carriers are also granted fifth freedom traffic rights to operate all-cargo services on direct routes between the EU and third (non-EU) countries as part of a service originating or ending in the UK, with the number of services capped at 2018 levels. These rights are granted to UK carriers on the condition that the UK confers equivalent rights on EU carriers and also ensures conditions of fair competition.
  • EU-licensed airlines would no longer be able to operate within the UK (e.g. from Heathrow to Edinburgh) and UK-licensed airlines would lose the ability to operate intra-EU Services. EU carriers will only need to satisfy the CAA that they are majority owned and effectively controlled by nationals of EU member states, nationals of other EEA countries and/or UK nationals. The BACR gives EU-licensed airlines a grace period to re-establish EU majority ownership and effective control, if they have submitted satisfactory plans for re-establishing compliance to their national civil aviation authority.
  • Many of the functions currently performed by the EASA in relation to aviation safety approvals and certifications will be conferred on the CAA. Aerospace businesses, airlines and aviation personnel may need to take action to ensure they continue to hold appropriate safety certificates, licenses or other documentation.
  • The automatic mutual recognition of aviation safety certificates provided under the EASA system will cease to apply to the UK. However, the CAA has explained in guidance issued in August 2019 on aviation safety in a no-deal scenario that will continue to recognise EASA certificates, approvals and licences for use in the aviation system and on UK-registered aircraft for at least a period of two years following Brexit. At the end of two years (or sooner if the certificate expires during the intervening period), new certificates issued by the CAA under UK legislation would be required. The EU Commission has indicated that it will take a different approach and that certificates previously issued, before exit day, by the CAA, UK companies approved by the CAA, or EASA to UK persons and businesses, will no longer be automatically accepted in the EASA system as of the withdrawal. In the EU Commission’s view, the effect of a no-deal Brexit on certificates and approvals can adequately be remedied by stakeholders switching to a regulator of another EASA member state, or by applying for a third-country certificate issued by the EASA.
  • Nevertheless, in order to mitigate disruption, a regulation on aviation safety passed by the European Council and Parliament in March will temporarily (for 9 months) extend certain certificates (in particular “type certificates”) that can only be issued by the EASA on the basis of certificates issued by the UK once it is a third country. The regulation also ensures that parts and appliances for which a certificate of conformity was issued by a UK company approved by the CAA before the withdrawal date can still be used in and on aircraft in certain circumstances.
  • EU aviation security standards and procedures will be retained under the EU Withdrawal Act. The UK Government will not impose any additional screening checks for EU passengers or cargo arriving into the UK. The UK will no longer be part of the EU’s “ACC3” security designation scheme for cargo arriving from the rest of the world. However, the UK Government will be setting up its own security designation that will mirror the EU’s scheme to ensure that additional obstacles are not created for international trade.
  • As a transitional arrangement to minimise disruption, the EU Basic Air Connectivity Regulation ('BACR') grants first, second, third and fourth freedom traffic rights to UK carriers until 30 March 2020 – so that they can continue to overfly, make technical stops in the EU, and serve direct routes between the UK and EU. For a period of 5 months post-Brexit, UK carriers are also granted fifth freedom traffic rights to operate all-cargo services on direct routes between the EU and third (non-EU) countries as part of a service originating or ending in the UK, with the number of services capped at 2018 levels. These rights are granted to UK carriers on the condition that the UK confers equivalent rights on EU carriers and also ensures conditions of fair competition.
  • EU-licensed airlines would no longer be able to operate within the UK (e.g. from Heathrow to Edinburgh) and UK-licensed airlines would lose the ability to operate intra-EU services.
  • As regards nationality restrictions as a condition for eligibility to operate services between the EU and UK, EU carriers will only need to satisfy the UK CAA that they are majority owned and effectively controlled by nationals of EU member states, nationals of other EEA countries and/or UK nationals.
  • The BACR gives EU-licensed airlines which will cease to comply with EU majority ownership and control rules as a result of Brexit a grace period to re-establish EU majority ownership and effective control, if they have submitted satisfactory plans for re-establishing compliance to their national civil aviation authority.
  • Many of the functions currently performed by the EASA in relation to aviation safety approvals and certifications will be conferred on the CAA. Aerospace businesses, airlines and aviation personnel may need to take action to ensure they continue to hold appropriate safety certificates, licenses or other documentation.
  • The automatic mutual recognition of aviation safety certificates provided under the EASA system will cease to apply to the UK. However, the CAA has explained in guidance issued in August 2019 on aviation safety in a no-deal scenario that it will continue to recognise EASA certificates, approvals and licences for use in the aviation system and on UK-registered aircraft for at least a period of two years following Brexit. At the end of two years (or sooner if the certificate expires during the intervening period), new certificates issued by the CAA under UK legislation would be required. The EU Commission has indicated that it will take a different approach and that certificates previously issued, before exit day, by the CAA, UK companies approved by the CAA, or EASA to UK persons and businesses, will no longer be automatically accepted in the EASA system as of the withdrawal.
  • Nevertheless, in order to mitigate disruption, a regulation on aviation safety passed by the European Council and Parliament in March will temporarily (for 9 months) extend certain certificates (in particular “type certificates”) that can only be issued by the EASA on the basis of certificates issued by the UK once it is a third country. The regulation also ensures that parts and appliances for which a certificate of conformity was issued by a UK company approved by the CAA before the withdrawal date can still be used in and on aircraft in certain circumstances.
  • EU aviation security standards and procedures will be retained in the UK. The UK Government will not impose any additional screening checks for EU passengers or cargo arriving into the UK. The EU Commission will take action to ensure that passengers and cargo from the UK transiting in the EU will continue to be exempted from a second security screening, by applying the so-called "one stop security" system. The UK will no longer be part of the EU’s “ACC3” security designation scheme for cargo arriving from the rest of the world. However, the UK Government will be setting up its own security designation that will mirror the EU’s scheme to ensure that additional obstacles are not created for international trade.

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Banking and Investment Firms

"Almost the entirety of UK financial services legislation over the past 10 years has EU legislation as its source." – Karen Anderson

  • The future regulatory approach of the UK will generally be to treat EEA member states and EEA firms consistently with other third countries and firms. However, in a no-deal scenario, certain measures providing temporary divergence from this guiding principle will apply in order to minimise disruption and avoid material unintended consequences for the continuity of financial services provision, to protect the existing rights of UK consumers or to ensure financial stability.
  • The Temporary Permissions Regime ('TPR') will, if the UK leaves the EU without an implementation period, allow EEA banks and investment firms currently passporting into the UK to continue operating in the UK for up to three years after exit, pending full authorisation from UK regulators. Similar arrangements will apply to EEA insurers, financial market infrastructure providers, electronic money and payment institutions, registered account information service providers and EEA securities and funds that are offered or marketed into the UK. See our blog post on the TPR here.
  • To make use of the TPR, firms need to notify the FCA via the FCA's online Connect system by 30 October 2019 that they intend to apply for UK authorisation. Fund managers will also need to notify the FCA of the passported funds they wish to continue to market in the UK. The PRA notification window closed in April 2019. After exit day, firms which have notified the regulators will be allocated a “landing slot” within which they must submit an application for full UK authorisation.
  • The Financial Services Contracts Regime ('FSCR') will automatically apply to EEA passporting firms that do not notify the regulators that they wish to enter the TPR, but have pre-existing contracts in the UK which would need a permission to service. The FSCR will enable firms not within the TPR to wind down their business in an orderly fashion.
  • If the UK leaves the EU without an implementation period, both the FCA's and the BoE/PRA's transitional directions will take effect from exit day, until midnight on 31 December 2020, to provide a general "standstill" and ensure that firms and other regulated entities do not generally need to prepare now (subject to certain exceptions, such as transaction reporting and other key reporting requirements) to meet the changes to their UK regulator obligations that are connected to Brexit. In most cases, firms will be able to continue to comply with the requirements as they were before exit day until the end of the 15-month transitional period (but firms may also comply with post-exit obligations).
  • In areas where firms are expected to begin preparing to comply with Brexit-related changes to their UK regulatory obligations (which will be a particular challenge for TPR branches), the FCA has said that it intends to act proportionately and will not take a strict liability approach. It does not intend to take enforcement action against firms where there is evidence that they have taken reasonable steps to prepare to meet the new obligations by exit day.
  • Legislation is mostly in place – only a small number of onshoring statutory instruments remain outstanding - so that, in the event of a no-deal Brexit, EU financial services legislation will be onshored by exit day (subject to necessary modifications to reflect the UK's exit from the single market). The PRA and the FCA have published various briefing materials, including detailed policy statements and draft changes to rules in a no-deal scenario. The regulators have also concluded  new cooperation agreements with the EU markets, insurance and banking authorities which will take effect in a no deal outcome. These Memoranda of Understanding provide a framework for the sharing of confidential information; allow UK or EU based firms to delegate or outsource certain activities to firms based in the other jurisdictions; and support future market access and potential future equivalence decisions.
  • If the UK leaves the EU without a deal that has a mutually agreed transitional period attached,  UK firms will lose the right to passport financial services activities to EU member states, with no more than 'third country' status after exit. Some individual EU member states have brought forward legislation to deliver national temporary permission regimes or similar grandfathering treatment for UK firms currently operating under passporting arrangements. However, the existence, scope and timing of these regimes and the conditions for access vary substantially across individual member states and firms will therefore need to assess their position under these regimes on a case-by-case basis.
  • In November 2018, the EU announced preparations for a Brexit no-deal Contingency Action Plan. The Plan includes a limited number of contingency measures that have been deemed necessary on financial stability grounds, following examination of sectoral risks in a no-deal scenario. The measures adopted by the Commission (which do not include any provision to minimise adverse impact on passported UK firms or their EEA clients) are limited to temporary and conditional equivalence decisions for UK central counterparties ('CCPs') and central securities depositories, together with two delegated regulations facilitating novation, for a fixed period of 12 months, of certain over-the-counter derivatives contracts, where a contract is transferred from a UK counterparty to an EU27 counterparty (for further details see our blog post on these measures). One unfortunate feature of these measures is that the legislation in question specifies a fixed expiry date of 30 March 2020 and the EU has yet to confirm whether this will be extended until 1 November 2020 in line with the extended Brexit deadline of 31 October 2019.
  • The FCA has identified a number of issues that require further action, either in the UK or the EU. The 7 issues relate to the Share Trading Obligation ('STO'), the Derivatives Trading Obligation, clearing (in particular the impact of the expiry of the temporary equivalence decision for UK CCPs in March 2020), uncleared derivatives, cross-border transfer of personal data, progress on contract repapering and retail financial services preparation (highlighting the need for firms to engage with local regimes and review arrangements for servicing EU retail customers). The FCA notes that the FCA’s temporary transitional power may be utilised to mitigate adverse impact on some of these areas (for example, partial relief for the STO), but that this will not be a complete solution where action is needed on the EU side. See our blog post here.

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Capital Markets

"The capital markets regulatory regime post a no-deal Brexit remains unclear pending negotiation, particularly around equivalence and passporting." – Charles Howarth

  • UK regulators are likely to continue to require adherence to standards equivalent to the requirements imposed by the Prospectus Regulation, Transparency Directive and Market Abuse Regulation, in order to maintain the strength of the London Stock Exchange's global brand. Substantial divergence away from these standards seems unlikely given: (i) the extent of the UK's historic and current involvement in the development of the Single Market for EU financial services and in developing standards supported by international listing venues; (ii) that there is unlikely to be significant political pressure to make changes in this area; and (iii) that Switzerland, as an EFTA but non-EEA member, has recently overhauled its regulatory framework for capital markets to bring it closer into line with international standards, and in particular the Prospectus Regulation.
  • On the other hand, it is possible that the UK authorities could decide to change aspects of the regulatory regime, relaxing some provisions or making some more stringent, on the basis that choice of listing venue is determined by a number of factors, including access to potential investors, the valuation of similar companies listed on the exchange and liquidity.
  • The current passporting provisions for prospectuses prepared in the UK for use elsewhere in the EU and vice versa will not continue post-Brexit unless any free trade agreement between the UK and the EU27 includes arrangements for mutual recognition of prospectuses.
  • The European Commission has the power to decide whether a third country's law or practice is sufficient to satisfy the EU equivalence test for this purpose. It could therefore make this determination in respect of prospectuses prepared under UK law and approved by the FCA. Similarly, HM Treasury and the FCA could decide to continue to accept prospectuses approved in an EU member state for the purposes of making a securities offering in the UK. In this respect the mutual recognition relationship between the EU27 and the UK will be unlike any other third country regime because it will start from the historic position of the same regulatory and supervisory system.
  • In the context of debt capital markets, the potential loss of passporting should not have a large impact as issuers will be able to continue to make offers in the EU where an exemption under the Prospectus Regulation is available – for example, offers of wholesale debt securities or offers solely to institutional investors.
  • If it is not possible to rely on full regulatory equivalence, another option will be for firms involved in international capital markets to be authorised, capitalised and staffed in both the UK and the EU27 where that is not the case already.

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Contract and other obligations

The UK's exit should not generally have any effect on the willingness of contracting parties to choose English law as the governing law of the contract." – Anna Pertoldi

  • In most cases it is likely that a choice of English law will be interpreted to mean English law as it stands from time to time, subject to any variations, including such variations as may arise from Brexit. However, where some key provision of EU law is essential to the operation of a particular contract, in particular where performance of the contract is in the continuing EU, the court may give effect to the relevant EU law so as to give commercial effect to the contract. English courts are likely to take a sensible view and to favour commercial interpretations.
  • In relation to new contracts, English law has always been a very popular choice for parties doing business worldwide and the UK's exit from the EU should not generally have any effect on the willingness of contracting parties to choose English law as the governing law of the contract.
  • English domestic commercial law has its own well-developed and respected rules which have largely been unaffected by EU intervention and the benefits of using English law are in no way connected to the UK's membership of the EU.
  • Finally in the contract area, the validity and effectiveness of any contractual choice of law is very unlikely to be affected by Brexit. In other words, a choice of English law (or Scots law or any other law) in a contract will continue to be effective, whether in England, Scotland or in the remaining EU member states.

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Corporate law

"Brexit will have little immediate impact on the company law in the UK." – Gavin Williams

  • Once the UK ceases to be a member of the EU, the right of freedom of establishment will be lost for the UK (unless covered in any future relationship agreement between the UK and the EU). This could have an impact in those Member States (including Germany and Austria) which apply a 'real seat' theory to companies and partnerships. Partnerships and companies incorporated in the UK and which are managed from Member States which follow the real seat theory may lose their limited liability status. Companies incorporated in Member States which follow the real seat theory and which have their central management in the UK may be liable to be wound up.
  • The registration of a UK establishment by EU companies will not be materially affected by Brexit because the rules relating to UK establishments currently apply equally to companies in and outside the EU. UK companies with subsidiaries, establishments or branches in other EU member states should also not expect any immediate change in company law matters (although they may be required to provide additional information to the relevant local companies registry). The key to the impact of Brexit for EU companies with establishments in the UK and for UK companies with establishments in the EU is not company law but the regulatory and trade framework for the type of business that they conduct, i.e. whether or not the ability of that entity to provide goods or services to and from the UK is affected by Brexit.
  • The methods of re-domiciling from the UK to another EU jurisdiction and vice versa will be more limited following Brexit. In particular, the EU Cross-Border Merger Regulation only applies to mergers between EU incorporated entities and so a UK company will not be able to undertake a cross-border merger post-Brexit. In addition, a 'Societas Europaea' ('SE') which has a registered office in the UK can, post-Brexit, chose to become a new type of UK PLC, a UK Societas, or will need to move registration to another EU member state to retain its SE status. Those SEs with registered offices elsewhere in the EU will no longer be able to move their registered office to the UK and those operating partly in the UK may be required to register a branch or establishment in the UK (they are currently exempt from registration).
  • Groups will also need to work through the content of each company's statutory accounts following Brexit. A number of exemptions in relation to information in individual company's accounts are based on information being included in an EU parent's group accounts instead. For example, a UK company is currently exempted from having to prepare individual accounts if it is dormant and part of a group of companies with an EU parent company that prepares group accounts – it is expected that exemption will only continue to apply after Brexit if the parent company is established in the UK.

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Data Protection

"The UK Government recognises the important of data to the UK economy but the status of the UK as a third country post-Brexit will result in a regulatory hurdle for pan-European data transfers" – Miriam Everett

  • The combination of the Withdrawal Act and relevant statutory instruments would serve to end the direct applicability of the GDPR in the UK and transpose it into UK domestic law, effectively creating a dual-regulatory regime for pan-European organisations having to comply with UK GDPR and EU GDPR.
  • The UK will be a third country for GDPR purposes unless and until it receives an adequacy decision from the EU Commission (not likely by the exit date).
  • The flow of data from the UK to the EEA should be unaffected and, at least until determined otherwise, UK entities will be able to rely on EEA-based safeguards to legitimise the flow of data from the UK to third countries (eg UK entities will continue to be able to rely on EU Standard Contractual Clauses). The UK will recognise all EEA states, EU and EEA institutions, and Gibraltar as providing an adequate level of protection for personal data, meaning that personal data can flow freely from the UK to these jurisdictions. The UK will, however, keep this under review and therefore the UK Government could decide in future that certain member states do not provide adequate protection and restrict the flow of data to those countries.
  • Transfers from the UK to 'adequate' countries outside the EEA: The UK will preserve the effect of existing EU adequacy decisions for a transition period, meaning that personal data will be able to flow from the UK to Andorra, Argentina, Canada (commercial organisations), Faroe Islands, Guernsey, Israel, Isle of Man, Japan, Jersey, New Zealand, Switzerland and Uruguay. The UK Government will preserve the effect of the existing EU - US Privacy Shield, so that US organisations registered to the privacy shield will continue to be protected under the framework should the UK leave the EEA. However, Privacy Shield listed companies in the US will need to include a public commitment in their privacy policies to comply with the Privacy Shield principles where the personal data is transferred from the UK to the US. The Government has stated that this will be on a transitional basis, allowing the UK to potentially agree its own Privacy Shield with the US in the future.
  • Transfers from the UK to third countries outside the EEA will continue to be restricted under the UK GDPR, meaning that organisations will need to satisfy one of the specified conditions to legitimise such transfers. However, UK organisations will continue to be able to rely on EU mechanisms such as the Standard Contractual Clauses as a way to legitimise the international transfer of data to third countries.
  • The flow of data from the EEA to the UK will be restricted unless adequate safeguards are in place in accordance with Chapter V GDPR (eg standard contractual clauses in place between the exporting and importing entity). The EDPB confirmed in its general information note on data transfers under the GDPR that in the event of a no-deal Brexit, organisations must comply with the GDPR when transferring personal data from the EEA to the UK, which will become a "third country" for GDPR purposes from exit day.
  • The extra-territorial nature of the GDPR means that the Regulation will directly apply to UK organisations processing personal data about data subjects in the EEA in connection with offering them goods or services or monitoring their behaviour. Therefore post-Brexit, UK organisations may still need to comply with the GDPR when trading with the EEA and will also need to comply with the UK GDPR. Vice versa, non-UK organisations trading with the UK in the same way will potentially need to comply with the UK GDPR, in addition to the existing EU GDPR. In essence, pan-European organisations are likely to have to comply with two separate but similar legislative regimes, with the consequential risk of dual enforcement action in the event of any breach.
  • The ICO will not be able to be a lead supervisory authority for GDPR purposes. Affected organisations will therefore need to consider their European footprint and whether there is an alternative supervisory authority within the EEA that could take on responsibility for enforcing the GDPR in respect of cross-border processing instead or whether the organisation is no longer able to take advantage of the "one stop shop" under the GDPR.

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Disputes

“Overall, it seems unlikely that Brexit would substantially damage the UK's position as a premier dispute resolution centre.” - Adam Johnson

  • Key EU legislation regarding jurisdiction and reciprocal enforcement of judgments (namely the recast Brussels Regulation) will no longer apply to the UK.
  • The UK is currently party to the Hague Convention on Choice of Court Agreements 2005 by virtue of its EU membership. The UK will re-join the Convention as a separate party with effect from 1 November 2019 if the UK leaves the EU without a deal on 31 October. The Convention will then apply to questions of jurisdiction and the enforcement of judgments as between the UK and the EU27 where there is an exclusive jurisdiction clause in favour of the UK or an EU27 state.
  • There is however some potential uncertainty over whether EU27 states would apply the Convention where an exclusive English jurisdiction clause was agreed before exit day. The Convention applies only to exclusive jurisdiction clauses agreed after the Convention came into force for the chosen state. The question therefore is whether EU27 countries would treat the Convention as having been in force for the UK since 1 October 2015, when the Convention came into force for the EU generally, or only from when the UK re-joins on 1 November.
  • If no agreement or convention applies to a particular agreement in a private dispute then each country will apply its own domestic rules to questions of jurisdiction and enforcement.
  • The English courts will generally respect an exclusive jurisdiction clause in favour of an EU27 (or other) country and enforce money judgments given by those countries, subject to limited exceptions.
  • So far as enforcement of English judgments is concerned, most (but not necessarily all) EU27 countries will enforce foreign judgments even without a specific reciprocal regime, although the type of judgment enforced may be more limited and the procedures involved more time consuming and costly.
  • There may also be some question marks about whether EU27 courts would give effect to an exclusive English jurisdiction clause in circumstances where the Hague Convention did not apply, particularly where proceedings were started in the EU27 state before they were started in England.
  • Arbitration with a seat in London will not be affected by the UK's exit from the EU. Arbitration is not regulated by EU law, and the UK and all EU27 states are signatories to the New York Convention 1958. Arbitration clauses will remain effective and arbitral awards will continue to be enforceable in the same circumstances as currently.
  • It has been suggested that Brexit could prompt claims by foreign investors against the UK under Bilateral Investment Treaties and other multilateral agreements, in particular in the sectors most likely to be affected (such as the Financial Services, Insurance, Automotive, Pharmaceuticals and Food and Drink industries). Each claim would need to be considered on its own merit, including depending on the language of the specific treaty under which the claim is made.
  • As for state to state disputes, there will be no formal agreed framework for resolving all disputes between the UK and the EU. Trade disputes would likely be resolved according to World Trade Organisation ('WTO') dispute settlement mechanism. However, there could well be disputes about how residual, or ongoing, obligations or liabilities between the UK and the EU should be settled. These disputes fall outside the WTO framework, and how they would be resolved is by no means clear cut.

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Employment

"While Brexit is likely to have very little immediate impact on employment law, employers will need to factor employment law obligations to broader business discussions." - Christine Young

  • The European Union (Withdrawal) Act 2018, together with secondary legislation made under it, provides for EU law (with necessary amendments) to be imported into UK law on exit. Two statutory instruments have now been made, implementing various technical amendments to employment legislation, to apply from 1 November 2019 in the event of a no-deal Brexit. The only substantive changes made by the regulations relate to European Works Councils ('EWCs'), which cannot continue to function as currently in the event of Brexit (unless the EU agrees to treat the UK as if it were still a member state for these purposes). The regulations provide that no new requests to set up an EWC or information and consultation procedure can be made after exit day; they also attempt to maintain employee rights in relation to existing EWCs to allow them to continue to operate as UK EWCs. However, post-Brexit, multinationals will have to comply with European Works Council legislation in an EU member state and therefore continuing to run a UK EWC in addition is unlikely to be welcomed. Most are likely, instead, to relocate their EWC arrangements from the UK (and may voluntarily choose to permit UK employees to continue to participate).
  • There is some uncertainty over the precise extent to which EU law will be preserved. Under the European Union (Withdrawal) Act, in theory at least, the Supreme Court could re-examine and potentially overturn established doctrines, subject to the requirement to continue to give effect to the supremacy of EU law in relation to pre-exit domestic legislation (and in relation to post-exit amendments to pre-exit legislation where this is not inconsistent with the intention of the modification). Much-litigated issues such as holiday pay could be re-opened, making the legal position unpredictable until suitable cases are decided by the UK courts. Given the volume of EU legislation and CJEU case law in the field of employment law, this will be concerning to employers and employees alike.

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Energy Regulation

“Withdrawing the UK from the Euratom Treaty was not a legally necessary consequence of serving notice to leave the EU.” – Silke Goldberg

"A no-deal scenario means the UK's participation in the Internal Energy Market ceases. This means the UK market will de-couple from the EU and revert to the situation which existed prior to market coupling in 2014." – Silke Goldberg

"But this does not mean there has to be physical disruption to interconnectors, it simply means, amongst other things, moving to new access rules and losing the single platforms to allocate Transmission System Operators long-term electricity transmission capacities and for balancing electricity at short notice." – Paul Butcher

  • Given the relative depth of EU legislative harmonisation involved in the EU's Internal Energy Market (‘IEM’) the greatest risk of discontinuity for the energy sector from a no-deal comes in relation to electricity trading.
  • As with other industries that involve the trade in goods, parts of the energy sector could be impacted by tariffs. The impact of new customs formalities at the EU-UK border could also have cost implications for energy projects in relation to both construction and maintenance. Although much less likely in practice, tariffs could also become relevant to energy trading with certain energy products.
  • If the UK is treated as a third country in relation to energy:
    • UK Transmission System Operators (‘TSOs’) would not be party to the Inter-Transmission System Operator Compensation Mechanism and would be required to pay transmission system usage fees;
    • UK TSOs would require certification to continue activities within the EU;
    • UK TSOs would cease to participate in the single allocation platform for forward interconnection capacity, the European balancing platforms and the single day-ahead and intraday coupling;
    • UK based wholesale power and gas market participants (and any other third country market participants who are registered in the UK) would need to register with a national energy regulatory authority in an EU member state in which it is active in order to continue to trade;
    • entities controlled by the UK or UK nationals may be refused authorisation (or an existing authorisation may be challenged) for the prospection, exploration and production of hydrocarbons in EU member states on grounds of national security; and
    • trade and fundamental data relating to the UK wholesale energy market will no longer be collected by ACER during a review period shortly after exit day, but will be collected by Ofgem instead. Following the review period, Ofgem will announce the start date of the new reporting scheme, allowing at least three months’ period for market participants to adjust to the new requirements.
  • A consequence of the UK being de-coupled from the IEM in a no-deal Brexit is that, in practice, Ireland is also de-coupled from the immediate benefits of being within the IEM as Ireland is currently dependent on the UK for any degree of electricity interconnection (pending the construction of interconnection between Ireland and France).
  • We consider it likely that the EU will be mindful of the interests of Ireland (as an EU member state) when considering its response in a no-deal Brexit scenario to the future of SEM to avoid stranding Ireland from its supplies of electricity and gas. Article 194(1) TFEU provides that EU energy policy shall ensure supply security in the EU in a spirit of solidarity. Clearly, there is also pressure on the UK Government to, as it says in its no-deal note on electricity trading, “take all possible measures to maintain [the SEM]”. Given this and that initially after a no-deal there would have been no divergence between UK and EU law, there should be little critical friction and therefore, notwithstanding that there is a technical risk, the SEM should continue functioning after a no-deal Brexit. However, this cannot be guaranteed in the medium to long term.
  • In order for cross-border electricity trade to continue between the UK and the EU in a no-deal Brexit, new access rules for all interconnectors need to be approved in the UK and with the relevant EU member state authorities.
  • Market participants trading in wholesale energy products where delivery is within Great Britain are required to register with Ofgem. However, Ofgem has stated that it intends to issue a direction before 1 November 2019, stating that, until further notice, this requirement will not apply to market participants already registered with an EU regulatory authority (or the Northern Ireland utility regulator). From the EU side, however, no such waiver has been proposed and so in order to trade on the EU wholesale energy market, registration with an EU member state national authority will be required.
  • In relation to upstream oil and gas, EU member states are sovereign as to their natural resources and any authorisations to prospect, explore and produce hydrocarbons. EU legislation for the upstream sector is limited and has largely been in line with the existing UK regulatory approach. Any UK-EU divergence 'double compliance' would increase costs.

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Environment

"No Deal brings scope for rationalisation of environmental law applicable within the UK, where we think we can do it better. But is that realistic when we already had considerable influence on laws coming from Brussels? The danger is that environmental protection will come a poor second to dealing with the economic and political consequences of Brexit" – Julie Vaughan

  • A new Office for Environmental Protection to be established in the forthcoming Environment Bill will enforce compliance by Government with its environmental obligations rather than the European Commission/ECJ. As well as advising the Government on environmental policy, the OEP would have monitoring and reporting obligations and the ability to take enforcement action through a complaints procedure and through judicial review in the courts.
  • UK chemicals registrations with the European Chemicals Agency ('ECHA') will be invalidated. The UK will administer a replacement UK REACH regime (see no-deal guidance on REACH here) mirroring the EU REACH system and implemented by the Health & Safety Executive. Transitional measures will treat existing EU REACH registrations held by UK based manufacturers and importers of chemicals into the UK as UK REACH registrations. UK based users of chemicals sourced from within the EEA will need to register as importers under the UK system. UK entities will lose their existing access to the vast database of information on chemicals held within the EU Chemicals Agency ('ECHA') yet will later be obliged to provide this information to the HSE if their new UK registrations are to be confirmed. For sales to the EU, ECHA confirmed early on that after Brexit substance registrations held by UK manufacturers and importers under the EU REACH system will cease to be valid. Instead, businesses will need to consider appointing an 'Only representative' based in an EEA member state to register their products or moving their production or importation business to a remaining EEA country.
  • UK carbon emissions trading scheme will replace our membership of the EU scheme and the UK will likely seek for it to be linked to the EU's. Current participants in the EU ETS who are operators of UK installations will no longer take part in the system and participants will no longer need to surrender EU ETS allowances. UK participation in the EU scheme has already been frozen from 1 January 2019 in order to protect the carbon markets. However, the UK Government intends to establish the UK scheme by 2021. In the interim, a new carbon emissions tax is planned that would apply to all UK stationary installations currently subject to the EU ETS. The EU ETS includes a mechanism to compensate certain energy-intensive industries for whom the cost of complying with the EU ETS puts a strain on their competitiveness when selling to customers outside the EU market. The UK Government intends to introduce an equivalent mechanism to compensate for the indirect emission costs of the new carbon emissions tax.
  • The EU Transfrontier Shipment of Waste Regulation prohibits the export of waste for disposal; and of mixed municipal waste for recovery operations from the EU to a non-EU country other than countries who are both in EFTA and a party to the Basel Convention on shipment of hazardous waste. Following Brexit therefore, EU27 countries won't be able to export waste to the UK in those circumstances. For movements of waste from the UK to the EU27, the UK will in future have to submit a 'duly reasoned request' to the relevant EU27 competent authority explaining why the UK (as a third country) does not have or cannot acquire the relevant disposal facilities here in the UK.
  • The UK may come under pressure in trade negotiations to lower environmental and product safety standards, albeit the UK Government has pledged not to. The ability of the UK to water down current environmental protection or to fail to keep step with later advances compared to other continuing EU27 member states is likely to be a feature of any trade deal subsequently agreed with the EU. The EU would view any watering down as unfair competitive advantage.
  • In trading into the EU, UK producers will still have to apply EU environmental and safety products standards unless an UK-EU trade deal recognises the equivalence of UK standards. Such regulations affect numerous types of product for example: non-road machinery, road vehicles, electronics, human and veterinary medicines, food and food contact materials, pesticides, biocides, fertilisers and chemical substances.
  • Environmental laws in the UK devolved nations may diverge considerably. The current intention of the Westminster Government is to establish new UK-wide common frameworks in areas such as agriculture, chemicals, waste, fisheries and food standards. In addition, international treaties to which the UK is already party or signs up after Brexit should unify UK environment laws to some degree.

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Finance and Insolvency

“Other than the bank’s choice of facility office, the UK’s exit should not have a significant effect on English law governed syndicated lending arrangements.” – Will Nevin

  • The UK's exit from the EU should not have any effect on the willingness of contracting parties to choose English law as the governing law of a contract. Broadly, the courts of EU27 member states would be obliged to respect the choice of English law (or any other governing law) as the governing law of a commercial contract under the existing EU Rome I Regulation. The UK will adopt similar rules as part of EU on-shoring after Brexit.
  • The loss of reciprocity in relation to submission to jurisdiction and the enforcement of English judgments in the EU27 may require further consideration when structuring and documenting a transaction, depending on the EU27 jurisdiction(s) involved. Please see the Disputes section above for more information.
  • The regulatory position of UK entities providing financial services into the EU27 will change quite significantly. This change could come as soon as 31 October 2019. However, there are a number of mitigants to any relevant loss of passporting rights that could be incorporated into financing arrangements.
  • In general, the future regulatory approach of the UK will be to treat EEA member states and EEA firms consistently with other third countries and firms. However, some temporary divergence from this principle is contemplated, particularly in a no-deal scenario, in order to minimise disruption and avoid material unintended consequences for the continuity of financial services provision or to ensure financial stability.

Lending

  • Lending can be broken down into the provision of several services, both in the initial marketing phase and in actually making funds available, and there are a number of additional services which a lender may provide as part of its lending activities. These services are not all regulated in all individual EU countries: for example, lending to most businesses is not regulated in the UK, but some may be, in certain jurisdictions. The analysis in relation to exactly what activity is regulated in which jurisdiction is complex, jurisdiction-specific and fact-specific and relies on a myriad of exemptions and carve-outs. Once the regulatory position is established, relevant lending arrangements can be structured accordingly, if required. This may be by building in additional flexibility to adapt the lending platform to lend out of a different facility office or group entity or increasing the level of oversight and control over the accession of future borrowing entities.

Securitisation

  • The EU Securitisation Regulation ('EU SR') will be incorporated into English law ('UK SR') as part of the on-shoring process. If the EU SR and UK SR diverge over time, UK securitisations which are sold to EU regulated investors, and EU securitisations which are sold to UK regulated investors, will need to comply with two different sets of requirements. It seems relatively likely that differences will emerge, given that the regimes remain in development, and a number of delegated acts which implement the EU SR requirements have yet to be published. The UK SR provides for the FCA to be the body responsible for providing guidance and technical standards where these remain outstanding, rather than ESMA or the EBA.
  • There are already a number of differences between the two SR regimes, arising from the on-shoring legislation, which will be effective on exit day. Most notably, the jurisdictional requirements in relation to the new category of "simple, transparent and standardised" ('STS') securitisation are different – in general, UK transactions will not be able to qualify as STS for the purposes of EU investors, and EU securitisations will not be able to qualify as STS for the purposes of UK investors. The UK SR provides for grandfathering of existing EU STS transactions, but the EU SR does not provide for any grandfathering of UK STS transactions, so UK transactions which are currently STS are likely to lose that status for the purposes of EU investors. Similarly, under the current rules of the ECB liquidity operations, UK securitisation transactions will not be eligible as collateral.
  • Originators and Issuers seeking to comply with the disclosure and verification obligations under the EU SR and UK SR will need to think carefully about their choice of securitisation repository and third party verification agent, particularly where a transaction is in execution phase in the run up to, and immediately after, exit day.

Derivatives

  • As with lending transactions, the UK's exit from the EU should not affect the choice of English law as the governing law of derivative transactions, although the same potential recognition of judgment issues apply.
  • In the regulatory arena, many UK based firms have taken preparatory steps to ensure the continued provision of transactions to EU clients. One continuing issue is whether the performance of derivative contracts entered into from a UK entity or branch with an EU27 entity prior to a UK exit, and in particular certain activities forming part of the contract or related to it which might require further authorisation after a UK exit, will be illegal or unlawful if performed by an unlicensed UK firm or branch. This is the 'continuity' issue, which potentially impacts other products as well, such as loans and insurance. Legislators in the UK, France and Germany are aiming to address a number of the concerns voiced in the market but this has not been a complete solution.
  • The other prime area of concern for this market is the impact of a Brexit on derivatives regulation, in particular the European Market Infrastructure Regulation ('EMIR'). Certain market infrastructure problems identified as cliff edge issues on an exit without a transition period (such as the application of EMIR) are being addressed by EU legislators. In particular, regulatory technical standards have been published providing limited exemptions from the EMIR margining and clearing obligations upon a novation, which is key for financial institutions and their counterparties where portfolios of trades are being transferred to other group entities to address a loss of passporting rights.
  • The UK has published statutory instruments to on-shore EMIR (and other relevant derivatives legislation, such as SFTR) and has also published draft legislation which would allow the Government, in case of a no-deal Brexit, to implement aspects of key pieces of EU "in-flight" financial services legislation which are not operative on exit day and so are not transferred onto the UK statute book (an example of this is aspects of the recent update to EMIR ('EMIR Refit') which have delayed implementation).
  • Continued access for UK and EU CCPs for EU and UK clearing members respectively is also a concern in relation to financial stability: the temporary permissions regime goes some way to address this in the UK and limited temporary recognition for UK CCPs has been granted in the EU, but these solutions are not complete. Similarly, the treatment of UK and EU trading exchanges, and the lack of mutual EU/UK recognition thereof, continues to raise issues with compliance with trading/clearing obligations as well as treatment of exchange-traded portfolios.

Insolvency

  • Schemes of arrangement will be affected by the loss of the EU judgments regulation, in the same way as other litigation.
  • The loss of automatic recognition of UK insolvency proceedings in the EU27 member states under the Recast Insolvency Regulation will similarly be an issue. The UNCITRAL Model Law on Cross-Border Insolvency may be of assistance in some cross-border insolvencies in some jurisdictions but elsewhere in the EU27 the UK insolvency officer will have to rely on older cross-border insolvency rules in the jurisdiction where recognition is sought.
  • There will also be consequences for the insolvency of financial institutions following the loss of reciprocity where the Model Law does not apply: it is expected that there will be a reduction in the cooperation between the UK and the EU27, in that EU27 financial institutions will be treated in the same way as other third country financial institutions and the specific regime for recognising EU resolutions will be repealed. The failure of an EU-incorporated financial institution will therefore have a greater effect on the UK markets if there is no deal and no transition period unless these points are addressed, as they should be, given the commitments of the EU and the UK to the G20 and Financial Standards Board recommendations on cross-border insolvency of financial institutions.
  • The loss of reciprocity on a UK exit will affect settlement finality. However, the application of financial collateral legislation, which is well entrenched in UK law, should be largely unaffected.

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Insurance

"For UK insurers with policyholders in EEA States, there is a particular risk that they will no longer be licensed to deliver services in those countries." – Geoffrey Maddock

  • Whether the UK leaves the EU with or without a deal, Brexit is expected to mean that UK (re)insurers and (re)insurance intermediaries will no longer benefit from passporting rights that currently allow them to conduct business throughout the EEA on the basis of a single home state authorisation. The key impact of a "no deal" Brexit is that these rights will be lost immediately instead of at the end of any transitional period that follows the UK's withdrawal on an agreed basis.
  • The loss of passporting rights is equally relevant to the cross-border activities of (re)insurers and intermediaries coming from the EEA into the UK – those that are carrying on insurance activities in the UK will require authorisation from the Prudential Regulation Authority ('PRA') or the Financial Conduct Authority ('FCA') (as the case may be) for those activities. The impact of a "no deal" Brexit has, however, been alleviated by the UK government's agreement to establish a 'temporary permissions' regime ('TPR'). The TPR will enable firms coming into the UK from other EEA jurisdictions to carry on business in the UK while they obtain the PRA and FCA authorisations needed for those activities.
  • The UK is also introducing a Financial Services Contracts Regime ('FSCR') to ensure that those EEA firms that do not enter the TPR, and those that exit the TPR without UK authorisation, are able to wind down their UK regulated activities in an orderly manner.
  • The position is more difficult for UK firms as the UK’s jurisdiction only extends to activities carried on here. It is likely, therefore, that, unless they have been through the onerous process of establishing an authorised branch in each EEA jurisdiction, UK firms will no longer be licensed to conduct cross-border business into the EEA. A particular concern is that they may be unable to pay out on claims under policies written before Brexit. This may affect, for example, UK pensioners who move to the EEA on retirement.
  • Recommendations published by the European Insurance and Occupational Pensions Authority ('EIOPA') in February 2019 emphasised the importance of safeguarding policyholders in the event of a “no deal” Brexit. In particular, EEA States were encouraged to apply a mechanism for the run-off of EEA business by UK (re)insurers who lose their authorisation or to require those insurers to take immediate steps to become authorised. A number of jurisdictions, including France, Germany, Ireland and Spain have introduced measures to enable the run-off of insurance contracts (in some cases for a limited period) but each state's approach is different.
  • The impact of Brexit on UK intermediaries conducting cross-border business has received relatively little attention to date from regulators. They too, however, must take steps to mitigate the immediate loss of passporting rights that would follow a "no deal" Brexit. Run-off regimes put in place by EEA states to enable UK (re)insurers to continue paying claims post-Brexit do not usually make any mention of intermediaries. It would seem surprising, however, if an EEA state permitted insurers to run off their legacy cross-border business while denying intermediaries the ability to service that business.

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Intellectual Property

"The UK has enacted legislation to ensure continuity in UK IP protection upon a no deal Brexit, however, there are a number of areas where reciprocity with EU IP regimes would still be dependent upon a future trade deal being concluded." – Joel Smith

  • No deal arrangements for IP rights effectively mirror the provisions set out in the WA, as they provide for replacement of EU wide registered rights and the recognition of unregistered rights that are existing in the UK at the date the UK leaves the EU (ie on 31 October 2019 if the UK exits with no deal or at the end of any negotiated transition period if the UK exits with a deal. The term "Brexit" is used below to denote the end of the transition period if there is a deal or the exit day if there is no deal). These arrangements have been provided for by statutory instrument and will take effect at the end of the transition period if there is a deal (the current WA) or immediately if there is no deal.
  • Exhaustion of IP rights: Currently anything put on the market in any state in the EU has its IP rights exhausted in relation to other EU states. This means that UK IP rights cannot be used to prevent the import of products put on the market with the IP owner's consent in France for example. If there is no deal or even under the WA, the UK Government has said it will continue to recognise exhaustion of IP rights in UK in relation to goods put on the EU market with consent post Brexit. The EU has not agreed this in reciprocal fashion in the WA. So, post Brexit, whether there is a deal or not, IP rights owners in the EU could use those rights to prevent the export of UK goods into the EU even if they had been put on the UK market with consent.

The UK Government arrangements may not be permanent, they were expressed as being for a transitionary period and appear to be primarily concerned with not having goods unduly held up at the border. However, should the exhaustion provisions come to an end at any point, UK courts could decide to exercise international exhaustion as they see fit. Historically the UK has taken an international exhaustion approach pre-EU membership. This would mean that UK IP rights could not be used to prevent the importation in the UK of any product put on the market with consent anywhere in the world.

  • Sui generis Database rights: In relation to sui generis database rights, either on a WA or a no-deal basis, only UK persons will be able to obtain new sui generis database rights in the UK. However, sui generis database rights of EEA persons already in existence will remain recognised in the UK. On exit day, there will be no obligation for EEA states to provide sui generis database rights to UK nationals, residents, and businesses and UK owners of UK database rights may find that their rights are unenforceable in the EEA. In this regard, the UK Government has recommended that UK rights owners consider relying on other forms of protection, such as restrictive licensing agreements or copyright (where applicable), for their databases.
  • Trade marks: EU-wide trade mark rights (EU trade marks) will not apply in the UK post-Brexit whether there is a deal or not. The UK government will replace existing rights automatically with a "comparable trade mark EU". If EU trade mark owners do not want these rights they can opt-out. The only option for new trade mark registrations covering the UK after Brexit will be to register a UK trade mark. Licences of EUTMs in the UK will be deemed to apply to the new comparable right unless there is specific agreement to the contrary. Whether there is no deal or the WA, the effect will be the same. For more information on security, applications and litigation in relation to trade marks, see the IP section of HSF's Legal Guide to Brexit 2019.
  • Patents: Pan-European Patent rights do not exist currently, although if the Unified Patent Court is established then the "unitary patent" right will be available with effect across most of the EU (not all EU states are participating), so there is little impact on patents whether there is a deal or not. Supplementary protection certificates ('SPCs') are awarded on a national basis and will continue to be awarded and recognised in the UK on the same basis as currently under the, post Brexit, parallel EU system. The term of current SPCs will be the shorter of the UK or EEA marketing authorisation dates.
  • Designs: Registered Community Designs existing at Brexit will automatically be entered on the UK register as "Re-registered designs". Unregistered Community Designs existing in the UK at Brexit will be replaced with "continuing Community unregistered designs". Since the Community unregistered design will no longer be available for new designs, a new right to bridge the gap between these rights and the UK unregistered design (which is an independent UK (non-harmonised) right) to be called the "supplementary unregistered design".
  • Copyright: Copyright is not harmonised across the EU so is relatively unaffected by Brexit except in relation to broadcasting rights and portability of on-line content (for more on this see the TMT section of this blog post). There are elements of copyright included in the Information Society Directive and the Database Directive and in relation to these, the EU standard for originality is used (that a work should be "the author's own intellectual creation") rather than the UK approach of skill and labour. Post-Brexit it will be interesting to see whether the UK courts continue to extend the application of the author's own intellectual creation standard EU, but this will not be affected by a deal or no-deal scenario.
  • Domain names: .eu domain names will no longer be able to held by UK entities. UK registrants will need to transfer them to an EU entity if they wish to maintain them. Otherwise their registrations will be cancelled and the domain released for others to register. This is so independent of whether there is a deal or not and will apply from the moment the UK leave the EU rather than from the end of any transition period if there is one negotiated.

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Migration

“Under the principle of free movement, EU nationals have an automatic right to live and work in the UK... the UK Government clearly stated that it intends, post-Brexit, no longer to abide by this principle." – Anna Henderson

  • The EU has approved a Regulation which will include UK nationals in the list of nationals exempt from the requirement to have a visa when crossing the external borders of the Schengen area for short-stay visits to apply from 1 November 2019 on a no-deal Brexit. This means that UK citizens will not need a visa when travelling for up to 90 days in any 180-day period to an EU member state (except Ireland, which will continue to benefit from the Common Travel Area) or a Schengen Associated Country (Iceland, Liechtenstein, Norway, Switzerland). This arrangement is conditional on the UK granting reciprocal and non-discriminatory visa-free travel for all EU member states.
  • Professionals seeking recognition of qualifications will no longer be able to rely on EU rules and will need to comply with relevant domestic rules.
  • EU and EFTA citizens will need already to be resident in the UK by 31 October 2019 to be eligible to claim settled status. They will need to apply for the new status by 31 December 2020. EU and EFTA nationals arriving after 31 October 2019 and before the end of 2020 would need to apply for 3 years' European Temporary Leave to Remain, if they wish to stay beyond the end of 2020. New immigration rules (yet to be confirmed) will apply from January 2021 to new migrants and to EU and EFTA citizens who arrived before January 2021 but have not obtained settled or pre-settled status and do not have any current European Temporary Leave to Remain.
  • UK nationals living in an EU or EFTA member state should check whether reciprocal protections have been granted, as this will be a matter for each state's domestic rules.
  • A no-deal Brexit on 31 October 2019 could obstruct any plans to recruit EU nationals to come and work in the UK after that date, given that those nationals will not be eligible to acquire settled status and will be subject to new, as yet unspecified, immigration rules following any period of Temporary Leave to Remain.

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Pensions

"The biggest Brexit related risks for pension schemes are the impact on their sponsor and the wider economy." – Samantha Brown

  • No material changes to the rules governing workplace pension schemes, including those relating to scheme funding, governance requirements, data protection, equal treatment and the protection of members on insolvency.
  • The primary risk for pension schemes is the impact of a no-deal Brexit on their sponsor(s) and the wider economy. Therefore, pension scheme trustees should assess the potential impact on their scheme's sponsor and understand what steps the sponsor is taking to mitigate any downside risks. Trustees also need to assess the potential impact of a no deal Brexit on their scheme's investment strategy and its funding arrangements.
  • Existing contracts may need to be amended to allow personal data to continue to be received from organisations or data centres within the EU. The UK Government has confirmed that in recognition of the unprecedented degree of alignment between the UK and EU’s data protection regimes, the UK would, at the point of exit, continue to allow the free flow of personal data from the UK to the EU. However, it plans to keep this under review. The UK Government also plans to recognise EU adequacy decisions made with third countries (eg Japan) prior to our exit. The European Commission has stated that if it deems the UK’s level of personal data protection essentially equivalent to that of the EU, it would make an adequacy decision allowing the transfer of personal data to the UK without restrictions. However, the Commission has said that a decision on adequacy cannot be taken until the UK is a third country and it is unclear how long it will be before any decision is made. If the European Commission does not make an adequacy decision at the point of exit and schemes or other organisations want to receive personal data from organisations established in the EU (including data centres), then they will need to work with their EU partners to identify a legal basis for those transfers. In most cases, this will require standard contractual clauses to be put in place.
  • Concerns have been raised about the ability of UK insurers to make payments to individuals living in an EU27 member state in the event of a no-deal Brexit. However, many insurers are putting in place contingency plans to enable them to continue to make these payments, where possible. In addition, certain member states have indicated that they will continue to allow payments from UK insurers after Brexit, notwithstanding that the issue may not have been resolved as a matter of law. Therefore, it is hoped that any disruption to payments would be minimal. There may also be difficulties for individuals living in the EU27 accessing services from UK banks after the UK ceases to be part of the Single European Payments Area. This could impact the ability for these individuals to access their pension benefits where they are paid into a UK bank account. However, UK banks are alive to this issue and so we would expect a solution to be found in the event of a no-deal Brexit.

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Public Procurement

"Although the UK public procurement Regulations are based on EU Directives, it is expected that they will remain largely unchanged post-Brexit, regardless of whether or not there is a deal." - Adrian Brown

  • The UK's procurement regulations (PCR, CCR and UCR) will remain in force in the event of a no-deal Brexit, but they will be subject to some minor, consequential amendments, as from exit day. The Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019 number 560) will apply as from exit day.
  • The most significant changes introduced by these Regulations would be to end the current obligation on contracting authorities to publish contract notices (effectively, calls for tenders) in the Official Journal of the European Union ('OJEU') and replace it with a requirement to submit notices to a new UK e-notification service. The Regulations also provide that various monitoring functions will transfer from the European Commission to the Minister for the Cabinet Office. They also remove certain redundant references to the EU.
  • Whether or not the EU and UK reach a deal on or after Brexit, the UK intends to remain a party to the multi-national Government Procurement Agreement ('GPA') which obliges UK contracting authorities to follow very similar rules to those laid down in the EU Directives. The GPA regime greatly limits the scope for the UK to significantly amend its existing procurement Regulations, even in the event of a no-deal Brexit.

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Real Estate

"Reducing transactional volumes reflect investor concerns around short term uncertainty and volatility. However in the medium term, transparency and liquidity and the weight of global capital chasing yield means the UK will remain a key investment destination.” – Jeremy Walden

  • The key issue facing the commercial real estate sector in a no deal scenario is what will happen to the investment market. This is influenced by numerous factors including currency fluctuations, price corrections, occupier response and stock availability and all of these remain difficult to predict.
  • For clients and suppliers of construction and engineering services, there is increasing scrutiny of the size and control of cost and programme contingencies required to manage a disorderly Brexit. More specifically:
    • as it becomes less practicable to avoid import tariffs by buying goods/services before Brexit, attention is shifting to identifying and assessing the risk of exposure to new import tariffs.
    • increasing requests from contractors for payment in split currencies, or recovery of additional hedging costs, reflects the risk of volatile currency fluctuations affecting fixed prices quoted in sterling, and lower tier supply chain prices secured in alternative currencies.
    • a hard Brexit, and the imposition of new rules, restrictions and border controls, could lead to delays in importing plant or materials, and immigration restriction measures impacting upon availability or productivity of labour (particularly for specialist trades).

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State Aid

“Up until now, the Government's plans have been to establish a domestic state aid regime that essentially preserves the existing status quo. However, it remains to be seen whether the present Government will maintain these plans, particularly in the event of a no-deal Brexit. For state aid granted by other EU member states, the existing EU state aid regime continues to apply.” – Tim Briggs

  • The Government's plan has been to establish a UK-wide subsidy control framework which would be broadly consistent with the existing EU state aid framework, save that the CMA would take the place of the EU Commission in enforcing and supervising the rules.
  • State aid that has been approved by the EU Commission or which qualifies under a block exemption before Brexit would not need to be approved again by the CMA.
  • State aid which was notified to the EU Commission before Brexit but on which the EU Commission has not yet made a decision before Brexit day would need to be re-notified to the CMA in the event of a no-deal Brexit.
  • More generally, going forward, state aid will have to be notified to the CMA for approval, unless a block exemption applies.
  • The CMA would also have powers to investigate cases where aid has been granted without prior approval and where no block exemption applies, whether before or after exit day.

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Tax

"Brexit may lead to the UK having greater autonomy to create and shape its own tax regime." – Aurell Taussig

  • The UK will become a “third country” from the perspective of other member states, which will have implications for the imposition of VAT on cross-border supplies involving the UK. VAT will need to be charged on some transactions where it is currently not charged and UK businesses may need to be registered for VAT in EU countries where they are currently not required to do so. In the event of a no-deal Brexit, the current rules for importing and exporting goods from and to non-EU countries will also apply to post-Brexit imports and exports from and to the EU. To alleviate a potentially significant cash flow impact for UK businesses, the Government has conceded that postponed VAT accounting would be introduced for imports, meaning that import VAT, which will replace acquisition VAT in relation to EU supplies, could be dealt with through the UK VAT return, rather than at the time of entry into the UK. This treatment will apply equally to imports from non-EU countries.
  • The UK will cease to be a member of the EU Customs Union. Customs declarations will be required in relation to goods moving between the EU and the UK, as well as the payment of customs duties where relevant.
  • The UK will no longer be able to benefit from the EU Interest and Royalties Directive or the Parent-Subsidiary Directive, which provide a 'blanket' exemption from withholding tax on payments of interest, royalties and dividends paid between associated companies of different Member States. Post-Brexit, companies making such payments from the EU to the UK would need to rely on the terms of any relevant double tax treaty to reduce or eliminate withholding. Payments from the UK to the EU should remain free of withholding tax by virtue of existing provisions of UK domestic legislation.

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Telecoms and Media

“At a time when regulation is moving towards greater harmonisation at the European level, with proposals such as the Digital Single Market seeking to remove any obstacles to a single European digital market, any such change at a UK level could lead to uncertainty for operators and service providers as to how they will be regulated across Europe.” – Hayley Brady

In respect of primary legislation:

  • The existing regulatory framework for telecoms networks and services in the UK is primarily established under primary legislation which gives effect to a number of EU Directives originally adopted to establish a framework for the regulation of communications-related activities across Europe
  • In the media sector, regulation of television services also derives, in part, from applicable European law, in particular from the Audiovisual Media Services Directive ('AVMS Directive') which was implemented into national law in the UK by the Broadcasting Acts 1990 and 1996 and the Communications Act 2003.
  • Post-Brexit, these primary pieces of legislation should remain in force at least for the short-term, therefore retaining the regulatory status quo. However, the UK Government would have the scope to repeal or amend these laws without being limited by the requirements of the European Directives, subject to any other international commitments.

In respect of European reforms of the telecoms and media regulatory frameworks under the European Commission's Digital Single Market initiative, the UK Government:

  • has suggested it would be minded to implement the substantive provisions of the new European Electronic Communications Code (the Code) in a similar timetable to that imposed on EU member states (ie by December 2020). This is on the basis that it would support the UK’s domestic policy objectives – an approach consistent with a related consultation launched by the Department for Culture, Media and Sport ('DCMS') in July 2019 regarding this implementation. Among other initiatives, the Code aims to promote roll-out of 5G and other next generation technologies throughout Europe and strength consumer protection in electronic communications.
  • could have autonomy to determine the extent to which it implements the revised Audiovisual Media Services Directive (the AVMS) into national law in the UK by the September 2019 deadline. However, a related consultation launched by the DCMS in June 2019 suggests that the modifications are likely to be implemented at least in part. The updates to the AVMS seek to take account of significant market developments and fast paced technological advances since its inception.

Issues arising due to the UK no longer forming party of the Digital Single Market, such as lack of reciprocal recognition, are likely to prove challenging for organisations operating in the media and telecoms sector. In particular:

  • Roaming: the absence of caps on wholesale roaming charges between EU mobile operators means that surcharge-free roaming could no longer be guaranteed for UK mobile phone customers at the retail level across the EU. UK mobile phone customers travelling to the EU could therefore be subject to additional retail roaming charges (and vice versa), as the regime will instead depend on individual roaming agreements that are commercially negotiated between mobile operators, rather than being mandated by wholesale regulation. In the shorter term this is likely to be most disruptive for mobile virtual network operators (MVNOs) and smaller mobile operators that are not part of a large European group (and are therefore less likely to be able to take account of existing pan-European wholesale roaming arrangements).
  • Country of origin principle: the country-of-origin principle under the AVMS Directive will no longer apply in the UK. This could mean that multi-national UK licensed broadcasters will no longer be guaranteed freedom of retransmission in other EU member states and in order to continue to broadcast into Europe they may be required to re-structure their European operations, obtain a separate broadcast licence, and comply with additional regulation, in another EU member state. Whilst there are a couple of alternatives to the country of origin principle, there are a number of misgivings meaning that the alternatives are unlikely to be an adequate substitute for the single market access under the AVMS.
  • Content portability: UK citizens will no longer be able to make full use of their paid online content services wherever they are in the EU (and vice versa in respect of EU citizens travelling to the UK). Whilst service providers could commercially negotiate content portability rights into licence agreements to provide such functionality post-Brexit, this could be administratively burdensome and costly. If no such rights were secured, a service provider would simply need to cease portability functionality or risk infringing the rights of licensors.

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