5 Legal consequences to intra-European trade post-Brexit
This issue is arguably the biggest political decision facing the UK in recent history, and the “leave” vote will affect not only the residents of these islands but the whole of Europe. Despite the arguments for and against the UK leaving the EU, we can’t hide from the fact that the consequences are not yet fully known. No other EU member state has done this before.
So, what will be the legal consequences to intra-European trade post-Brexit?
What will happen now?
Although the EU referendum result in itself is not binding, the response from Westminster is that the will of the people will be respected. However, the UK government will need to provide the EU with formal notice of its wish to exit under Article 50 of the Lisbon Treaty. Once that has been done, there is no going back, and there will be a period of two years before the UK officially leaves the EU. At this moment, David Cameron has indicated that he will resign from leadership in the Autumn and a new leader of his party will be elected. According to Cameron, the new leader should be the one to tender the UK’s exit notice and to commence the negotiations on the terms. There is currently pressure from the opposing Labour Party to give notice under Article 50 without delay, so that the concerns the British public have can be addressed as soon as possible. What could of course occur is some kind of stalemate; the UK cannot force the EU to start negotiations until it has given notice, and the EU cannot force the UK to tender its notice…
What are the legal or contractual implications?
As an English Solicitor (lawyer) and, for now at least, a Registered EU Lawyer, the main reason for writing this blog post is that the legal impact, particularly on cross-border dispute resolution, will affect me and my clients profoundly.
- Applicable law and choice of court
In most “General Terms and Conditions”, you will find a contract term which explains what happens in the event of a dispute. This is particularly important for cross-border business transactions. It will usually say which country’s law is applicable to the trading relationship, and in which country can a court claim be started. Sometimes, however, there is no contract or general terms, and the contracting parties have not agreed what will happen if there is a dispute. If this happens, EU law exists to help fill in the gaps. Now that the UK has left, there are still a number of question marks over the type of trading model it will subsequently use (for example, the Norwegian model, or the WTO model). It is most likely that the UK will still apply an older version of the Rome convention, so the law regarding “applicable law” would not change much in practical terms. However, over time the application of these rules by the ECJ and the UK courts might be different. In terms of choice of court, otherwise known as “jurisdiction”, the general position under EU law means that, if there is no other contractual agreement, you should sue a business partner in their own home courts. This is of course subject to some exceptions. What will happen to these rules during the UK’s exit negotiations really relies on the kind of trading model the UK chooses. Under the Norwegian model, the Lugano convention would probably apply, which is similar but not as comprehensive. If the WTO model was followed, it could choose whether or not to apply the Lugano convention. However, if the Lugano convention is not applied, there will be no bar on “parallel proceedings”; in other words, if you sue your business partner in England, they may be able to sue you in Germany at the same time regarding the same issues!
- Service of proceedings
“Service” is the act of officially sending a court claim to the counterparty. At present, this process is simplified for cross-border disputes under the EU rules. If the UK did not follow the Lugano convention, a party commencing legal proceedings in England would have to ask the English courts for permission to serve their claim on someone abroad.
- Recognition and enforcement
Again, if the UK does not adopt the Lugano convention, there is a question mark about whether courts in the EU will accept court judgments from England for enforcement in their countries. Say for example you have sued your French customer in the English courts, and you win. You would then need to ask the French courts to formally “recognise” this judgment. If they do not, you would not be able to go after the debtor’s assets in France. The opposite would also go for EU parties dealing with UK businesses. Additionally, there will be a variety of different approaches to this from all 27 EU member states which gives uncertainty to parties involved in a dispute. With the above in mind, depending on the result of the withdrawal negotiations, there may end up being a particular date by which it will be advantageous to commence proceedings in either the EU or the UK.
If some contracts are based mostly or solely on the operation of particular EU legislation, it may well be that these contracts could be frustrated or that “force majeure” is triggered. This could cause disputes in itself, so it is best to review your current contracts in light of this.
- What is “English Law”?
If a contract is made subject to “English law”, for the time being, nothing will change. Whilst I don’t predict that there will be a wholesale removal of any EU-derived laws (this would be far too large an exercise for the civil service to say the least), I do expect that there will be some significant changes which we lawyers will have to stay abreast of and figure out along the way. Interestingly, if the UK adopts the Norwegian model, it is thought that any EU law which is subject to the EEA Agreement would still have to be incorporated into English law. However, if the UK chooses the WTO model, there would no longer be an obligation to implement EU law.
Whilst I have obviously focused on the legal impact, based on my area of expertise, there will no doubt also be an emotional impact on the citizens of Europe and beyond. The exact consequences of Brexit are mostly still unknown at this stage.
Should you have any concerns over your business contracts or disputes involving the UK, then please do not hesitate to contact me to see if I can help.
On a personal note, I am genuinely sad to be writing this blog post. I am proud to be a citizen of the United Kingdom, with English, Irish and French heritage.