Brexit – The Legal Considerations

The UK withdrew from the E.U at 11.00pm on the 31^st January 2020 and the transition period which immediately followed also ended at 11.00pm on the 31^st December 2020.

This affects UK legal practice in different ways depending on the following:

• Does the UK / EU withdrawal agreement contain relevant provisions?
• Will underlying UK / EU law become part of the retained EU law, and if so, what are the legal implications of any amendments?
• Are their plans to change UK policies where previously it was set at EU level?
• Will it be addressed by a future UK / EU relationship agreement?
• Could the UK’s international agreements with non-EU countries provide continuity?
• Has the EU taken measures to adapt the EU’s legal framework or published guidance?

While it is still too soon for any certainty and teething problems are likely to persist, it is possible to speculate and draw some current conclusions on the effect of Brexit on some areas of UK legal practice.

Arbitration

It is unlikely that Brexit will have any noticeable impact on London as a leading arbitration centre. The legal framework remains the same and arbitration agreements that provide for an English seat of arbitration will still be valid and any awards will still be enforceable.  This is because, from a legal point of view, London’s popularity as a seat of arbitration is not connected with membership in the E.U and derives from the perception of an arbitration friendly infrastructure and the supervision of the English courts. In the long term, its overall standing will be linked with the perception of London as a leading financial business centre, and if this declines or is reduced by potential negative sentiment from EU nationals, this may affects its standing worldwide who may look to other seats of arbitration.

Commercial Law

A large proportion of commercial law in the UK comes from the EU or is affected by EU law including advertising, marketing, commercial agencies, consumer distribution, e-commerce, outsourcing, product liability, labelling and standards and supply if services. However, the relevant laws are mostly firmly enshrined in the UK framework and it is considered unlikely that the UK will actively seek to make any changes. Laws that did change relate to cross-border trade in goods and services and reciprocity. Going forward it is likely that UK law may diverge in fast moving areas such as consumer law, advertising and marketing law, smart contracts and digital assets

Contract law

For the most part, UK contract law (except for consumer rights) consist of legal principles developed and maintained by the English courts and should be broadly unaffected by Brexit.

Areas that may be affected are:

• Conflict of law rules and the conduct of disputes for cross-border contracts
• Rules on interest for late payments which are derived from EU directives
• The development of duties of good faith

There are of course immediate implications on existing contracts such as the imposition of tariffs, the restrictions on the freedom of the movement of people and the instability in the exchange rates which could affect the commercial position underlying many contracts as it is already widely reported that despite agreements to the contrary, problems with export paperwork are continuing, causing delays to deliveries and damage to goods.

You may want to have your contracts examined to see if any relief is available through a material adverse change or force majeure clause although the common perception is that the standard wording is unlikely to be triggered by Brexit without specific provision, or to include specific clauses in any new contracts which trigger changes to the parties’ rights as a result of a defined event recurring.

Competition

The EU competition rules will continue to apply post Brexit to agreements or conduct of UK companies that have an effect within the EU

Corporate

While there are some provisions of the Companies Act 2006 which are derived from EU law, it is very unlikely that the Act will be subject to material review of the near future other than those areas in relation to European companies and European Economic Interest Groups. As a result, there will be implications for UK incorporated companies operating in EU member states who will need to take local law advice and in certain circumstances may need to restructure.

Mergers & Acquisitions

While the laws on mergers and acquisitions have not been primarily affected by Brexit, merger control and the uncertainty of the ultimate impact of Brexit on the UK / EU relationship and its standing on the international stage could affect merger & acquisition activity in the future. This could be both a risk and an opportunity depending on the company and the sector.

In particular, commentators see scope for:

• Impact on due diligence reporting, with particular emphasis on Brexit related risks
• Negative impact on deal flow if there is a protracted period of uncertainty which makes it difficult to raise acquisition funds both privately and publically
• Opportunistic deals due to pressure on sterling and purchases out of insolvency
• Increased use of deferred and contingent consideration structures and earn outs
• Mechanisms adjusting sale terms post completion

Cross border mergers in particular will likely be impacted.

Employment Law

Existing EU derived UK employment law has been preserved with some minor amendments and the domestic legislation must continue to be interpreted in line with EU law but the Supreme Court and Court of Appeal may depart from EU case law “when it appears right to do so” although it remains to be seen whether these courts will be prepared to overturn ECJ decisions.  This at lease opens up the possibility of challenging previously settled law which may give rise to uncertainty because so much of the UK’s employment law arises from EU law.

The UK has agreed not to reduce or weaken employment standards in a way that affects trade or investment. In practice, what this means is that there is scope for the UK to reduce existing employment law protection so long as it would not result in a competitive advantage and while it does not have to keep up with EU legislation, it may be penalised if gaps result in a material competitive advantage.  Currently it is not expected that the government will seek to make any immediate or significant changes to UK employment law.  Minor tweaks and divergence fin case law are likely in the short term.

Property

There is not anticipated to be any immediate legal implications although there has been a significant impact on the commercial property market due to the volatile financial and economic conditions triggered by the decision to leave the EU which is likely to extend to the residential market and continue for some time. In the future, there may be some changes to repeal legislation deriving from the EU e.g. Energy Performance Certificates.

Private Client

There is not considered to be any immediate impact in this area although in the longer term, there may be consequential developments in particular tax measures that may be needed to deal with the economic consequences of Brexit.

Please contact Sing Li if you would like more information about the issues raised in this article.