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The Canadian Bar Association

CBA/ABC National

The legal implications of Brexit

June 24 2016 24 June 2016

 

After yesterday’s Brexit vote, everybody has Article 50 of the Treaty on European Union on his or her mind.  The provision allows member states to withdraw from the European Union “in accordance with its own constitutional requirements. Joshua Rozenberg discusses the (immediate) legal (and political) ramifications of the vote, following David Cameron’s resignation:

The referendum vote has immense political implications but no direct legal effect. We remain in the EU.

Of course, the new prime minister will be expected to respect the result of the referendum and, in due course, to notify the European council – which includes all EU heads of state or government – of the UK’s intention to withdraw from the EU under article 50. But we now have three months in which EU leaders can devise some sort of associate membership for the UK that just might be enough to stop that happening.

And even if the government is led by Boris Johnson and/or Michael Gove, the new prime minister would probably want to take some time before giving notice to quit the EU. That is because article 50 is a wasting asset with no emergency brake. There is nothing in the Lisbon treaty that allows a leaving state to change its mind and stop the process – although that result could no doubt be achieved by treaty amendment if the other 27 EU states agreed to support it.

So I would expect the UK’s negotiations with Brussels – ahead of an article 50 notification – to continue into next year. If there is a significantly better deal on offer, the new prime minister might choose to put it to the people – not, I suspect, by holding another referendum but by calling an early general election.

But for all the talk from Brexiteers of “taking back control,” Richard Gordon explains the irony of yesterday’s outcome:

There is a time guillotine of two years from the UK’s notice of intention to withdraw to negotiate terms of exit unless all the other member states agree to extend it.

The UK plays no part in the decision-making of the other 27 states. Once the notice has been triggered it may not be possible to revoke it. The UK could be trapped into leaving without a comprehensive agreement. Article 50 intentionally places the balance of power firmly in the hands of the 27 rather than the leaving state.

Secondly, once the time limit in Article 50 expires, EU law ceases to apply in the UK. But uncoupling EU law from domestic law will be an almost impossibly complicated process. Repeal of the European Communities Act 1972 (ECA) would not achieve what must be the objective of preserving some EU law where it is inseparable from our national laws (examples include competition, pharma and environmental law) whilst devising a constitutionally appropriate mechanism for amendment and repeal of those parts of EU law that we wish to get rid of.

That’s because EU legislation “is predominantly regulatory,” as Elizabeth Prochaska reminds us:

What effect would repealing the European Communities Act have on the status of EU-derived law in the UK? It would not undo the implementation of EU directives that have become acts of parliament or statutory instruments. Those would remain in force unless they were repealed. While sovereignty might theoretically have returned to the UK, it would be meaningless unless every EU-derived statute was reviewed and a decision taken about whether it should be replaced with home-grown legislation. Given that the UK has positively embraced much EU law (voting for over 90% of it in the EU council), and often enhances EU standards in our national legislation, the process of review and repeal would be an exercise in the absurd.

Extricating the UK from the EU would involve negotiations on two major issues, according to Dr Pavlos Eleftheriadis:

Britain will have to negotiate two separate deals. First, the terms of the divorce, ie, the process whereby the UK will stop being a member of the EU. Such a deal will, for example, affect UK nationals currently living and working in other member states or indeed companies already present in the City.

The second deal is the trade or other deal of the UK with the EU after the process of leaving is complete — this is clearly the most difficult and it may take several years to complete. In addition, the UK will have its own constitutional issues to deal with — for example, issues arising with Scotland and Northern Ireland.

The folks at Gowling WLG have a useful review of how that might play out through various different frameworks, either by relying solely on the World Trade Organisation's ('WTO') Most Favoured Nation criteria, entering a new customs union with the EU (along the lines of what was agreed with Turkey), a Swiss-style European Free Trade Association, or developing a relationship with the EU through membership of the European Economic Area which allows states like Iceland, Lichtenstein and Norway to participate fully in the Single Market.  The bottom line:

If the UK chose to join the EEA, or followed the Swiss example, it is likely that a great deal of current EU law would still affect businesses through one mechanism or another.

If a more distant relationship was adopted - through a customs union, free trade agreement or reliance on the WTO's rules - there is no doubt that there would be some areas in which the UK would no longer be required to follow EU law and in which it would be free to legislate as it saw fit.

Mark Elliott also covers a lot of the ground discussed above and tackles the existential threat to the United Kingdom:

Earlier this morning, the First Minister of Scotland — referring to the pro-EU posture adopted by Scottish voters in the referendum — said that “the vote makes clear that the people of Scotland see their future as part of the European Union”. If that is so, then the implication is that the people of Scotland do not see themselves as part of a United Kingdom that has taken what appears to be an irrevocable decision to remove itself from the EU. It need hardly be pointed out, therefore, that the likelihood of a second Scottish independence referendum must be markedly greater today than it was 24 hours ago.

The brutal truth is that if the Scottish people — or the people of Northern Ireland — wish to be part of the EU, then they must leave the UK. Their hands will now therefore be forced, since however flexible the British constitution might be, the harsh reality is that the UK, and only the UK, is a State in international law — meaning that its constituent nations cannot be Member States of the EU unless they first acquire statehood themselves by exiting the UK. These are very early days, and events will move quickly and unpredictably. The break up of the United Kingdom, just like the UK’s formal departure from the EU, will not happen today or tomorrow. But just as the latter is now a certainty, the former must now be a distinct possibility, if not a probability. For that reason, if no other, the legal and constitutional implications of the Brexit vote cannot easily be exaggerated.

Steve Peers discusses the legal implications for EU and UK migrants:

In human terms, the biggest issue for Brexit is what happens to EU citizens in the UK, and to UK citizens in the EU. That issue is discussed in the linked blog posts, but there’s also the question of whether the legal position of all such persons is protected by the principle of ‘acquired rights’, as referred to in the Vienna Convention on the Law of Treaties. The Leave side argued that it was, but others (for instance, Professor Sionadh Douglas-Scott) have argued that it was not.

I won’t get into that abstract legal debate about the meaning of the Vienna Convention, because in my view it’s necessary to have complete legal certainty on this issue. I don’t believe we can simply leave it to an international legal principle, which may not always be enforceable in national courts, to protect such rights. There’s also a question of the scope of the rule: what about rights in the process of acquisition, like future permanent residence, or a teenager’s future status as regards equal treatment in tuition fees?

The better view is that the EU/UK withdrawal treaty should contain a specific clause on this, which is legally binding in itself, defines the exact scope of the rule, can be supplemented by further measures, and must be fully applied in national law. 

Turning to the legal industry, there appears to be a fair amount of concern. Travers Smith, senior partner Chris Hale, calls Brexit a tragedy:

Some have been saying that Brexit will be a bonanza for lawyers. Once there is greater clarity on how our future relations with the remaining EU will be structured and the untangling of UK and EU law commences, there will be lots to advise clients on.

But there is little to get a grip on now to provide that advice and there will not be for some time. Whilst clients are keen to understand the implications for a wide range of contracts they have entered into which have a European dimension now, answers as to what it means for them will be, for the moment, in short supply. All of this advisory work is really more of a medium term upside for lawyers.

In any event, most corporate and commercial practices in the UK are fuelled by transactions of all sorts, M&A being the most high profile. The immediate impact of Brexit will mean that fuel being in short supply. It is hard to price assets against a backcloth of uncertainty, let alone the colossal uncertainty that will exist now. This is likely to mean transaction volumes being low with the consequential adverse consequences for corporate and commercial law firms.

 

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