How will Brexit affect business law in the UK?

Posted by Peter Hawkes

Senior Partner & Head of Dispute Resolution

The precise way in which Brexit will shape UK law in coming years will depend to a large extent upon the trading model which is eventually negotiated following the UK giving notice under Article 50 of the EU Treaty. Pending this, we explore some of the aspects of the legal landscape which may change and how it could affect businesses.

How is EU law currently made and implemented?

There is a hierarchy of law emanating from the EU, some of which has a direct effect in the UK and some which indirectly affects our domestic law and legislation. This hierarchy is as follows:

Treaties: The Treaties of the EU set out the constitutional basis of the EU and are the highest level of EU legislation. They create the Single Market based on the four fundamental freedoms: freedom of movement of people, services, goods and capital. EU Treaties are incorporated into UK law by the European Communities Act 1972 (ECA) which also provides the legislative basis for transposing EU law into domestic law and gives precedence to binding provisions of EU law over inconsistent UK legislation.

Regulations: These are directly applicable in the UK.

Directives: Directives require Member States to draft legislation to transpose them into their own law. This has often controversially resulted in 'gold plating' legislation being implemented in the UK.

Decisions: At the lowest end of the legislative scale are Commission Decisions which are binding on the subject.

Case law: New law is also made by the Court of Justice (CJEU).

The CJEU hears references from Member State courts on points of EU law so where there is a question as to how to interpret an aspect of EU law. National courts are required to follow the CJEU decisions.

Member State courts are required to interpret Member State law consistently with the relevant EU law.

Legal effect on UK law

We have a lot of EU-derived law already on the statute books and there are major questions as to how this would be dealt with and how we would deal with new EU law which we might be required to follow in order to continue trading with the EU in certain areas, for example, in consumer sales of goods, services and digital content.

The UK would no longer be subject to the EU Treaties unless the terms of any exit or post-Brexit agreement (such as EEA membership) dictated otherwise. The European Treaties as well as EU Regulations which are not otherwise preserved by UK national law, would no longer have effect. As there is no requirement to introduce implementing legislation for EU Regulations, in theory, they would simply cease to apply; but many have related local legislation dealing with the effects of Regulations and it will be a complex process of disentanglement to work out which pieces of legislation are to be left standing.

In relation to legislation implementing Directives, these remain valid until repealed or superseded.

To the extent that CJEU rulings have been reflected in subsequent UK law (including court decisions), they would also continue to apply.

It will be an enormous exercise to repeal EU derived legislation and it is unlikely that the government would replace the majority of it. The fact is that, in many areas, if we do not comply with EU law, we will not be able to trade with the EU. Areas of law which are particularly unlikely to change include data protection, consumer protection, financial services and product liability.

Legally, the UK will not be required to adopt any new EU legislation and would not be subject to the jurisdiction of the CJEU after exit.

There will however be significant impact in certain specific areas of business law, and we look at some of these below.

Intellectual Property Rights

The UK’s intellectual property (IP) laws are heavily derived from the EU. National IP rights (IPR) such as trade mark registrations, patents and registered designs granted by the UK’s Intellectual Property Office should not be affected.  The UK will remain bound by the laws governing the granting and enforcement of those IP rights.  The reciprocal rights granted by UK law under its international treaty obligations would be protected under IP law. However, all pan-EU IP rights would cease to apply in the UK.

Trade Marks

At present the UK is part of the EU Trade Mark regime (EUTM). When the UK leaves the EU existing EUTMs and RCDs may not be valid in the UK because the UK would no longer be a party to the Regulations creating those rights.

This could mean that current EUTM holders would have to register for UK national trademarks and designs to preserve protection in the UK.

Existing registrations that have only, or primarily, been used in the UK, could be at risk of revocation for non-use post Brexit, since their owners would not be able to demonstrate use in a substantial part of the EU.

It is likely that the UK government will have to set up a scheme to offer EUTM holders the opportunity to convert their EUTMs to national marks within the UK.

Unregistered Design

UK companies seeking to enforce unregistered rights in the EU should still be able to do so after Brexit, since the only requirement for ownership of an unregistered design is that the goods have been put on sale in the EU.

Patents

At present, patent law across Europe is less harmonised than other areas of IPR, and although a "European Patent" is available through the European Patent Office, it is, in effect, a bundle of national patents accessed via a central application process. The UK's access to the European Patent system is not dependent on being in the EU and it should continue.

Copyright

Copyright across Europe is generally subject to local state law without a unified code. Copyright law in the UK, although shaped significantly by EU directives, would unlikely to change under Brexit.

Data Protection

At present the UK’s data protection law primarily derives from the EU’s 1995 Data Protection Directive which is implemented in the UK by means of the Data Protection Act 1998 (DPA).

The Directive was expected to be replaced by the EU’s General Data Protection Regulation which would be directly application in the UK.  It is a tougher regime with significantly bigger penalties for breach.

It is unclear however what will now happen under Brexit as it is likely that the two year transition period for giving effect to the Regulation will coincide with the period of the exit negotiations.

We expect the UK to retain the DPA on an interim basis, before eventually considering whether to implement an adapted version of the Regulation into national legislation.

The EU data protection rules restrict the transfer of personal date to countries outside the EEA.  If the UK were to cease to be part of the EEA the UK would be considered a non-EU destination that would have to be approved as providing adequate protection for persona data by the European Commission.  The Commission may however refuse to designate the UK as having adequate protection.

Competition Law

If the UK were to leave the EU, little would change to the law concerning anti-competitive agreements and abuse of dominance, as the UK’s Competition Act 1998 replicates EU rules.  In any event, the EU rules would still apply to UK companies trading in the EU.

We do not see the government wishing to make any significant changes, as the current legislation is part of a wider strategy to promote and maximise fair competition in the marketplace.

There is however, a strong likelihood of parallel civil investigations by both the UK’s Competition and Markets Authority (CMA) and the European Commission, for example in relation to international cartels.  Currently, either one or the other authority will conduct an investigation.

As regards merger control, some transactions might require separate review by both the European Commission and the CMA, whereas currently they will be subject to either the EU “one stop shop” regime or the UK merger regime.

Conversely, state aid and public procurement rules could cease to apply in the UK, perhaps making it easier for the UK Government to intervene in business.

Environmental Law

The UK has implemented a series of EU Directives on environmental issues since it joined the EU.  Large parts of the UK’s law on waste derive from EU legislation which affects the way in which waste can be managed in UK, particularly with regards to landfill waste and recycling.

Brexit brings uncertainty in terms of the future of environmental policy and legislation in the UK.  There would be the potential for repeal or significant amendment of many of the UK’s environmental laws.

However, the UK will remain bound by international agreements to which it is a party in its own right such as the Kyoto Protocol and the Aarhus Convention.

Impact on private commercial contracts

We turn now to some of the issues relating to existing commercial contracts.

Will choice of law clauses continue to be effective? The position is unlikely to change significantly when the English courts revert to common law rules, as these are similar to the provisions of Rome I Regulation under UK law. An express choice of law in an agreement will most likely continue to be upheld.

Many contracts have territorial application – how will such provisions be construed post-
Brexit if they refer to the EU? Many types of contract contain territorial provisions, such as
distribution agreements, joint venture agreements, franchises and licence agreements. Where the relevant territorial provision refers to the ‘EU’, such as ‘an exclusive right to operate in the
EU’ what will be the position following a Brexit? Ultimately, the answer is likely to be a matter of construction for each agreement, but such provisions will give rise to a great deal of uncertainty and parties may well be advised to revisit their contracts and look to
clarify the position by agreement.

Could a Brexit provide grounds for terminating an existing contract?

Whether or not Brexit provides grounds for termination will depend on the terms of the particular contract. This question will be particularly relevant to parties to contracts with territorial application for the reasons mentioned above.

For existing contracts, parties might try to rely on material adverse change or force majeure clauses as grounds for termination. However, there is no guarantee that such clauses will allow for termination and each case will come down to a question of interpretation of the particular clause having regard to the relevant facts. It is even possible that parties may seek to rely on the doctrine of frustration, claiming a contract has become incapable of being performed as a result of Brexit. Again, it will depend on the facts of each particular case as to whether such an argument could succeed.

Litigation

Service

Brexit is likely to make service on defendants in the EU more difficult, in terms of time and cost, particularly if no treaty or other agreement is entered into to replace the Service Regulation. Claimants would instead be required to effect service on defendants in other EU states in accordance with the Hague Convention, giving rise to greater complexity and delay.

The jurisdiction of EU member state courts in civil and commercial disputes is currently regulated by the Brussels Regulation, which provides a comprehensive regime for determining questions of jurisdiction and seeks to avoid the risk of parallel proceedings in courts of different member states. If no alternative agreement is entered into, there would be an increased risk of parallel proceedings in English and EU member state courts with the additional risk of inconsistent judgments.

How will enforcement of English judgments be affected by a Brexit?

Enforcement of judgments, like jurisdiction, is governed by the Brussels Regulation. It is a key aim of the Brussels Regulation that judgments made by member state courts should be easily recognisable and enforceable in other member states. Again, the position post-Brexit will depend on whether the UK became party to some other regime, such as the Lugano Convention, or negotiated its own agreement with the EU. However, it is possible that enforcement of English judgments in other EU member states will, at least procedurally, be more complicated.

What about enforcement of judgments of EU member state courts in England? The same points as above would apply to enforcement of judgments from the EU in the English courts and the position will depend on what new arrangements or agreements are entered into, if any. For example, the Lugano Convention applies to the enforcement of judgments as between EU states and Iceland, Norway and Switzerland and essentially reflects the position under the 2001 version of the Brussels Regulation.

As a matter of English common law, enforcement of foreign judgments in England requires the judgment creditor to commence a fresh cause of action against the judgment debtor in the English courts with the foreign judgment being the cause of action. This is generally slower than enforcement of judgments from EU member state courts.

In summary

  • Brexit will end the applicability of EU Treaties, Regulations and the jurisdiction of the European Court; UK legislation implementing EU Directives remain in place until repealed. There will be much for the government to do in terms of adjusting UK legislation.
  • Some aspects of Intellectual Property Rights (IPR) which are pan-European will change, particularly trademarks and designs, and businesses will need to review their registrations in due course once a new regime is negotiated;
  • Competition Regulation is expected to largely remain unaffected, but rules on state aid and tendering may change;
  • Environmental legislation could be open to review without the restrictions of EU Regulations and Directives;
  • The upgrading of the Data Protection Act, driven by the EU, which was expected in 2018, is thrown into doubt;
  • Contracts containing territorial provisions, such as distribution agreements, should be reviewed by businesses;
  • Cross border litigation could be more complex and time consuming in future.

 

If you would like further information about the legal impact of Brexit on your business and would like advice preparing for Brexit, please contact Peter Hawkes, Senior Partner, on pwh@furleypage.co.uk or telephone 01227 763939.


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