Brexit – Four Months On

28 October 2016

Four months on from the Brexit vote result, there has been much commentary about the impact of a Brexit on both the UK and also on the remaining EU Members, notably, Ireland.

Much of the uncertainty that existed in the immediate aftermath of the result in June remains, while certain steps have been taken which give some degree of certainty to certain aspects of the process.

Triggering Brexit

The voluntary withdrawal of the UK from the EU must be effected legally in accordance with Article 50 of the Treaty on European Union (“Article 50”) and the UK Prime Minister, Theresa May, has now announced that Article 50 will be triggered by the UK by the end of March 2017. This means that the UK will exit the EU by March 2019, unless there is agreement by all parties to extend the exit date. One would have to question how practical, and unlikely it might be, that all 27 Members States would agree to extend the negotiation period and, failing such agreement, the UK will exit in the EU by March 2019 if Article 50 has been triggered by March 2017, as indicated by Theresa May and such an exit would then be effected whether or not the exit agreement had been finally agreed with the EU.

Hard Brexit or Soft?

Proponents of the Brexit campaign would, by and large, convey an assured confidence that the exit deal to be reached would be particularly favourable to the UK i.e. the soft Brexit. The ideal for the UK must be access to the single market without having the restrictions of the other EU requirements imposed upon them. From all the statements to date of the relevant EU authorities this seems unlikely, if definitely not, a prospect. The EU President, Donald Tusk, has said recently that the only plausible alternative to a “hard Brexit” is “no Brexit”. Similarly, the French President recently said that the UK must pay a price for leaving and Angela Merkel, the German Chancellor, is on record as saying that if the UK rejects the rights of Europeans to live and work in Britain, then the EU will impose new barriers on British trade with Europe. With Theresa May’s administration announcing at its recent Tory conference that they would implement significant procedures that will impact on the right of non-Britains to work in the UK, it is clear that the UK is not accepting the concept of free movement of persons from the EU into Britain, going forward.

How all this actually pans out in any event, remains to be seen, but one has to be realistic in any optimism that the change in relationship between the EU and the UK will not be significant and the implications for Irish business cannot be overlooked or underestimated.

Particular Areas to Consider

1 Trading with the UK
Any imposition of trade barriers with the UK will impact on all Irish businesses exporting to the UK, having already been hit by the reduction in value of Sterling relative to the Euro. Changes in treatments in taxation applicable to trading activities such as VAT and customs duties may well have cash flow, if not also cost, implications, which will need to be assessed – even needing the administrative support functions to be put in place to deal with such procedures, will be an added cost for businesses. Other protective measures which may be put in place could be the UK imposing certain standards for particular goods and/or rules relating to the supply of services such as Internet selling which may have the impact of adversely affecting Irish businesses dealing in such UK markets.

2 Commercial Contacts
Businesses with exposure to the UK market should start to have regard to their existing contracts and trading arrangements for the purposes of assessing whether any issues arise which could affect them and may need to be renegotiated such as:

  • Material Adverse Change – there had been questions as to whether the Brexit event could give rise to a material adverse change or default in particular documentation, most likely, relevant to financing documentation. While the Brexit event is not, of itself, a default trigger, perhaps currency fluctuations impacting on the ability to meet commitments under the contracts, could give rise to an event of default. The particular details of individual contracts should be considered to ascertain whether the Brexit event could, in some circumstances, result in a frustration of the contract. This should be particularly borne in mind in negotiation of any new contracts.
  • Governing Law – following Brexit, EU laws dealing with choice of laws in contracts will no longer necessarily apply to the UK automatically and, therefore, any English governing law clauses will fall to be reinterpreted. It will be important going forward to more carefully consider what choice of law ought to be included in new contracts, rather than follow existing precedents of contracts referring to English law.
  • Territory – very many contracts refer to relevant territories which can be particularly relevant in contracts relating to intellectual property licences and agency arrangements and, very often, these refer to the EU. If the UK is outside the EU, this clearly will have an impact of the term “Territory” in such contracts and these should be reviewed to ascertain what (if any) changes to the definition of “Territory” are required.
  • Data Protection and Intellectual Property – it may well be that these are issues of particular concern in the event that the UK is no longer within the EU/EEA and the full impact will depend upon the exit arrangements negotiated between the EU and the UK. It may well be the most likely outcome will result in the UK being treated as a safe destination for data transfers as part of the terms of the exit arrangements, but this remains to be determined
  • Financial Services – the event of the UK exiting the EU will have many serious consequences for financial services sectors although the exact impact of that remains unclear. See our commentary Brexit_Implications_for_Financial_Services_Sector
  • Contractual Terms – contracts should be reviewed to ascertain whether it is a requirement currently that a particular party or parties must be located in the EU – for example, to provide regulated services within the EU.
  • M&A Transactions – mergers and acquisitions could become subject to separate UK mergers/competition clearances from those currently legislated under EU competition legislation.
  • Insolvency – insolvency issues will arise and will need to be addressed in light of the relevant UK regime that will apply. See our commentary Brexit_–_Potential_Effect_on_Insolvency_and_Restructuring_in_IrelandThis document is intended to provide a general overview and guidance on a particular topic. It is provided wholly without any liability or responsibility on the part of Eugene F. Collins and does not replace the necessity to obtain specific legal advice. © Eugene F. Collins 2016
  • Disputes/Litigation – there are issues to be considered in relation to how contracts could be litigated where post-Brexit, the recognition and enforcement of EU judgments in the UK and UK judgments in the EU may be more difficult than at present requiring separate provisions to being negotiated to address these.

For further information on this topic please contact:

Eileen Grace
Partner and Head of Brexit Team,
E: egrace@efc.ie

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