News & Views

BREXIT Untangled: How does Britain exit the EU and what happens next?


If you are a little confused as to what’s happening following the referendum this article explores some of the issues arising from Britain’s referendum result in support of BREXIT including the mechanics of leaving the EU, whether Britain has to leave the EU and some thoughts on planning for the future.

In an unprecedented move following the referendum on 23 June 2016, the UK government is due to serve notice on the European Council signalling the UK’s intention to leave the European Union (EU) and trigger Article 50 of the Lisbon Treaty. This means unravelling 40 years of legislation, trade agreements and other alliances intricately woven into UK law and political history. Untangling the web is no small feat by any stretch of the imagination.

It is fundamental to remember that right now nothing has changed. Until Article 50 is invoked there is no change to individuals’ rights and obligations. That said the invocation of Art 50 (i.e. giving notice) does not itself affect individuals’ rights and obligations – these will remain as they are until a renegotiated deal comes into force on the expiry of two years following notice or, possibly, any unanimous extension to that two-year period. So even if notice is given at the end of 2016/beginning of 2017, the earliest that individuals’ rights and obligations are likely to change is the beginning of 2019. The referendum has changed nothing legally, but everything politically.

The future is undeniably uncertain. No-one, not even those leading us to the exit, know on what terms the UK will depart the Union. In the days following the referendum the Pound and the FTSE 100 fell to lows we have not seen since the 1980s. Conversely, within a short time of experiencing the “new world” the FTSE 100 has recovered to its pre-BREXIT value. The government, whilst in its own turmoil, is advocating calm in the financial and business worlds, confirmed by the markets recovering and even recording growth rather than the financial crash that was envisaged. Despite the quick recovery, caution is still encouraged as instability in the markets will no doubt be magnified in the wake of BREXIT. Instead calm, constructive and purposeful decision-making will help us all to ride out the storm.

What are the mechanics of leaving the EU?

Once notice has been given by the Prime Minister, time starts on a two-year countdown in which to negotiate an exit deal. This time period can only be extended with unanimous agreement of the remaining 27 states.

During the two-year negotiation period, the government will have to position itself either in alignment with, but outside, EU membership, or wholly independently. Legal commentators have reflected that there is an assumption that the UK will repeal the European Communities Act 1972, which would end the UK’s obligations to follow EU laws as of that date. However, the vast body of EU law already implemented by the UK is not itself affected by BREXIT, unless the UK government actively decides to repeal the legislation. Mark Fellows, head of Employment Law at Sherrards, answers your questions about the possible implications a BREXIT may have on employment law within the UK here: please click here for article.

As for individuals thinking about leaving the UK, whether they be British or otherwise, Raveet Phull of Sherrards’ Private Client Department has produced a guidance note, please click here.

In the meantime, the UK’s strategy in the negotiations at this stage can only be speculated upon, but most business leaders and legal commentators expect the UK to seek to negotiate access to the single market, thereby benefiting from the trade agreements already in place.

Does the UK have to leave the EU in the wake of the referendum?

There has been a wave of public support for a second referendum, hoping to prevent even the service of the notice to trigger Article 50, however the government has made it clear that a second chance will not be forthcoming. Instead, commentators are looking to the constitution to act as a barrier to exiting the EU. Article 50 provides that a Member State may decide to withdraw ‘in accordance with its own constitutional requirements’. In the UK, that decision is taken under the prerogative powers of the Prime Minister, and it follows that it is down to the PM to decide when to notify the Council, rather than the Commission obliging Article 50 to be triggered. There is some controversy about that, and David Pannick QC has argued in an article in The Times newspaper on Thursday 30th June 2016 that parliamentary approval for a notice was a constitutional requirement (http://www.thetimes.co.uk/past-six-days/2016-06-30/law/why-giving-notice-of-withdrawal-from-the-eu-requires-act-of-parliament-dz7s85dmw). On 4th July (which just happens to be American Independence Day) the British media has been rife with speculation of a legal challenge being led by Mr Pannick QC, working with the law firm Mishcon De Reya, in mounting a legal challenge to this effect. Other constitutional experts have expressed the opposite view (https://publiclawforeveryone.com/2016/06/30/brexit-on-why-as-a-matter-of-law-triggering-article-50-does-not-require-parliament-to-legislate/) with many arguing that this measure is mere grandstanding and that such a claim will not prevail in preventing BREXIT.

Interestingly, in Article 50 there is no contingency for the UK activating Article 50, but then having second thoughts about the decision to leave the EU. If the Article 50 process is invoked and then stopped, what is the UK’s status? It is vitally important, before the trigger is activated, to know whether the Article 50 process may be stopped, and/or whether the Article 50 notification may be rescinded. Malcolm Jarvis of 20 Essex Street has commentated on this notion and argues that, “although not contemplated by Article 50, my view is that a notice to withdraw can be revoked provided that the decision to revoke is itself taken in accordance with the notifying state’s own constitutional requirements (e.g. following a general election or second referendum rejecting a withdrawal agreement).”

Planning for the future

Catherine Dixon, CEO of the Law Society of England and Wales, has pledged that the Law Society will work with the solicitor profession, their clients, the public and with government to support a calm transition in the wake of referendum. Speaking at a conference after the referendum, Miss Dixon was keen to stress that the Law Society’s role will be “to ensure that there is continued single market access and that the ability of solicitors to practice across the EU is protected … also urging that government retains our financial services passport, mutual recognition and enforcement of judgments and extradition arrangements, including the European Arrest Warrant, which safeguards UK citizens and helps to ensure that the interests of justice are served.”

In a post-BREXIT Britain, exporters of goods and services to the European Union will need to adhere to EU rules affecting trade. Negotiations will be heavily weighted in favour of the UK remaining a part of the single market, and the government will be very aware of the fact that any legislation they decide to rescind will affect any trade agreement possibilities. There is no particular legal reason why the UK should integrate with all EU laws, particularly those that do not directly affect trade with the EU, for example many employment, tax or competition rules. Neither will the UK be required to keep EU rules designed to regulate trade within the EU, for example public procurement rules designed to eliminate national preferences. It is almost impossible to predict what effects a divergence of UK law from EU law will have.

Commentators have not all foretold doom and gloom: there is real interest from overseas investment, particularly from Asia and the Commonwealth, to pour money into the UK economy to pick us back up. The UK has historically always been a safe investment, and largely continues to be so. Laurel Zhang, head of the China desk at Sherrards, has recently been quoted in China Daily, China’s largest English-language newspaper, commenting on the opportunities for Chinese investors entering the UK market. For the full article please click here. 

As for Sherrards, the firm is preparing for what lies ahead. With more emphasis apparently being placed on global trade, Sherrards is pleased to be featured as the only British law firm in UKTI’s new Guide for Selling Financial Professional and Business Services Overseas as part of the British Government’s “Exporting is Great” campaign. The firm, through its membership of the Alliott Group, an international alliance of law and accountancy firms www.alliottgroup.net, is also part of The Commonwealth Trade Initiative bringing businesses together from across the Commonwealth.

In the meantime, whilst the terms upon which the UK will exit the EU at this stage can only be speculated upon, what is certain is that we are entering into new legal and political future.

 

Authors: Paul Marmor, Head of Litigation and International Services at Sherrards, and Charlotte Berendt, Trainee Solicitor

For more information on Sherrards’ response to BREXIT and any of the guidance notes referred to please contact:

Paul Marmor pdm@sherrards.com on +44 207 478 9010 (general matters arising)
Mark Fellows mf@sherrards.com  on +44 1727 832 830 (employment and labour law matters)
Raveet Phull raveet.phull@sherrards.com & Nicole Marmor ndm@sherrards.com on +44 1727 832 830 (Private Client, Wills & Trusts and Conveyancing matters in the UK and Europe)
Jean-Paul DaCosta jean-paul.dacosta@sherrards.com on + 44 207 478 9010 (Corporate and Commercial matters arising)
Laurel Zhang laurel.zhang@sherrards.com on +44 207 4789010 (Head of Chinese and South East Asia Desk)
Geraldine Fabre geraldine.fabre@sherrards.com on +44 207 4789010 (Head of French Desk)
Marta Grieve marta.grieve@sherrards.com on +44 207 478 9010 (Head of Russia & CIS Desk)

N.B. This article covers a range of legal and other issues to be considered and may express independent views of the author. None of the views expressed are representative of the Partners or the Partnership.

 

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