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Brexit: Time to make your plans, UK IT biz

Legal Armageddon? Maybe, maybe not – but we'd better get moving

Analysis The Brexit debate continues and, with the Leave and Remain camps neck and neck, it looks likely that the undecided few will carry the result. It seems that we can expect more headline-grabbing soundbites until the vote on June 23. The polarised nature of this debate is throwing up some interesting oddities, so you might be wondering what to believe and how to prepare.

For example, the Leave campaign claims less immigration is better for the UK but at least one IT firm told The Register this could leave it with a skills gap with key workers barred from the UK.

And there’s the claim that we will lose access to the EU single market countered with the claim that we will negotiate a deal similar to the one Norway has. Or Switzerland, or Canada, or somewhere.

One of the biggest areas of debate is about sovereignty and our ability to make our own laws. By remaining in the EU, UK laws will either be harmonised with or dictated to us by Brussels (depending upon which camp you listen to). The Leave campaign claims that if we leave, we will avoid being dictated to by Brussels and can make our own laws. Is that true?

Legal meltdown?

Foremost, let’s be clear: a vote on June 23 won’t mean we immediately leave the EU and revoke all EU laws. Leaving the EU is more of a process than an event. There will be a two-year exit period during which time frantic negotiations will take place over the terms of the exit. Two years is not that long and the timing will be interesting. The Leave campaign points to the trade deal that Canada reached and postulates that the UK could do the same.

The Remain campaign points out that this took Canada several years to negotiate and it is still not in force. While the UK would be starting from a stronger position than Canada did with harmonised laws already, it is widely rumoured that the remaining EU countries will want to punish the UK for leaving to discourage other member states from doing the same. And don’t forget if Scottish voters vote against Brexit but the rest of the UK votes for it, we might also see the break-up of the UK.

What will happen?

It is likely that nothing will happen immediately to internal UK laws. The UK government will likely follow the model adopted by British colonies as they gained their independence by preserving most existing laws until they are specifically replaced. For EU Directives implemented in national UK law, nothing will likely happen as the law will already have been passed. For EU Regulations – those higher EU laws which take effect without the need for national implementation – the UK would have to pass a law confirming those Regulations apply even after Brexit. This means that, should the UK vote to Leave, it would be stuck with many EU laws for a while longer.

Of course, there will be many EU-driven laws that the UK government will want to abolish or will want to introduce new controls over. These are likely to reflect the UK’s former obligations under the EU treaties and would be to curtail to some extent the four freedoms which are the pillars of the EU. Thus, the UK is likely to introduce immigration restrictions preventing the free movement of workers and the UK will probably have to introduce import tariffs mirroring any that the EU would impose on the UK curtailing the free movement of goods, services and capital.

How will Brexit affect your existing IT contracts?

At present our laws are reasonably harmonised with our EU neighbours in certain areas. Some areas were never fully harmonised and this includes basic contract law in the UK and many of its former colonies which has always been different than in other EU member states. Having said that, Brexit may affect a number of your existing IT contracts. Let’s look at these.

First up, is the choice of law clause. As a general rule, international treaties and conventions allow you to choose which law governs your contract. The likelihood is that whether we have a Norway or a Canada type arrangement, the choice of law in the contract will remain as it was before Brexit.

If your existing contract stipulates English (or Scottish) law, that will likely continue unaffected. EU member states would recognise your choice of law for your contract. Equally, the UK courts would recognise contracts governed by the laws of France or Germany or the other EU states.

Re-read your contracts

What about liabilities under a contract? Well much of consumer protection law is driven from the EU. Many consumer laws will override conflicting provisions in a contract and while the position is unlikely to change immediately at Brexit, over time it is likely that UK consumer law will differ. Liabilities in B2B contracts will probably continue unaffected subject to bringing successful court actions for which see below.

One of the main areas likely to be affected is price. If the UK doesn’t reach favourable trading terms upon exit, the UK and EU might resort to tit-for-tat imposition of tariffs making your contract more expensive for you or for your EU partner. Even if there are no new tariffs, there might be a wild swing in the GBP to Euro exchange rate. While the currency of the contract won’t necessarily change, it might become much more expensive to buy or sell in pounds or euros.

If the tariffs and currency swing are fairly low adding up to, say, up to five per cent to the price or cost, then you or your EU partner might bear it and continue with the contract but with a higher cost or lower margin. If swing is higher adding, say 15 per cent or more to the price or cost, then this might count as a force majeure situation – an act beyond your reasonable control – allowing you or your EU partner to renegotiate or terminate. As I said above, Brexit will take time to negotiate so you will want to factor this in to any contracts which stretch past the date set for the UK to leave the EU.

The other main area is where your contract is dependent upon the continued application of a particular EU law or the ability of the free movements between the UK and the EU. A Brexit would directly affect those contracts. For example, you might not have the same freedom to outsource work to one of the cheaper labour markets in the EU, meaning your supply contract to your US customer just became more difficult to fulfil. Alternatively, if you are the EU reseller for a US business, your US customer might terminate if the EU makes it more difficult for UK businesses to get access.

Court actions

Occasionally I come across contracts where one side will compromise on the choice of law but retain the ability to choose the courts. This can lead to English law with claims to be heard by the French courts, or vice versa. It can even mean a US supplier and French customer choosing English law and courts as neither is willing to let the other have their own. These are likely to continue whether we adopt the Norwegian or Canadian models. However, your French partner might fight harder to have the dispute heard in France, particularly if the contract appoints English courts on a “non-exclusive” basis.

That’s unlikely to manifestly change the interpretation of the law of the contract by judges. The flipside is that a UK court interpreting EU laws which have been preserved during the short term after Brexit might not follow established EU cases if it no longer has to. This could lead to uncertainty.

If you have a judgment in the UK against an EU partner without assets in the UK, you would have to enforce it inside the relevant EU member state. Again, assuming the UK negotiates favourable terms, enforcing judgments outside the UK probably won’t be much more complicated than it is now. In the absence of terms, this might mean courts of EU states are less disposed to enforcement action. While a judgment for a debt is relatively straightforward, it might be more complicated where the judgment is for an injunction or a declaration.

Data laws

The big question I get asked is whether Brexit will affect data protection laws. It is worth remembering that the data protection laws stem from the European Convention on Human Rights which Winston Churchill was heavily involved in devising and drafting. It’s unlikely the UK would even want to abandon data laws upon Brexit and GDPR is due to come into force in 2018, around about the same time as any potential Brexit would take effect.

With a Norway-style agreement, the UK would still be part of the EEA and would therefore have to comply with many EU laws, including the data protection ones – covering the new General Data Protection Regulation. In that case any law that potentially conflicts with GDPR – such as the UK Snoopers' Charter (aka Draft Communications Data Bill) – will be scrutinised directly by the EU Court of Justice and the UK will have to suspend non-compliant laws.

With a Canadian-style agreement, the UK would have to comply with the GDPR for business with EU/EEA member states but could adopt a different standard for internal UK and non-EU business. Interestingly, Canada is on the EU Commission’s list of safe countries as it has adopted EU-strength data protection laws. In this situation, if the EU Commission or the EU Court of Justice believe the UK snooping or retention laws conflict with GDPR, it is possible the UK will undergo its own Safe Harbour / Privacy Shield process to find middle ground.

What next?

It is difficult to plan for something that might not happen, the terms of which are not clear and which will take at least two years to settle. But if the vote favours Brexit, it could all happen in 2018. If you are negotiating longer term contracts with EU partners, it might be worth building flexibility in now to at least allow you to revisit the contract later. ®

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