Since the Brexit referendum in June 2016, Carson McDowell has been actively monitoring the legal and political consequences arising from the United Kingdom’s vote to leave the European Union.
We continue to assess the various implications for businesses in Northern Ireland, which will become clearer as the negotiations between the UK and the EU take shape and details of the new trading relationship emerge.
Whatever form it takes, Brexit will impact on legal relationships across all sectors. It is likely that businesses will need considerable legal support as they navigate through the changes, implement contingencies and future proof in a period of uncertainty.
With more experts working across more specialist areas of practice than any other law firm in Northern Ireland, Carson McDowell is uniquely positioned to assist with the challenges that lie ahead.
If you have any questions or concerns about the latest on Brexit, please email [email protected] or contact the relevant team member below.
Corporate M&A - What should be the key legal concerns when selling a business in the lead up to Brexit?
The most obvious issue with Brexit is the uncertainty. Any prospective Seller should be careful to avoid any conditionality, covenants or obligations which provide a Buyer with material adverse change protections which make express reference to Brexit.
Sellers may also wish to exercise some caution in agreeing to any earn out provisions whereby a certain proportion of consideration is dependent upon future performance.
Will Copyright law be affected by Brexit, given that it is mainly governed by UK legislation?
The harmonisation of copyright law has traditionally been driven by international treaties rather than by European Community law.
However, EU law has increased in importance in a number of areas related to copyright, for example, though the InfoSoc Directive and in the area of collective rights management.
The most significant impact of Brexit on UK copyright law will probably be that it will miss out on the future Digital Single Market.
Will Brexit mean the end of I-SEM?
The political indications are that I-SEM will survive Brexit and certainly the Irish participation in the European electricity market should not be disturbed by Brexit.
Clarity as to how this will be achieved is urgently required.
Post Brexit, what rules will govern jurisdiction?
As matters stand, there are detailed provisions within EU rules in relation to which EU member state courts will have jurisdiction over a dispute. These rules are largely contained with the Brussels I Regulation and provide an element of predictability for litigants. Generally speaking, in the absence of an express jurisdiction clause within a contract or agreement, a Defendant should be sued in the courts of the member state where it is domiciled or alternatively in the courts of the member state where a contract was performed.
The UK government will want to mirror as far as possible, the rules as they stand at the moment under the terms of Brussels I.
The Government’s recent position paper sets out the UK’s intention to reach a new agreement which will maintain the “close cooperative relationship between the legal systems of the UK and the EU” and ensure “comprehensive cross-border civil judicial cooperation.”
The UK will participate in the Lugano Convention which will ensure reciprocity of rules on governing jurisdiction between signatories. Interestingly, part of the convention will also require non EU member states to “pay due account” to decisions handed down by the Court of Justice of the European Union (‘CJEU’).
Will GDPR apply in the UK after Brexit?
Even though the UK has commenced the process of leaving the EU, the UK is not scheduled to leave the EU until March 2019. GDPR will therefore have direct effect in the UK from May 2018 until Brexit occurs, therefore UK businesses will need to ensure that they are ready to comply with the GDPR by May 2018.
Commercial Contracts - Can an existing contract be terminated as a result of Brexit?
Any right of termination depends on the terms of the relevant contract, including any material adverse change and force majeure provisions and any right (express or implied) to terminate on notice as well as the doctrine of frustration. Most general provisions are unlikely to be triggered by any of the stages of the Brexit process.
Will I be able to take a claim based on the UK common law tort of passing-off against EU infringements?
Yes, however, the enforcement of English judgments in other EU member states will be affected by Brexit once the Brussels Regulation ‘Recast’ will cease to apply in relation to the United Kingdom.
It is unclear for now what rules will apply to the enforcement of UK judgments in member states of the European Union going forward.
Corporate M&A - As the UK prepares to leave the EU, what should a prospective Buyer of a business in Northern Ireland be mindful of when carrying out a legal due diligence exercise?
A prospective Buyer should consider which areas of a target business are most vulnerable to adverse consequences arising from Brexit.
For example, in the case of a business which is dependent upon availability of EU workers, a prospective Buyer may wish to ask questions around how many of those workers qualify for permanent residency.
Alternatively a target may have a supply chain that includes significant trade (importing and exporting) with the EU, and as a result a prospective Buyer may wish to focus its enquiries around the extent to which the target is contractually bound to its supply chain and/or whether the contractual framework takes account of currency fluctuations.
We would advise that in any acquisition arising in the lead up to Brexit, a prospective Buyer should place an onus on the Seller to disclose (i) any risk assessments or contingency plans carried out in relation to Brexit; and (ii) the extent to which the target relies upon any regulatory passporting or licensing rights allowing supplies or services across the EU to or from the UK.
Commercial Contracts - How will an obligation to comply with a specific piece of EU legislation be interpreted after the exit? How will the use of “European Union” as a defined term in contracts be interpreted – will it be found to include the UK, or no
In most cases it is likely that a choice of Northern Irish law will be interpreted to mean Northern Irish law as it stands from time to time, subject to any variations, including such variations as may arise from Brexit. However, where some key provision of EU law is essential to the operation of a particular contract, in particular where performance of the contract is in the continuing EU, the court may give effect to the relevant EU law so as to give commercial effect to the contract. The Northern Irish courts are likely to take a sensible view and to favour commercial interpretations.
The validity and effectiveness of any contractual choice of law is very unlikely to be affected by Brexit. In other words, a choice of English law (or any other law) in a contract will continue to be effective, whether in England, Scotland or in the remaining EU Member States. This would follow from the continued operation within the EU of the Rome I Regulation, governing choice of law in contracts, which in effect enforces any choice of law made by contracting parties, whatever law they have chosen. The Regulation will probably be adopted for the UK by the Great Repeal Bill, but if it were not, the pre-Regulation rules in Northern Ireland are to very similar effect and would give rise to the same result i.e. any expressly chosen governing law will generally be enforced.
Commercial Contracts - If you have ’’standard’ terms and conditions in place, will these need to be changed?
We recommend that these are reviewed.
Many businesses rely on standard form terms and conditions which include clauses which may or may not offer some comfort. One such clause commonly seen in supply agreements (standard form or otherwise) is a ’force majeure’ clause, which states that a party may be excused a breach of contract where the breach is caused by a factor outside their control, which has made performance of its obligations impossible. Such contracts may also have ’material adverse change’ clauses, which allow a party to walk away from the contract if they suffer some form of detrimental effect.
The precise drafting of such clauses will have a bearing on whether they will offer a party any comfort or not. However, if Brexit was a possibility when the contract was entered into, the courts may take the view that the parties should have planned for its effects and are, accordingly, unable to rely on such clauses.
Will there be any changes to UK data protection law after the UK leaves the EU?
The UK government has recently announced new laws aimed at ensuring individuals have more control over their personal data.
The new legislation (the “Data Protection Bill”) will bring the GDPR, and will write provisions of Data Protection Law Enforcement Directive, into domestic law, which will put the UK in the best position to maintain its ability to share data with other EU member states after leaving the EU.
Any changes to the protection of personal data under UK law are unlikely to be substantial. If the UK wants to trade with the single market it will have to prove that its data protection standards are adequate or essentially equivalent to those set out in the GDPR in order to be considered a safe third country for the receipt of personal data. Consequently, Brexit does not mean the end of GDPR compliance for UK businesses.
How will Brexit affect my Intellectual Property Rights?
IP protection is based on a mixture of national UK, European and international treaty law. For now, the United Kingdom remains a member of the European Union and there are no immediate changes to the protection of intellectual property rights until the United Kingdom ceases to be a member of the European Union.
Patents are governed by the European Patent Convention, which is not an EU treaty and will not be directly affected by the UK leaving the European Union. However, the UK will probably no longer be able to participate in the Unitary Patent and Unitary Patent Court system, which applies only to EU member states.
National trade mark law has been harmonised across the European Union based on EU directives. These directives have been implemented in the UK through national legislation which will be unaffected by the UK leaving the European Union unless and until it is amended or repealed.
This is unlikely to happen in the short term because the law works well and IP rights will not be near the top of what will no doubt be a busy post-Brexit legislative agenda.
What is more likely to happen is that trade mark law in the UK and the member states of the European Union will start to diverge over time. EU Trade Marks will be directly affected by the UK leaving the European Union.
Once the UK leaves the European Union, new EU Trade Mark applications will no longer extend to the UK and a separate application for a national UK trade mark will then become necessary. The way in which customs authorities will deal with counterfeits based on EU customs border seizure procedures is also likely to change.
The cost and administrative burden of managing a trade mark portfolio is therefore likely to increase.
What can I do now, as a brand owner, to protect my position?
It may be prudent for brand owners to file new trade mark applications both for EU trade mark and UK national trade mark protection to avoid possible gaps in future brand protection coverage.
EU trade marks where the only jurisdiction of use is the UK will require particular attention.
European design rights will likewise be affected.
Clients should undertake a review of distribution and licensing agreements as soon as possible to ascertain how these arrangements will be affected by Brexit.
How will UK proceedings be served on a party in an EU member state, post Brexit?
At present, there are a number of EU instruments which facilitate service of documents on parties in other member states. After withdrawal date, it may be possible for the UK to maintain some of the mechanisms which support the swift operation of the courts.
The Government’s position paper proposes that the UK to join the Hague Convention in its own right, post Brexit. The Hague Convention promotes judicial cooperation between participating States in relation to matters such as service of proceedings abroad.
Post Brexit, what rules will govern choice of law and enforcement of judgments in a cross-border disputes?
The UK intends to adopt the existing Rome I and Rome II Regulations which uphold a choice of law agreed upon by the parties. However, where no valid choice of law is made and a conflict of law arises, Rome Regulations I and II provide the legal framework to govern what the applicable law should be in relation to contractual and non-contractual obligations, respectively.
As the UK intends to incorporate the existing Regulations into domestic law, this means that post Brexit, courts would apply the same rules when determining the appropriate governing law.
At present, the Recast Brussels Regulation provides for reciprocal enforcement of judgments between member states.
The Government’s position paper proposes that the UK will seek an agreement which allows for cross-border cooperation on a reciprocal basis which will reflect the principles as they stand under the current EU regime. As mentioned above, the UK will participate in the Lugano Convention which also provides for reciprocity in terms of enforcement of judgments between participants.
While negotiations remain ongoing between the UK and the European Commission, this will of course create an element of uncertainty in terms of jurisdiction and choice of law, in particular. Parties should therefore ensure express dispute resolution, jurisdiction and governing law clauses are included within new contracts.