The remarkable decision of the Brits to quit the EU was momentous and the legal ramifications would be here for very long time indeed. As the ballot paper was a straightforward “Leave” or “Remain” question, it has taken Theresa May, the Prime Minister of the U.K. a better part of 6 months to interpret the meaning of the “Leave” vote.
On 16 January, she concluded at a Press Conference at Lancaster House that the Brexit vote meant withdrawal from: 1. The European Single Market, which guarantees the free movement of goods, capital, services, and people – the “four freedoms” – within the European Union.
This includes what is known as banking passport system. It’s a system where banks and other financial companies can be authorised to do business in one member state of the EU and then ply their trade across the region without having to be separately authorised in each country.
- The Customs Union, which means that no customs duties are levied on goods travelling within the customs union. One of the consequences of the customs union is that the European Union negotiates as a single entity in international trade deals such as the World Trade Organisation, instead of individual member states negotiating for themselves.
This decision is monumental. Aside from the trade and constitutional questions that this has raised, there are still a number of issues for anyone who is a contracting party with a UK business. To that extent, Brexit may have serious implications for anyone doing business in or with a UK or EU company.
A key question is whether a particular contract can be terminated as a result of a UK exit from Europe, particularly as the changed commercial landscape may prompt contracting parties to reassess their current contract arrangements and look for ways to exit those that are no longer required or profitable. This is especially where contracts are predicated on Britain being part of the EU or at least being a member of the single market.
For example, a foreign bank that opened a UK subsidiary on the understanding that London will always grant them passports to operate in the EU. The withdrawal from the Single Market means that such bank may no longer benefit from unfettered access to the EU market. Another example is a foreign employee that took a job in England in the expectation that he will continue to enjoy the generous benefits and protection that the EU law affords.
Of course, any right of termination will depend on the terms of the relevant contract, including any material adverse change and force majeure provisions; any right (express or implied) to terminate on notice as well as the doctrine of frustration.
On the interpretation of pre-existing contracts, where a contract contains an obligation to comply with a specific piece of EU legislation, how will it be interpreted after the UK’s withdrawal? How will the use of “European Union” as a defined term in contracts be interpreted, a term that will now certainly exclude the UK when it ceases to be a member. Similarly, how will a contract be interpreted if, at the time of contracting, EU law formed part of English law but the time of performance is after the UK’s exit? These are essentially questions of contractual interpretation which companies with existing contractual commitments in the UK and indeed EU should be pondering.
In most cases, it is suggested that a choice of English law will be interpreted to mean English law as it stands from time to time, subject to any variations, including such variations as may arise from Brexit. Although there may be specific circumstances in which the Brexit influence on a clause in the contract is so material that it has to vitiate the contract.
However, English domestic commercial law has its own well-developed and respected rules, which have largely been unaffected by EU intervention. The benefits of using English law are in no way connected to the UK’s membership of the EU. In all likelihood, the English courts will take their usual sensible and practical approach and to favour commercial interpretations.
Furthermore, it is a real concern among foreign firms operating in London that once Britain withdraws from the Single Market, there may be problems surrounding cross-border enforceability as they no longer enjoy the benefit of the Financial Collateral and Settlement Finality Directives. This may lead to firms opting for EU law to govern these contractual arrangements, especially, those relating to their securities and derivatives transactions. We now know that Brexit means Brexit but do you know how it affects your firm?
Onifade is of Anthony Seddon Solicitors LLP. He is also the chairman of the Nigerians in the Square Mile (NISM), an organisation of eminent Nigerian professionals working in the financial sector in the City of London