Article 50 Update

The High Court ruled on 3 November that the UK government’s plan to trigger Article 50 unilaterally, without first securing a mandate to do so from Parliament, is constitutionally unlawful. The importance of the case has led to a ‘leap-frog’ appeal straight to the Supreme Court – all 11 justices will sit en banc to hear arguments in a 4-day hearing in December, with their judgment anticipated in early January.

The lower court held that there was nothing in the European Communities Act 1972 (ECA), by which EU law became part of UK law (and took precedence over it in a number of respects), nor in UK legislation that has followed the ECA – including the European Union Referendum Act 2015 – which supports the key constitutional premise that Parliament is sovereign and that domestic law may not be changed by prerogative powers.

The claimants, and other interested parties before the High Court, argued that triggering Article 50 will necessarily lead to a certain loss of rights or privileges for UK and EU citizens, and that the government should not alone be capable of setting the UK on that inevitable path. The court also stated that the ability for individuals and companies to seek redress from the Court of Justice of the European Union would itself amount to a material change in the domestic law of the UK.

If the Supreme Court affirms the lower court’s ruling, the likely outcome will be that primary legislation – approved by both Houses of Parliament – is required for Theresa May’s government to start the clock on the formal 2-year UK-EU negotiation period. A number of opposition MPs stand primed to vote ‘against’ Article 50 being triggered, and critics may embolden members of the House of Lords, although it is more likely that what we see is some defined parameters around the process and Parliament’s involvement.  Some suggest that the government’s appeal is simply a case of buying time before Theresa May’s self-imposed trigger deadline of the end of March 2017 – with the lower court having called some of their arguments “divorced from reality” and “flawed at [a] basic level”.  Time, however, is not necessarily on May’s hands for passage of a bill through both Houses in a matter of weeks.

To quote Article 50(1), the UK’s “constitutional requirements” look to be settled by the Supreme Court in January 2017 (unless, in a hopeless irony, the CJEU is asked to rule on the revocability of Article 50). Political expediency suggests that it is a matter of when, not if, Article 50 is triggered and the inexorable process of leaving the EU starts.  The opposition Labour party’s list of 170 questions addressed to the UK’s ‘Brexit minister’ David Davis last month is testament to how much remains for the myriad government negotiators and advisers to unpick in the year(s) to come.

Leading figures from a number of EU member states and institutions have been vocal in their opposition to the UK getting a sweetheart deal that allows unrestricted single market access without freedom of movement. Although the government plans to enshrine all current EU law into the domestic statute books on day 1 by way of a Great Repeal Bill, other evidence backs up the suggestion on Friday by Moritz Kraemer of ratings agency S&P (who cut the UK’s rating in the wake of the referendum result) that a ‘hard’ Brexit might be on the cards.

Could the news that Japanese carmaker Nissan will produce new models at its Sunderland plant based on “support and assurances” from the Government, only weeks after its boss Carlos Ghosn stated that any deal would be based on “commitment […] that there is some kind of compensation”, be a good (albeit possibly expensive) indicator of a sector-by-sector approach?

The roughly 5,500 UK-registered financial services firms that rely on so-called ‘passporting’ rights to access the single market (and the roughly 8,000 EU/EEA firms passporting into the UK from other EU member states) are looking for similar support or assurances, or at the very least some clarity, from the government. The truth is that many – including bigger institutions who may by their nature and structure be less nimble – are already making plans to restructure operations given the lead-time, cost and complexity involved.  Some hope for a framework of regulatory equivalence, or a post-Brexit transitional period, to ease the economic effects of a hard Brexit on the financial sector.

A full copy of the High Court’s judgment in R (Miller) v Secretary of State for Exiting the European Union can be found here.  Please get in touch with Max Beazley or another member of the Dorsey team if you would like to discuss how you or your business may be affected by Brexit.

Max Beazley

Max’s primary practice focus is on cross-border M&A and equity capital markets. Max has extensive experience with UK domestic and cross-border private and public acquisitions and divestitures. Max also advises banks and issuers on IPOs and secondary issues, both on AIM and the Main Market of the London Stock Exchange. Max advises on private equity, venture capital and angel investments, as well as on banking and finance transactions. In addition, EU and US companies look to Max for advice on the UK and EU securities law elements of cross-border fundraising transactions and on UK corporate governance and compliance matters.

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