Brexit and the UK Constitution: Video now online

Posted on 28 Jul 2016 by Brick Court

The video of Brick Court’s panel discussion on “Brexit and the UK Constitution”, which took place on 21 July 2016, is now available here.

The discussion was moderated by Clive Coleman.  Panellists were Dominic Grieve QC MP, Lord Falconer of Thoroton, Professor Jo Shaw, Professor Derrick Wyatt QC and Richard Gordon QC.

A previous blog post summarising the discussion is here.

Contractual proper law and Brexit: Back to the Rome Convention by default?

Posted on 27 Jul 2016 by Brick Court

Helen Davies QC

A previous blog post considered the possibility that when the UK leaves the EU, the jurisdictional rules contained in the Brussels Convention might take the place of the Recast Brussels Regulation (Regulation (EU) No 1215/2012) by default. This post considers the question of which rules might apply to determine the law applicable to contractual obligations post Brexit.

For those contracts entered into on or after 17 December 2009 falling within its scope, the rules the UK courts currently apply to determine the applicable law of the contract are those contained in the Rome I Regulation (Regulation (EC) No 593/2008). As this Regulation is directly applicable in the UK, its provisions have not been transposed into UK law. When the UK leaves the EU its provisions will therefore no longer apply in the UK.

Parliament could of course choose to enact new rules post-Brexit, but if it does not do so, it would appear that the position so far as all such contracts are concerned will be governed by the Contracts (Applicable Law) Act 1990. Section 2 of the 1990 Act provides that (subject to two exceptions) the Rome Convention (together with certain other Conventions  relating to the accession to that Convention of Greece, Spain and Portugal) and the Brussels Protocol on implementing the Convention have the force of law in the UK. The Rome Convention was ratified by the UK in January 1991. Pursuant to sections 4A and 4B of the 1990 Act, the provisions of this Act are currently disapplied in relation to issues relating to contractual obligations which fall to be determined under the Rome I Regulation. Once the UK leaves the EU, that disapplication will cease to be of any effect.

Section 3 of the 1990 Act provides that:

(1)  Any question as to the meaning or effect of any provision of the Conventions shall, if not referred to the European Court in accordance with the Brussels Protocol, be determined in accordance with the principles laid down by, and any relevant decision of, the European Court.

(2)  Judicial notice shall be taken of any decision of, or expression of opinion by, the European Court on any such question.

The Brussels Protocol further contains a power (but no obligation) on UK courts from which no further appeal is possible to make requests of the Court of Justice for a preliminary ruling on a question raised in a case pending before it and concerning interpretation of the provisions of the Rome Convention if that court considers that a decision on the question is necessary to enable it to give judgment.

It remains to be seen whether or not either section 3, or the incorporation of the Brussels Protocol via section 2, of the 1990 Act will be amended upon Brexit, even if Parliament decides that the relevant conflict rules that should be applied to contractual obligations are those contained in the Rome Convention.

Can the UK retain access to the single market without allowing free movement of workers? Let’s rephrase the question

Posted on 26 Jul 2016 by Brick Court

Professor Derrick Wyatt QC

The UK is embarking on a project which will preoccupy government and public for months and years to come – the negotiation of a future trading relationship with the EU. On the UK side, access to the single market is said to be the aim of these negotiations. Prominent voices on the EU side have said that the UK cannot expect to leave the EU while retaining all its benefits. Their stated position is that the single market is indivisible, and that the UK cannot remain part of that market while denying freedom of movement of persons.

The UK might seek to maintain access to the single market through a variant on the “Norwegian option”. Norway, Iceland and Liechtenstein are outside the EU, but inside the EEA. This means that they comply with EU rules on the single market, including the free movement of persons, and on competition and state aids, and that they comply with EU “flanking policies” such as equality, consumer protection and the environment. They also make financial contributions to the EU. If the UK seeks this route, negotiations will focus on the extent to which the UK will be able to impose unilateral restrictions on immigration. There would be other issues, such as financial contributions to the EU, and accepting EU legislation carte blanche, but the issue of immigration would be a central one.

The “Norwegian” route might lead to an impasse, for political reasons, or it might not be pursued very far at all.

A different approach might come to the fore.

The UK might seek to negotiate a free trade agreement with the EU which would make no provision for the free movement of persons, and would not replicate the legal provisions of the EU or EEA treaties, but would contain effective provisions on (essentially) free trade of goods and services (including financial services), and freedom of investment.

But could such an approach produce the outcome which the UK government says it wants – access to the single market? And would this approach also hit the buffers of EU insistence that the single market is indivisible?  This raises two key questions. The first is what “access to the single market” actually means. And the second is whether the EU actually treats the single market as indivisible when it engages in trade negotiations with third countries.

What access to the single market clearly does mean is legal entitlement to a package of rights which covers the free movement of goods, persons (employed, self-employed and companies), services (including financial services) and capital (including direct and portfolio investment). This package of rights is secured by a mix of treaty guarantees and EU secondary legislation.

What is distinctive about being a Member of the EU (or EEA) is entitlement to the entire package. But that does not mean that the EU is unwilling to bargain away trade access rights which are very similar to component parts of that allegedly indivisible single market package. I shall refer briefly to one or two important elements of single market freedoms, and to comparable arrangements for trade between Canada and the EU in the Comprehensive Economic and Trade Agreement (“CETA”). The point is not that the CETA regime has the same scope as the single market, but to show that elements of single market freedoms are the subject of trade negotiations between the EU and third countries.

The fundamental freedom which usually receives first mention is the free movement of goods. Elements of this fundamental freedom are clearly divisible from single market membership, in that they feature in trade agreements between the EU and third countries. For example CETA provides for tariff-free trade in most products, and contains provisions to address technical barriers to trade, which build on WTO rules. It will be noted that in any future trade agreement between the UK and the EU the starting point for the parties would be total convergence on product standards and specifications. An agreement between the UK and the EU which provided for across-the-board tariff-free trade, combined with a national treatment guarantee, would in practice give the UK market access to the EU equivalent to single market access, as far as goods are concerned.

The free movement of capital within the EU is valuable for UK businesses and for EU based investors in UK businesses. The free movement of capital includes the right of an economic operator based in one Member State to acquire a controlling stake in a business based in another. This latter right is certainly a single market feature which the EU is willing to include in free trade agreements with third countries. CETA contains provisions on equal treatment of investors and on investment protection. Some options to block foreign acquisitions are maintained. The UK might itself wish to reserve such a power in a future trade agreement with the EU. The Prime Minister recently referred to the possibility of the UK government wishing to block unwelcome foreign take-overs of UK companies.

The EU has made considerable advances in the mutual recognition of qualifications, but in only a handful of cases has this led to EU harmonisation of the content of qualifications. For the most part, EU rules provide a framework for assessing the practical equivalence of qualifications. The legal basis for EU rules of this kind is the right of free movement of employed and self-employed persons. Yet the EU has been willing to negotiate mechanisms for establishing equivalence of professional qualifications as part of free trade agreements with third countries. CETA provides a framework for mutual recognition of qualifications in regulated professions. In any future negotiations between the UK and the EU, a similar framework could be agreed, and a good starting point for the workability in practice of such a framework would be the fact that a number of mutually recognised professional qualifications in regulated professions already exist.

It should be added that CETA is the first third-country agreement in which the EU has agreed to open market access in the services sector on the basis of a negative list, meaning that all service markets are liberalised except those explicitly excluded. This would provide a promising basis for negotiations between the UK and the EU on freedom to provide services.

In discussions of the aim of UK negotiators to retain access to the single market, the importance of “passporting” of financial operators is a recurring theme. This is not surprising. A financial services provider such as a bank or insurance company capitalised and regulated in an EEA country in accordance with EU wide rules can provide its services in any other EEA country directly or through a branch and without setting up a further capitalised and regulated subsidiary.

Brexit would on the face of it see UK financial services providers unable to rely on their UK capitalised and regulated corporate bases but would have to set up a further capitalised subsidiary within an EU country, in order to provide services directly or through branches in the whole EU.

However, some recent and still evolving EU regimes could mitigate this, since they provide for recognition of third country regulatory regimes and access for third country financial operators.

For example, UK banks otherwise losing “passporting rights” after Brexit might find some mitigation under the new rules in MiFID II and MiFIR (the Markets in Financial Instruments Directive 2014/65/EU and Regulation (EU) No 600/2014).  The mitigation would result from likely recognition of the equivalence of the UK’s regulatory regime with EU regulatory standards.

MiFID II / MiFIR rules will allow third country banks and asset managers to passport wholesale investment services within the EU. Retail services would still face country by country authorisation. UK hedge-fund managers would also expect to benefit from passporting for third country operators under AIFMD, the Alternative Investment Fund Managers Directive 2011/61/EU, after authorisation by the European Securities Marketing Authority (“ESMA”).

Developments like those I have just mentioned indicate that “passporting” rights for financial service providers cannot be said to be tied to the status of EU/EEA membership, or conditioned on the free movement of persons, or confined to financial operators with some special link to the single market. Some “passporting” for third country financial operators, potentially including UK businesses when the UK withdraws from the EU, will be available as the result of unilateral EU measures. Further “passporting” for UK financial operators could in principle figure in a trade agreement between the UK and the EU, without involving any great departure from current EU practice. The starting point for discussion would be the known reality that the UK fully complies with all EU financial regulatory requirements.

It is too early to say which sort of agreement the UK will seek to negotiate, or be able to negotiate, with the EU. An agreement based on the “Norwegian model”, modified to allow the UK control of free movement of persons, perhaps to reduce UK financial payments to the EU, and perhaps to limit otherwise carte blanche acceptance of EU law, would be readily recognised as providing the access to the single market that the UK government has indicated that it seeks, and which provides proven benefits to UK businesses.

But the alternative model referred to above, covering free trade in goods and services, and freedom of investment, might be designed in such a way as to deliver economic benefits comparable to those which would result from full participation in the single market, even if the legal framework would not be identical to that of the EU Treaty or the EEA Agreement. The right test for negotiators to apply would be a commercial test of practical commercial equivalence, or near equivalence, to that enjoyed under the status quo, rather than defining the aims of the negotiation in terms of maintaining precise adherence to any particular legal framework.

It is the right time for businesses and government to identify, from amongst the single market access rights which economic operators currently enjoy, those which are in practical commercial terms indispensable to doing profitable business with partners in Europe.  It is also the right time to identify any elements of EU market access rights which do little in practice to facilitate market access. There is no point the UK wasting negotiating effort to retain advantages which are more theoretical than real.

Brexit and mixity – An update

Posted on 22 Jul 2016 by Brick Court

Aidan Robertson QC

In a recent blog post I referred to the European Commission’s recent announcement that that Member States will be required to ratify CETA, but that CETA would have “provisional application” until that happened.

I raised the question what was meant by provisional application? As ever, Brick Court’s Professor Derrick Wyatt QC has the answer which he gave at the Brick Court Panel Discussion on “Brexit and the UK Constitution” held in a packed Inner Temple Hall on 21 July.

Provisional application means that those parts of CETA which fall within the exclusive competence of the EU can come into force before ratification by Member States. In effect, Member State ratification only has effect in relation to those parts of the agreement infected with mixity (ie shared competence). Professor Wyatt QC expressed the view that it may be that not much of the agreement does fall within shared competence.

If the UK goes down a CETA-style route with EU, the same mixity issues are likely to arise. Thus the other 27 EU Member States would required to ratify the UK’s trade deal with the EU, but the bulk of the agreement would already have provisional application prior to national ratification. That raises the prospect of a remaining Member State voting against ratification, only to be told that the agreement is already largely be in effect – a somewhat difficult outcome to explain to any electorate one would have thought.

Of course, these mixity problems may diminish or be eliminated altogether if the Court of Justice of the European Union takes a broad approach to the Union’s exclusive competence in the case (Opinion 2/15) in which the Commission is seeking an opinion on the mixity issue as it concerns the EU/Singapore trade deal.

Lords EU Committee recommends effective parliamentary scrutiny of all Brexit negotiations

Posted on 22 Jul 2016 by Brick Court

David Heaton

The House of Lords European Union Committee today issued a report — “Scrutinising Brexit: The Role of Parliament” (Session 2016-17 HL Paper 33) — calling for effective parliamentary scrutiny of all aspects of the UK’s Brexit negotiations with the EU.

The Committee commented (at para 5):

The forthcoming negotiations are both immeasurably more important and complex [than those leading to the February 2016 “New Settlement”], and fundamentally different in nature. It is inconceivable that they should be conducted without effective parliamentary oversight. Indeed, in a parliamentary democracy we believe it is the right and duty of Parliament to ensure that the negotiations are scrutinised effectively at every stage.

The Committee made several specific recommendations and observations, including that:

• Parliament’s role will be “critical” to the success of negotiations, as ratification by Parliament of any agreement will ultimately be required (para 7);
• “[T]he substance of what is under discussion, rather than the formal stage in the withdrawal process, should be reflected in an appropriate level of parliamentary scrutiny”, which should take place at “all stages”, including informal discussions prior to an Article 50 notice, formal negotiations under Article 50 and further negotiations after Brexit (para 18);
• The European Union Committee be charged with scrutinising the negotiations (para 31); and
• Sufficient additional resources be provided to Parliament properly to scrutinise the negotiations, because “[w]ithdrawal from the EU is arguably the most complex, demanding and important administrative and diplomatic task that the Government has undertaken since the Second World War” (para 32).

The Committee also acknowledged the need for secrecy over elements of the negotiations, stating that scrutiny could “strike an appropriate balance between transparency and confidentiality, while achieving the overarching objective of holding the Government effectively to account” (para 22).

Several panellists at Brick Court’s Brexit and the UK Constitution panel discussion last night expressed similar views, both about the need for full Parliamentary scrutiny of the UK’s Brexit negotiations and balancing any need for secrecy with sufficient transparency, although views differed on the likelihood of secrecy being successfully maintained in a negotiation with 27 other EU Member States and the EU institutions.

The Report forms part of the Committee’s ongoing inquiry into the EU exit process (see the Committee’s homepage).

Article 50 judicial reviews to be heard this year

Posted on 20 Jul 2016 by Brick Court

Maya Lester QC

The Divisional Court has given directions for management of the judicial review claims that challenge the Government’s ability to trigger Article 50 of the EU Treaty without recourse to Parliament.  The Court (Lord Justice Leveson and Mr Justice Cranston) has ordered the claims to be joined together, has set a provisional hearing date before the Lord Chief Justice for 15 October 2016, with a possible “leapfrog” procedure straight to the Supreme Court after that with the idea of it being heard by the Supreme Court in December.

Brexit and asylum: Life after the Dublin Regulation

Posted on 20 Jul 2016 by Brick Court

Andrew McIntyre

The UK, like all EU Member States, is a party to the 1951 Refugee Convention, which guarantees certain fundamental rights for refugees and asylum seekers. Brexit will not release the UK from its basic obligations under the Convention or under international law generally. It may, however, spell the end of the Dublin III Regulation in the UK. This post considers the possible implications of Brexit for the redistribution of asylum seekers within the EU.

At the heart of the Refugee Convention is the principle of non-refoulement, which holds that a refugee or asylum seeker should not be returned to a place where his or her life or freedom would be threatened on account of race, religion, nationality, membership of a particular social group or political opinion. The principle of non-refoulement does not, however, preclude the State in which an individual applies for asylum from transferring him or her to a safe third country. This is the premise on which Regulation (EU) No 604/2013, the Dublin III Regulation, is built. In broad overview, Dublin III allows EU Member States to transfer asylum seekers back to the countries through which they first entered the EU. In this way it acts as a check on the principle of free movement and – as the CJEU has described it – prevents “forum shopping” by applicants for refugee status: Case C-411/10 NS v Secretary of State for the Home Department at [79].

Dublin III works by designating a single Member State as the State “responsible” for examining an asylum application. The Responsible State is identified by applying a hierarchy of factors but, in practice, will very often be the first Member State through which the applicant entered the EU (whether regularly, eg, following the issue of a visa, or irregularly). The Responsible State must generally take charge of an individual who has applied for asylum in another Member State upon receipt of a valid “take charge” or “take back” request from that second State. In this way, Dublin III places the administrative burden of examining asylum applications disproportionately on the southern Member States (such as Italy and Greece) in which so many refugees first arrive in the EU.

As an island State on the periphery of the EU, the UK is a net beneficiary of the Dublin III system. In 2014, the last year for which figures are available, the UK transferred 252 applicants for asylum to other Member States pursuant to the Dublin III mechanism, but received just 69 applicants from other Member States. (By contrast, Italy transferred 10 applicants in 2014 and received 1,918.) According to the previous Minister for Immigration, the UK has used Dublin III to “remove” more than 12,000 asylum claimants since 2003.

Could the UK continue to participate in the Dublin scheme, post-Brexit? The fact that the UK is something of a free rider on the Dublin III Regulation does not necessarily mean that it could not; Switzerland is a member of the Dublin system by virtue of an association agreement with the EU, notwithstanding that it transfers substantially more asylum claimants out of its territory than it takes in from EU Member States. Significantly, however, Switzerland is also an associate member of the Schengen area. If the UK aims to negotiate a deal with the EU that limits the free movement of persons, it is difficult to see why it would be allowed to take the benefit of a system that was designed, at least in part, to temper the effects of such free movement (and of Schengen in particular). That would very much be a case of the UK both having its cake and eating it.

What, then, would happen if Dublin III ceased to have effect in the UK? To date the Dublin system has largely obviated the need for the UK to negotiate individual arrangements for the transfer of asylum seekers to or from other States. If the UK wished to continue transferring applicants to safe third countries, it would have to enter into specific agreements with those countries. Such agreements are not unknown; for example, Australia has entered bilateral agreements permitting the transfer of asylum seekers to Malaysia and the resettlement of refugees in Cambodia. However, without offering some element of reciprocity, it is difficult to see what the UK could bring to the bargaining table. In the Australian examples, it is worth noting that the government of Australia agreed to bear the financial cost of both schemes.

In any event, in the immediate future, the loss of Dublin III might not be very keenly felt in the UK. The actual number of outgoing Dublin III transfers from the UK fell from 1,217 in 2008 to 252 in 2014. In part, this is because Dublin III is probably on its last legs on any view. Transfers to Greece have all but halted since the judgment of the European Court of Human Rights in MSS v Belgium and Greece, in which the Court found that Belgium had violated Article 3 ECHR by transferring an asylum seeker to Greece, thus exposing him to the “deficiencies” of the Greek asylum procedure (see also NS, above, in the CJEU). In 2015, Germany temporarily suspended normal Dublin III procedures for Syrian refugees by invoking Article 17, the “sovereignty clause”, which allows Member States voluntarily to assume responsibility for applications they would not otherwise be obliged to examine. By contrast, Hungary suspended Dublin III in 2015 with the opposite effect, refusing to “take back” asylum seekers it would otherwise have been required to accept. In the UK, the Upper Tribunal recently held in ZAT v Syria (currently on appeal) that the Home Secretary’s insistence on the strict application of Dublin procedures interfered disproportionately with the Article 8 ECHR rights of unaccompanied minors in Calais seeking immediate family reunification in the UK.

The European Commission is contemplating various proposals for reform of the Dublin system. Options include the introduction of a corrective fairness mechanism designed to redistribute asylum seekers from “overburdened” Member States, taking into account population and GDP. For the UK, which receives around 0.6 asylum applications per 1,000 residents (below the EU average of 2.48 and far below, eg, Hungary (16.6), Austria (9.44) and Germany (5.31)), this would almost certainly mean taking in a greater share of asylum claimants. Were it to remain in the EU, the UK would be able to opt out of these measures and continue to take advantage of the existing Dublin III rules. Were it to withdraw from the EU, however, the UK would probably face a starker take-it-or-leave-it choice: either the new system, or no transfers at all. Traditionally a somewhat reluctant member of the Common European Asylum System, it is not clear how enthusiastic the UK would be to volunteer for a more proportionate share of responsibility for those seeking refuge in Europe.

The UK’s “constitutional requirements” under Article 50 TEU

Posted on 19 Jul 2016 by Brick Court

Co-authored by Richard Gordon QC

In the wake of the “leave” outcome of the European Union referendum on 23 June, a key focus of interest is upon the manner in which the United Kingdom can give constitutional as well as legal effect to that outcome. Law is a necessary constituent element of our constitutional arrangements although notions of constitutionality and legality do not always dovetail.

The most likely means of giving effect to the referendum result is within the framework provided by the Treaty on European Union (TEU). Article 50 TEU provides that a member state may decide to leave “in accordance with its own constitutional requirements” (TEU Article 50 para 1). After a two-year period, unless all Member States have agreed to an extension, the State in question ceases to be a Member of the EU (TEU Article 50 para 3). If an exit agreement comes into force sooner, EU membership can potentially end before two years.

The negotiations taking place during this period and their outcomes are clearly matters of critical importance. So too is the conceptual conflict between principles of direct democracy, as manifested through the referendum, and representative democracy, of which the UK Parliament is the primary organ. This recent paper, “Using the Prerogative for Major Constitutional Change: The United Kingdom Constitution and Article 50 of the Treaty on European Union”, focuses on the most immediate issue: the “constitutional requirements” that apply in the UK to the instigation of the Article 50 process.

Panel Discussion: Brexit and the UK constitution – 21 July 2016

Posted on 19 Jul 2016 by Brick Court

Brick Court Chambers invites you to a panel discussion on

Brexit and the UK constitution

Thursday 21^st July 2016, Inner Temple Hall, London EC4Y 7HL, 5.30pm

Panellists:

• Dominic Grieve QC MP
• Lord Falconer of Thoroton
• Professor Jo Shaw
• Professor Derrick Wyatt QC
• Richard Gordon QC

Chaired by Clive Coleman

Issues for discussion include:

• Article 50 TEU: who can trigger it and what is the role of Parliament?
• Uncoupling domestic from EU law
• How will the courts treat EU law after Brexit?
• Implications for the devolved Governments and Parliament
• Future treaties and agreements
• The UK’s negotiating mandate

Click here to register to attend.

Brexit and mixity

Posted on 18 Jul 2016 by Brick Court

Aidan Robertson QC

As David Davis, the new Secretary of State for Brexit, has observed “the EU is clumsy at negotiating free trade deals”.

That clumsiness may also apply to any trade deal the UK seeks to negotiate with the EU to replace membership.

Some commentators have suggested that the UK could replicate the trade deal the EU has negotiated with Canada, the Comprehensive Economic and Trade Agreement (“CETA”).

CETA was due to have been entered into by the EU in exercise of its exclusive competence under the Common Commercial Policy, thus denying any individual Member State a direct say in its ratification.

In a volte face on 5 July, the Commission has now announced that Member States will be required to ratify CETA.

What’s changed? In a word, mixity. Or put more formally, shared competence.

The Commission is currently seeking an opinion from the CJEU on the mixity issue as it concerns the EU/Singapore trade deal in Opinion 2/15.

The Commission has taken the view that there is a risk that not all of CETA falls within the EU’s exclusive competence and that it thus falls to be classified as a mixed agreement. On that basis, some or all of CETA would have been vulnerable to challenge in the CJEU without ratification by individual Member States.

The Commission now expresses the view that CETA can have “provisional application” (although it is unclear what that means), until entry into force on national ratification by all 27 or 28 Member States (depending on whether the UK is still a member). However, ratification may not be straightforward. CETA is seen as a stalking horse for the EU/US trade deal, the Transatlantic Trade and Investment Partnership (“TTIP”), and some reports suggest CETA may face difficulties in particular Member States (Luxembourg, Belgium, Bulgaria and Romania have been mentioned).

If a UK trade deal with the EU, like CETA, also potentially involves mixity, how long would national ratification in the other 27 Member States take? Indeed, would it ever be achieved?

In the meantime, perhaps the UK should get on with joining the US- and Japan-led Trans-Pacific Partnership.