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Legal Aspects of Brexit

The law on the launch of the United Kingdom of Great Britain and Northern Ireland (UK) exit procedure from the European Union (abridged by “Brexit” from the combination of the words Britain and Exit) in was signed by Queen Elizabeth II in the middle of March 2017. After that, on March 29, Prime Minister Theresa May signed a letter to the EU on the start of Brexit, thereby officially launching the process of Britain’s secession from the Union.

How Brexit Started

The UK has always sought to maintain maximum sovereignty within the framework of the European Union, but in recent years it has become increasingly evident that it is not just to distance itself from the Brussels policy, but to finally withdraw from the EU. The decision to withdraw the UK from the EU was formally adopted in compliance with all democratic procedures. The British authorities could not consider such an important issue without initiating a referendum.

On June 23, 2016, the referendum took place, and all citizens of UK and the Commonwealth countries, who was legally residing on the territory of the Kingdom, were able to take part in this procedure. 51.89% of British citizens voted for the country’s secession from the European Union. Supporters of maintaining EU membership lost to their opponents with a minimal margin. After the referendum, the country’s withdrawal from the European Union was only a matter of time. While the procedure is already officially launched, analysts from all over the world speculate on the question of what consequences Brexit may lead to.

The withdrawal of Great Britain from the European Union is connected with a lot of subtleties, and the legal aspects of Brexit are definitely the most difficult. Let us consider this issue in detail. First of all, it should be noted that for a sufficiently long time, the UK has been integrated into the structures of the European Union. Now, as the Brexit procedure is implemented, the country will face numerous legal problems.

The first and most important consequence of Brexit in legal terms is the need to choose the legal form for further cooperation with the European Union. At present, there are several conventional models, and each of them has its own specifics:

1. The «Norwegian Model « implies joining to the European Free Trade Association and the European Economic Area after the Brexit. This actions will ensure the preservation of access to the European market.

2. The «Turkish Model « may entail the conclusion of a customs agreement between the UK and the EU and the preservation of general tariffs on trade with third countries.

3. The «Canadian Model» will allow the UK to conclude an agreement with the European Union on free trade, or (as in the case of Switzerland) several agreements, each of which controls a separate segment of trade (although the Swiss model is widely recognized as complex, and analysts agree that London is unlikely to use it in the process of building further relations with the EU).

In any case, Brexit’s most advantageous outcome for London would be the preservation of the advantages in relations with the European Union in eliminating the shortcomings of membership in the EU. This statement is equally applicable to the trade policy of the country, and to the legal aspects of Anglo-European relations.

Brexit and Immigration Law

One of the main matters of motivation for the opponents of UK membership in the European Union for a long time was the desire to limit the free migration of labor resources from continental Europe to the state. Accordingly, one of the first consequences of Brexit in the legal field is the ambiguity of the legal status of European citizens in the UK. Currently, the British authorities have not yet formulated any coherent program of actions with regard to changing the legal status of citizens of EU countries in the UK. It is only known that changes in the country’s immigration legislation will be implemented step-by-step in order to allow European citizens to adapt to the new reality.

Mirror reflection of the uncertainty of the legal status of European citizens in the UK is the consequence of Brexit for British citizens living or working at the territory of the European Union. Different EU countries are currently home for a fairly large number of Britons, including pensioners, and they are concerned about the preservation of social services, including medical, after the country leaves the European Union.

In February, 2017 the British government published a text entitled «The White Book.» This document states the main issues that are becoming the subject of negotiations between the British leadership and representatives of the European Union. The document refers to the preservation of access to British education for students from EU countries. But the issue of labor immigration from the European Union to the UK is diligently circumvented. Unemployment problem is very painful for London, and the British youth suffer from this more than others.

The regular influx of refugees and labor immigrants from Asian and African countries to continental Europe creates quite tangible prospects for their rapid penetration into the UK. In addition to this, the entry into the European Union of countries in Eastern Europe, in which there is a very difficult situation with jobs, was also considered by the opponents of EU membership as one of the main arguments in favor of Brexit. At present time, the largest diasporas of immigrants from Eastern Europe to the UK are the Polish, Latvian and Lithuanian communities. It can be assumed that in the foreseeable future the UK will adopt amendments toughening the immigration laws of the country with respect to labor immigrants.

It is also not very clear how the contracts already concluded until 2016 will be executed after Brexit, in particular, for works, rendering various services, outsourcing contracts. The tightening of immigration laws can seriously affect the situation in the labor market. In particular, it will be more profitable for British companies to attract UK citizens, rather than people from a number of EU countries, who previously were considered better low-cost labor. For example, Directive 2004/38 / EC provided for freedom of movement of employees - employees within the EU and freedom of residence of EU citizens within the European Union. In the event of its abolition, many immigrants from continental Europe will in fact be unable to work in the UK on equal terms with the British.

What will happen with the tax system?

Brexit will inevitably have an impact on the tax situation. The European Union has a number of directives that remove obstacles to the development of the internal market (Directive of the Council of the European Communities 90/435/EEC «On the General System of Taxation Applicable to Maternity and Subsidiary Companies of Different Member States», Council Directive 2003/49/EC «On the general system of taxation of interest and royalty, payment of which is made between the associated companies of different member states», etc.). For a long time, the UK remained the main vehicle for investment of non-EU companies in the EU economy. After Brexit, with respect to the European affiliates of these companies, EU directives may cease to operate, which will put them before the prospect of double taxation of dividends, interest payments and royalties from the UK to the EU and from the EU to the UK.

However, it is unlikely that London will hinder the investment activities of European companies in the country, since this is not beneficial for the UK. It is highly likely that there will be an attempt by London to take advantage of the situation to increase the flow of investment, and the problem of double taxation can be resolved through bilateral agreements.

English or European court?

Another equally important legal aspect of Brexit is related to changes in the functioning of the British judicial system after the demarcation of the country with the EU. During the two transitional years, from 2017 to 2019, the country will abandon the existing legal system formed in the context of UK membership in the European Union. Currently, the Brussels Rules (I Regulation and IIa of the Rules) regulate civil, family and commercial disputes. Regulations determine the jurisdiction of courts of member countries of the European Union and establish rules for the recognition and enforcement of judgments of the European Union.

Brexit calls into question the validity of the Brussels regulations in the UK. In the event that the Brussels Rules cease to be in force, the prospects for subsequent refusals by European courts to refer cases to English courts on the basis of an agreement between the parties are not excluded.

Brexit may lead to the following fundamental consequences for British justice:

  • The UK will no longer be subject to EU regulations on jurisdiction, recognition of decisions, applicable law;

  • The European Court will no longer be regarded as the highest court of law for the courts of Great Britain, which, therefore, will withdraw from its jurisdiction;

  • The judgments of the European Court will no longer be considered binding by British courts.

The withdrawal of Great Britain from the single judicial system of the European Union will lead to the fact that British courts will have the power to make decisions based on English law. In practice, this may lead to an increase in disputable situations, when the cases will be examined in parallel in the courts of the European Union and the United Kingdom. In turn, there will be an uncertainty in the priority of the European or English judicial instance when considering a specific case.

Will London arbitration suffer?

It should be noted that the consequences of Brexit for the British legal system will not be cardinally transformational. The fact is that many commercial organizations prefer to conclude international contracts regulated by English law. Disputes over these contracts are examined in English courts, and the UK traditionally plays a key role in international arbitration. London is even called the world’s legal capital. It is possible that in the course of further work on Brexit’s legal issues, London will be able to come to an agreement with Brussels on replacing the Brussels Rules with similar rules established by the 2007 Lugano Convention. Another option, which experts are now talking about, is the formation of separate rules for the UK as a result of negotiations between London and Brussels.

The activities of arbitration courts in Great Britain are regulated by the «Arbitration Law of England» of 1996, which does not include provisions of European law and, therefore, formally Brexit cannot affect London arbitration. In addition to this, the United Kingdom is party to the 1958 New York Convention, which is recognized worldwide as the normative basis for international arbitration. Since the activities of British arbitration courts are regulated by these documents, the refusal of European law will not directly affect it.

However, it is hardly possible to say with certainty that the position of the UK in international arbitration after Brexit will stay the samw. The credibility of English arbitration has always been very strong, which was associated, first of all, with the quality of the courts, their incorruptibility, the objectivity of the decisions made. The strengths of English arbitration cannot disappear after the country leaves the European Union, and the world understands this perfectly. A number of experts are convinced that Brexit will still play a negative role for the popularity of English arbitration. This is primarily due to the fact that companies from EU countries can abandon English arbitration and reorient themselves to competing arbitration courts of France and Singapore, as they have seriously strengthened their positions in recent years.

Brexit and the Bar Association

Another legal plane where the influence of Brexit will inevitably be felt is the practice of lawyers. Even in 2016, many law firms operating in the UK began to withdraw their lawyers to the offices of the European Union. This phenomenon, as well as the increase in the cases of re-registration of London lawyers in the Bar of Dublin (Ireland), is due to the fact that after Brexit lawyers are afraid of losing the opportunity to practice European law and work in the courts of the European Union. For law firms that previously worked in the UK, this can lead to serious consequences, so their owners are eager to quickly resolve the issue of re-registration of their lawyers in Ireland or move offices to the countries of the European Union.

Analysts predict a significant expansion of the Irish legal services market precisely because of the relocation of offices of many law firms from London to Dublin1. So, Brian O’Gorman explains this by saying that Ireland will remain the only English-speaking jurisdiction with Anglo-Saxon law within the European Union. This circumstance, of course, will increase the country’s competitiveness as a new promising headquarters for many multinational companies that used to work in London.

However, according to many experts, fear of the decline of British law firms is not worth it. Anglo-Saxon law remains very attractive, unlike the more complex legal systems of continental Europe. In addition, the British courts maintain their demand, and therefore the British Bar Association will also be able to continue its effective work even under new conditions. English will also remain the language of transnational legal communication, regardless of the relationship of Great Britain with the European Union.

Thus, we can conclude that Brexit is quite capable of leading to serious legal consequences for the UK, primarily related to the transformation of immigration laws, jurisprudence, the work of arbitration courts and law firms. However, at present time Brexit’s legal and regulatory framework is not only not being implemented, but even not developed. Therefore, it is premature to assess the real prospects for the consequences of Britain’s withdrawal from the European Union for the legal sphere of the life of British society.

1 Natasha Bernal. Ireland: Brexit’s biggest legal services winner // https://www.thelawyer.com/issues/12-september-2016/ireland-special-report-2/?nocache=true&adfesuccess=1