Brexit’s impact on business law: a view from Spain

10 January 2020 by Jorge Angell Senior Partner at LC Rodrigo Abogados, Paola Moctezuma de la Peña Lawyer at LC Rodrigo Abogados

Brexit’s impact on business law: a view from Spain

This commentary is made from a legal perspective only. By “business law” we mean, generally speaking and quite arbitrarily, all legal principles, instruments and mechanisms that have been designed and put in place in order to facilitate, enhance, develop, and protect business activities, and particularly cross-border business activities within the European Union.  

If, as expected after the favourable vote of the United Kingdom’s (“UK”) Parliament on 20 December 2019, the Withdrawal Agreement completes passage through both houses of Parliament, and the European Union (“EU”) ratifies the Agreement, the UK will leave the EU on 31 January 2020 the latest, date in which the last extension expires.

Assuming that the Withdrawal Agreement will become effective in the UK and that the EU will ratify it, a period of negotiations will be opened for around 8 to 9 months in which the EU and the UK can negotiate and hopefully agree their future relationship (the implementation or transition period). During the implementation period the UK will keep its rights and obligations as an EU Member State, except those concerning its involvement in the EU institutions and the governance of the EU. According to Part Four of the Agreement, the implementation period will expire on 31 December 2020 and can be extended once, if decided before July 2020 by mutual agreement, and for up to one or two years, but during this extension the UK will not be able to participate as a Member State but rather as any other third country.[1]

Looking back for a minute “uncertainty” may be the word that could define the past three years in Europe, but Michel Barnier, negotiator on behalf of the EU, seems to look at the coming years with optimism as a start of “an ambitious partnership with the UK” [2]. Hopefully, Brexit could be heading to a new beginning rather than a tough ending. Indeed, with the majority win by the Conservative Party in the UK on 13 December 2019, it seems that “uncertainty” is giving way to “a reasonable certainty” that the UK will leave the EU on 31 January 2020. However, although the Withdrawal Agreement is not effective yet and several months of negotiations lie ahead, uncertainly may not have been removed in relation to the future trade talks.

In any case, it should be noted that the EU Member States have all prepared for a “Hard Brexit” outcome[3]. For instance, in Spain a Royal Decree Law 5/2019[4] was adopted on 2 March 2019 which will only enter into force if the Withdrawal Agreement is not ratified leading to a “Hard Brexit”. Most important points of the Royal Decree Law concern UK nationals’ individual rights (natural or legal persons) in Spain, in order to keep as much stability as possible regarding private and employment relations as well as trade, commercial transactions and financial services (among others, banking, securities and insurance).

In the matter of insurance, contracts concluded before the effective date of withdrawal will still be valid after this date. Any renewal or amendments that imply the rendering of new services in Spain, or affecting essential obligations of the parties, or new contracts will require a third country authorisation. A provisional 9-month permit will also be available in connection with contracts concluded before the withdrawal for their orderly termination or assignment to an authorised entity, or to apply for a licence to do business in Spain.

Most of these provisions are subject to reciprocity expecting the UK to grant Spanish nationals the same or equivalent treatment under English law.

Nevertheless, as it is apparent that the Agreement will be ratified, what impact will Brexit have on the legal principles, instruments and mechanisms we were referring to above?

Impact on contracts

Under Article 66 (a) of the Withdrawal Agreement, all contracts concluded before the end of the transition period will be subject to Regulation (EC) No 593/2008 of the European Parliament and of the Council[5] (Hereinafter Rome I Regulation).

As is known, said Regulation contains choice of law rules which apply throughout the European Union[6] and are essential in order to achieve certainty as to the governing law of contracts. Certainty is also provided by a uniform interpretation of the rules by the European Court of Justice.

Contracts concluded after the end of the transition period would no longer be subject to said Regulation. However, in principle, nothing would prevent the parties to contracts other than contracts with consumers from agreeing the governing law of their contracts.

Impact on non-contractual matters (torts)

Under Article 66 (b) of the Withdrawal Agreement, Regulation (EC) No 864/2007 of the European Parliament and of the Council[7] (Rome II Regulation) shall apply in respect of events giving rise to damage, where such events occurred before the end of the transition period.

This common set of rules will cease to apply to events occurring after the end of the transition period. This means that national rules will apply in this regard.

Impact on passporting rights

The passporting rights have been instrumental to the development of the single market. This mechanism has allowed companies from the Member States to provide certain financial services throughout the EU without the need to comply with individual Member States’ regulatory requirements. 

This is probably one of the more undesired consequences of Brexit. Once the transition period is over UK companies will lose their passporting rights to provide services from the UK to the EU. According to the Financial Conduct Authority as at August 2016 approximately 5,500 companies in the UK had 336,000 different financial passports and 8,000 Europeans had 23,500 financial passports to operate in the UK[8].

Losing these rights will mean that the UK companies wishing to do business in the EU shall have to obtain, as any other third country, an authorisation according to the laws of each EU Member State in which they would like to operate.

As we mentioned above, Part Four of the Withdrawal Agreement establishes a transition period and during this period, EU law still applies to the UK according to Article 127.1 and 3 of the Agreement. Furthermore, the UK remains in EU customs and the single market. This means that all four European freedoms must be respected as well as all EU policies.

This is important as it means that passporting rights will still be valid for British (re)insurance companies in EU Member States as well as for the EU companies operating in the UK until the end of the transition period.

It is public knowledge that many insurance companies based in London have moved their headquarters to other EU Member States in anticipation of the withdrawal. Among others, QBE and Lloyd’s which have chosen Brussels, AIG, Hiscox and Liberty Speciality Markets to Luxembourg, Beazley to Dublin and Chubb to Paris[9].

Impact on data protection

Since the adoption of Regulation (EU) 2016/679 of the European Parliament and of the Council[10] (“GDPR”), companies have necessarily been updating their data treatment internal procedures in order to fulfil the minimum requirements of the EU Regulation. 

According to article 44 of GDPR any transfer of personal data to a third country can only occur if conditions of the Regulation are complied with by the controller and processor and only then it would mean it reaches the level of protection intended by the EU. In that case, an adequacy decision must be released by the European Commission if it considers the level of protection is well reached and is equivalent to EU’s level of protection.

Impact on cross-border litigation

According to article 67.1 (a) of the Withdrawal Agreement, Regulation (EU) No 1215/2012 of the European Parliament and of the Council[11] (Brussels Regulation Recast) will apply to any legal proceedings instituted before the end of the transition period. This means that until the end of the transition period any dispute between a UK national entity and a European company will be subject to the Brussels Regulation Recast in the matters regulated by the Regulation. If a contract contains a jurisdiction clause giving UK courts full jurisdiction it will have to fulfil the European Regulation requirements[12].

Under Article 67.2 (a) of the Withdrawal Agreement, the recognition and enforcement of judgments in civil and commercial matters will be subject to the Brussels Regulation Recast. This will include any judgments given in legal proceedings, authentic instruments and court settlements which were instituted, formally drawn up or registered, approved or concluded before the end of the transition period.

The parties to UK-EU cross border contracts may opt for arbitration to settle any disputes eventually. In this case, the awards could be enforced under the New York Convention 1958, as amended.

Conclusion

This is the broad picture concerning business law as from 31 January 2020 assuming of course that the Withdrawal Agreement is given the green light by the UK Parliament and the EU. To some extent it will be business as usual during 2020. However, there is still some uncertainty as to whether the UK and the EU will be able to reach agreement on their future relationship, particularly if the UK is against the one or two-year extension after 31 December 2020. Following a meeting on 8 January 2020 between Prime Minister Johnson and the European Commission President, Ursula von der Leyen, uncertainty has been reinforced. Prime Minister Johnson has reiterated his promise that the UK will not extend the time for future trade negotiations as he believes agreement can be reached. In contrast, Ursula von der Leyen has warned that it will be impossible for the UK and EU to finalise a comprehensive trade deal by 2020 and if the UK will not extend the time then priorities need to be outlined.

It follows that a “Hard Brexit” may not be a thing of the past and the future is not as clear as it would be desirable, and companies should still be prepared for a “Hard Brexit” after the transition period.

 

[1] It appears that the Prime Minister Johnson is not willing to permit that extension, or an excessive control of negotiations by Parliament. If the Withdrawal Agreement Act 2018 is amended a “prohibition on extending implementation period” will be adopted under Section 15A.

[2] Michel Bernier, Speech at the annual conference of the European Defence Agency 28th November 2019 Available in https://ec.europa.eu/commission/sites/beta-political/files/eda-annual-conference-speech.pdf

[3] National Brexit information in Member States. Available in https://ec.europa.eu/info/brexit/brexit-preparedness/national-brexit-information-member-states_fr

[4] Royal Decree-Law 5/2019, of March 2, adopting contingency measures to prepare for a withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union without the conclusion of the agreement provided for in Article 50 of the Treaty on European Union. English version available in https://www.lamoncloa.gob.es/lang/en/brexit/howtoprepare/Documents/Royal%20Decree-Law%205-2019.pdf

[5] Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) (OJ L 177, 4.7.2008, p. 6–16).

[6] Denmark is not bound by the Regulation.

[7] Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II) (OJ L 199, 31.7.2007, p. 40).

[8] Letter from Financial Conduct Authority to Committee Chair regarding passports, 17 August 2016. Available:https://www.parliament.uk/documents/commons-committees/treasury/Correspondence/AJB-to-Andrew-Tyrie-Passporting.PDF also cited by the Study for the ECON Committee of the European Parliament, on Implications of Brexit on EU Financial Services, 2017 (Table 11, p. 48). Available in English: https://www.europarl.europa.eu/RegData/etudes/STUD/2017/602058/IPOL_STU(2017)602058_EN.pdf

[9] https://www.argusdelassurance.com/reglementation/brexit-ce-qui-va-changer-pour-les-assureurs.130867

[10] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1–88)

[11] Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (Brussels Regulation Recast) (OJ L 351, 20.12.2012, p. 1–32).

[12] Vid. Section 3 of Brussels Regulation Recast, Insurance contract section.