Brexit and Legal Practice – The Impact and Opportunities

1. Brexit and Legal Practice – The Impact and Opportunities Constitutional and economic realities post Brexit Lyndon Mac Cann SC

2. Constitutional and economic realities post Brexit –The Service of the Article 50 Notice • Brexit involves the voluntary withdrawal of the UK from the European Union pursuant to Article 50 of the Treaty on the European Union. • The Article 50 Notice was served on 29 March 2017 and will result in the UK’s ceasing the be a Member State on 29 March 2019 (unless all the European Council and Member States agree to defer the effective date for cessation of membership pursuant to Article 50(2). • The legal effects of Brexit on relations between Ireland and the UK and between the UK and the EU generally have the potential to be immense.

3. Constitutional and economic realities post Brexit –The Belfast Agreement • The peace process in Northern Ireland is based upon several agreements between Ireland and the UK, ranging from the Belfast Agreement in 1998 to the Stormount House Agreement in 2014. • The Belfast Agreement provided for the creation of the Northern Ireland Legislative Assembly, the North/South Ministerial Council, the British-Irish Council and the British-Irish Intergovernmental Conference. • Whilst Brexit will not bring an end to these structures, nevertheless the fact of both jurisdictions being Member States of the EU, does underpin the Belfast Agreement and is expressly referenced in the Recitals to the Agreement itself.

4. Constitutional and economic realities post Brexit –The Belfast Agreement • Whilst Brexit does not necessarily mean that the UK will cease to be a party to the European Convention on Human Rights, it is an express requirement of the Belfast Agreement that all legislation passed by the Assembly should comply with the ECHR. • Northern Irish citizens also currently enjoy the protections of the EU Charter on Fundamental Rights which is applied throughout the entire sphere of EU law. • Significantly, the Charter gives certain rights which are not to be found in the Charter.

5. Constitutional and economic realities post Brexit –The Belfast Agreement • The Great Repeal Act will preserve all existing EU law as UK domestic law. Thus the protection of the Charter will not be lost overnight. • Nevertheless, UK citizens, including those in Northern Ireland, will lose their right to have legal issues arising in respect of the Charter referred to the CJEU for a preliminary ruling. • The Belfast Agreement also expressly requires co-ordination between – • the Assembly and the UK Government, • the Assembly and the Irish Government (through the North/South Ministerial Council); and • The UK and Irish Governments through the British-Irish Council inter alia, on EU issues.

6. Constitutional and economic realities post Brexit –The Belfast Agreement • Additionally, the Council is mandated to consider the EU dimension of relevant matters, including the implementation of EU policies and proposals and must arrange to have its views represented at an EU level. • It is far from clear as to how this EU dimension of the Belfast Agreement can continue to be successfully implemented once Northern Ireland ceases to be part of the EU. • Moreover, any attempts in the future to negotiate amendments to the Northern Ireland Peace Agreements on a bilateral basis between the UK and Irish Governments may be seriously jeopardised by the UK’s departure from the EU.

7. Constitutional and economic realities post Brexit –The Belfast Agreement • In Commission v Luxembourg, Case 266/03 it was held by the CJEU to be impermissible for Luxembourg to conclude individual agreements with Eastern European states on transport matters at a time when the EU was negotiating the accession of those states to the EU. • In the same way, if the Irish Government wished to negotiate amendments to the Belfast Agreement in the future, it might find itself restricted as to what it was able to negotiate bilaterally, at least insofar as those negotiations strayed into economic or social matters in which the EU has legal competence under Article 5 of the Treaty on the Functioning of the European Union.

8. Constitutional and economic realities post Brexit –EU Funding • Both Ireland and Northern Ireland have benefited from various funding streams available from the EU. • Under the EU Cohesion Policy (2014-2020) Northern Ireland is classified as a region in transition and thus has access to a greater level of funding that the Republic. • The EU has also helped to fund and support various stages of the peace process, with the current programme, Peace IV intended to finance projects promoting reconciliation, social inclusion and education until 2020.

9. Constitutional and economic realities post Brexit –EU Funding • Another fund, Interreg IVA provides structural funding for border regions, with Ireland and Northern Ireland falling within several of the designated regions. • Ireland/Northern Ireland and Scotland are collectively recognised as a region requiring specific funding. It is a programme worth €240 million, with €42 million of matching funding coming from Ireland and the UK. • With the withdrawal of the UK from the EU, all of these sources of funding for projects I Northern Ireland must be thrown into considerable doubt.

10. Constitutional and economic realities post Brexit –The ‘Frictionless’ Border • Both the UK and Irish Governments have recently and repeatedly expressed their commitment to ensuring that there is a frictionless border between the Republic and Northern Ireland post-Brexit. • Since the establishment of the Free State in 1922 there has been a Common Travel Area (“CTA”) encompassing Ireland and the UK, which, with the exception of a brief hiatus during the Second World War, has allowed for the passport-free movement of persons between the two jurisdiction. • The CTA originally existed on an informal basis, before being formalised by an Aliens Orders in Ireland in 1946 and by the UK in 1952.

11. Constitutional and economic realities post Brexit –The Frictionless Border • Both States elected to remain outside the Schengen passport-free travel zone. Indeed, it would have been practically impossible for one State to join Schengen and for the other the remain outside Schengen, without the CTA having to come to an end. • By Ireland and the UK not joining Schengen, the CTA was able to continue to extend to the Isle of Man and the Channel Islands, neither of which is a member of the EU. • Following Brexit, Ireland will be the only Member State of the EU which is neither a member of, nor working towards becoming a member of Schengen.

12. Constitutional and economic realities post Brexit –The Frictionless Border • If Ireland were to join Schengen post-Brexit (and there may be political pressure on it to do so), then the CTA would effectively come to an end. • In this regard, an instructive comparison may be drawn with the position of the Faroe Islands. • Denmark, Sweden, Norway, Finland, Iceland and the Faroe Islands are all part of the Nordic Passport Union (“NPU”) which allows for passport-free travel between the member states. • The Faroe Islands declined to join Schengen despite the fact that all other members of the NPU did join.

13. Constitutional and economic realities post Brexit –The Frictionless Border • The effect of the Faroe Islands not joining Schengen has been to restrict travel from the Faroe Islands to other members of the NPU. • Despite the fact that persons may travel without passport checks from the other members of the NPU to the Faroe Islands, persons travelling from the Faroe Islands to other countries in the NPU are subject to passport controls. • Thus, if Ireland were to join Schengen, there would be no alternative under EU law but to impose a hard border (ie with passport controls) for persons travelling from the UK (including Northern Ireland) to the Republic.

14. Constitutional and economic realities post Brexit –The Frictionless Border • Moreover, whilst it would technically be possible for the UK, as an independent state, to elect not to impose passport controls on persons travelling from Ireland to the UK (including Northern Ireland), it is difficult to see how such a choice would be, in practice, made by the UK Government in circumstances where immigration control appears to have been one of the strongest arguments advanced in favour of Brexit, both during and since the referendum campaign. • Furthermore, even if Ireland determines not to join Schengen, it is difficult to see how border controls will not come into effect as between the two States.

15. Constitutional and economic realities post Brexit –The Frictionless Border • In this regard, the border between Norway and Sweden provides some useful guidance. • While both countries are members of Schengen, only Sweden is a Member State of the EU. • The border between the two countries is therefore an EU external border. • Because both countries are members of the NPU and of Schengen, there are no passport controls or immigration checks between them. However, because Norway is outside the EU, there are customs checks.

16. Constitutional and economic realities post Brexit –The Frictionless Border • In much the same way, even if the UK were to elect, as an independent nation, not to impose customs checks on goods travelling to from the Republic to the UK (including Northern Ireland), nevertheless there would be an obligation on Ireland under EU Law, to impose customs checks on goods coming from the UK (including Northern Ireland) into the Republic. • In this regard, whether the check is a passport check or just a customs check, it is hard not to conclude that post-Brexit a hard border will exist between the UK and the Ireland, including the land border between Ireland and Northern Ireland.

17. Constitutional and economic realities post Brexit –The Financial Services Sector • The United Kingdom and in particular the City of London, is a very significant participant in the global financial services system. • The departure of the United Kingdom from the European Union will potentially have profound effects on the whole financial services centre. • Currently, an EU financial services provider with authorisation in one Member State is able to “passport” its services into the rest of the EU under the single market rules.

18. Constitutional and economic realities post Brexit –The Financial Services Sector • Following Brexit, UK financial services firms will no longer be in a position to automatically rely upon their UK authorisation to carry on business throughout the European Union and it may therefore be necessary for them to relocate certain of their activities to an EU Member State and to obtain authorisation in that country if they want to be able to continue to freely provide financial services within the single market. • The converse is of course that for EU financial services companies, including Irish companies, wishing to provide financial services into the UK, they may no longer be able to rely upon their EU authorisation in order to do business in the UK. As to whether their EU authorisation will be recognised in the UK will ultimately be a matter for UK legislation.

19. Constitutional and economic realities post Brexit –Practical Irish Litigation Issues • Once the UK leaves the EU there will no longer be facility for service of Irish proceedings on persons in the UK without the leave of the Irish court. • Thus, for Irish proceedings against persons in the UK leave to serve abroad, will now be required, as it was before the Brussels Convention came into force in 1988, and as it has always been is the case of persons located in non-EU States such as the USA, Australia, Canada, etc. • In relation to the service of legal proceedings, the EU law provisions on the service of legal documents will no longer apply, and service will instead have to be effected in accordance with whatever domestic rules may apply from time to time.

20. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • Following Brexit, the UK will remain a very important centre for international commercial litigation. • In many cases, it will be irrelevant to the parties as to whether the UK is or is not a Member State of the European Union. • If, for example, Company A is contracting with Company B and both entities are outside the European Union and neither entity has assets within the European Union, it will probably continue to be a matter of indifference to them, when choosing the governing law for their contract and in choosing the jurisdiction for dispute resolution, as to whether or not the UK continues to be part of the European Union.

21. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • Equally well however, for many parties, the fact that the UK will no longer be part of the European Union will be a matter of some considerable importance and relevance. • An EU company that may in the past have been happy to agree to an English choice of law and choice of jurisdiction clause, may no longer be as willing to do so, for reasons outlined below. • The CityUK has noted in its paper Theimpact of Brexit on the UK-based legal services sector, that a key component of a jurisdiction’s international competitiveness is the extent to which its Courts’ judgments will be recognised and enforced internationally.

22. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • When the Singapore International Court was first established, many commentators highlighted the fact that Singapore was a signatory to very few reciprocal agreements with other nations in respect of the enforceability of judgments and that that was a significant factor which affected the popularity of the SICC. • As a member state of the European Union, the UK enjoys the benefit of (a) the re-cast Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, as well as the Lugano Convention, which, between them, apply broadly speaking to the EU and the EEA.

23. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • Key features of these two instruments are as follows:- • Subject to certain exceptions, a defendant should be sued in the Member State in which he is domiciled (ie ordinarily resident). • Where the parties to a contract choose a particular forum for the resolution of any disputes, the courts of that Member State will have exclusive jurisdiction, even where none of the contracting parties in domiciled in that Member State or indeed in any Member State. • If the courts of one Member State are properly seised of the dispute, the Courts of all other Member States must decline jurisdiction. • The courts of one Member State may apply “protective measures” to assist with proceedings in the Member State in which the substantive proceedings are being heard (eg freezing a defendant’s assets pending the trial). • Once judgment has been granted by the Courts of the Member State which is seised of the dispute, that judgment is automatically recognized and is to be enforced by the of a all other Member States. This entitlement to recognition and enforcement applies also to protective measures.

24. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • So, for example, if a Russian company and a Brazilian company insert an English jurisdiction clause into their contract, the English Courts will have exclusive jurisdiction and this exclusive jurisdiction will have to be recognised by the Courts of all of the other Member States of the EEA. • Moreover, because of the English Court’s exclusive jurisdiction, if either of the contracting parties tried to litigate in the Courts of another Member State, the Court of that other Member State would be obliged to decline jurisdiction. • Also, once judgment has been handed down by the English Court, that judgment will be readily enforceable n all Member States.

25. Constitutional and economic realities post Brexit –The Recognition and Enforcement of Judgments • In circumstances where at least one of the litigating parties is located within the EEA or has assets within the EEA against which judgment might be enforced, the fact of the UK no longer being part of the European Union becomes of some considerable relevance since the recognition and enforcement provisions and the interim protection measures of the re-cast Brussels I Regulation and the Lugano Convention will no longer apply to judgments of the English Court.

26. Constitutional and economic realities post Brexit –Cross-Border Insolvency • Council Regulation (EC) No 1346/2000 on Insolvency Proceedings, as amended, provides as EU-wide structure for the opening of insolvency proceedings and for the recognition and enforcement of insolvency orders of one Member State throughout all of the other Member States. • The basic principle is that insolvency proceedings should be opened in the Member State where the debtor has his or its centre of main interests (“COMI”). • Where main insolvency proceedings have been opened before the courts of one Member State, they cannot be opened in any other Member State.

27. Constitutional and economic realities post Brexit –Cross-Border Insolvency • Under the Regulation, the liquidator, etc, once appointed in the State where COMI exists, is to have his title to act recognised and enforced through all of the Member States. • Insolvency Orders made in the Member State where the main proceedings are located, should be recognised and enforced through the EU. • Once the UK leaves the EU, insolvency orders made in the UK will no longer be automatically enforced in Ireland, since the Insolvency Regulation will no longer apply to UK insolvency proceedings.

28. Constitutional and economic realities post Brexit –Cross-Border Insolvency • In cases such as Re Flightlease (Ireland) ltd [2012] 1 IR 722 and Re Sean Dunne (A Bankrupt) [2015 IESC 42 the Irish Supreme Court has rejected the proposition that there exists some common law doctrine of universalism in insolvency. • Thus, once the UK ceases to be a member of the EU and can no longer rely upon the Insolvency Regulation for the recognition and enforcement of its insolvency orders, it will also not be able to fall back on any common law basis for having its insolvency orders recognised and enforced in Ireland.

29. Constitutional and economic realities post Brexit –Cross-Border Insolvency • At best, therefore, the Irish courts would recognise the right and title of the liquidator or trustee in bankruptcy to act on behalf of the company or estate in bankruptcy and to sue on its behalf in Ireland. • However, the most that the liquidator or trustee could do, would be to pursue ordinary common law actions for breach of contract, tort, etc. • Statutory remedies that might be available under the UK Insolvency Act 1986 in respect of wrongful trading and fraudulent trading and/or to set aside antecedent transactions (eg as fraudulent preferences) would not be available to him before the Irish Courts.

30. Constitutional and economic realities post Brexit –Cross-Border Insolvency • Under section 1417 of the Companies Act 2014 and section 142 of the Bankruptcy Act 1988 (as amended) there is provision the enforcement of insolvency orders of courts of non-EU Statues that have been recognised for that purpose. • Recognition would involve the making of statutory instruments to that effect by the relevant Minister, recognising the courts of the UK. • Accordingly, unless and until such SI’s are made, the ability of the UK Courts to have their insolvency orders enforced and the ability of UK insolvency practitioners to act in respect of parties or assets located in Ireland will be greatly curtailed.

31. Constitutional and economic realities post Brexit –Cross-Border Mergers • Currently cross-border mergers may be effected between companies in different Member States of the EU pursuant to the provisions of the Cross-Border Mergers Directives 78/855/EEC, 82/891/EEC and 2005/56/EC. • From an Irish perspective, post-Brexit, it will no longer be legally possible for UK companies to merge into Irish companies using these Directives. • Furthermore, by virtue of section 1430 of the Companies Act 2014, the scheme of arrangement provisions in the Act will not be available for the purpose of facilitation of amalgamations/mergers which include a foreign company.

32. Constitutional and economic realities post Brexit –Cross-Border Mergers • In the circumstances therefore, a cross-border merger involving a UK company merging into an Irish company would no longer appear to be feasible following Brexit. • Furthermore, even if UK law were to provide for the merger of EU companies into English companies, a purported merger involving an Irish company would not be recognised as a matter of Irish law without some formal procedure being followed under Irish law, such a winding up of the Irish company and the distribution of its assets, or a straightforward sale of the assets of the Irish company to the UK company.

33. Constitutional and economic realities post Brexit –Conclusion • The foregoing are merely a small selection of the legal issues that would appear to arise consequent upon the implementation of Brexit. • There are, of course, a whole host of other areas where legal issues will arise, for example in the areas of • Intellectual Property – the effect of the pan-EU intellectual property tights regime and the need to relocate the London division of the Unified Patent Court to another EU State; • State aid and the limited alternative protection under OECD rules and other international trade agreements; • Competition law; • EU Merger Control and the Merger Control Regulation; • Prospectuses and flotations; • Employment and pensions; • Trading Standards.

34. Constitutional and economic realities post Brexit –Conclusion • Each of these issues could conceivably warrant separate debate at their own individual conferences. • Unfortunately, time does not allow for a detailed consideration of them in this paper. • Nevertheless, practitioners should be live to the issues and should be prepared to deal with them well in advance of the actual occurrence of Brexit rather than waiting to address them ex post facto.