The Legal Consequences of the No-Deal Scenario

Background

On 24 September 2019, the British Supreme Court declared Boris Johnson's decision to suspend the British Parliament for five weeks illegal.

The drastic nature of the Prime Minister's decision was justified by the need to resolve the stagnant situation that has been gripping the relationship between the United Kingdom and the European Union for three years now.

However, it should not be forgotten that Parliament recently approved a law under which the British government is required to ask the European Union for an extension of Brexit (currently set for 31 October 2019), should the parties fail to reach a deal.

Although it seems that the United Kingdom has taken all necessary precautions to implement this law, the risks are not completely eliminated and twists and turns are always around the corner. The No-Deal scenario could still, therefore, be the ultimate solution adopted by the parties. For this reason, we believe that economic operators should be aware of the consequences that the No-Deal scenario could have on legal transactions involving English jurisdiction. In fact, after leaving the European Union, the United Kingdom will be considered as a "third country" and, consequently, economic operators will have to take into due consideration all relevant business implications of such scenario.

Taxation

The United Kingdom will no longer be subject to the customs and tax regulations of the European Union.

As a result, all goods exported from or imported into the United Kingdom will be subject to customs authorities and procedures set forth under European Union legislation for “non-EU” operators. This implies, amongst other things, the application of customs formalities, the lodging of declarations and the possibility that customs authorities require the issuance of specific guarantees. This not only implies an increase in costs, but also that the movement of goods will presumably take longer.

Any goods imported into the European Union from the United Kingdom or exported from the European Union to the United Kingdom will be treated as imports or exports coming from non-European countries. It follows that, on the one hand, whoever imports an English product into the European Union will have to pay the VAT imposed on the product. On the other hand, a person sending goods from the European Union to the United Kingdom will not charge VAT on those goods. the will be performing a VAT exempt export and the exporter will then be in charge of keeping the customs declaration of exit to avoid the application of VAT on the product.

The impact of a No-Deal scenario on taxation will also affect cross-border transactions between UK and European companies. According to European regulations, the exemption from double taxation applies where the taxpayer and the beneficiary are resident in a member state of the European Union. Therefore, once the United Kingdom will have left the European Union, the double taxation exemption will no longer apply should the taxpayer or recipient be resident in the United Kingdom.

Employement

If no exit agreement is reached, EU residents with an English employment contract will be exposed to those same rules and restrictions that workers from non-EU countries are currently subject to. Similarly, English workers who wish to work in one of the Member States will have to obtain work permits. In general, once Article 50 of the Treaty on the Functioning of the European Union has been implemented, the United Kingdom will no longer be required to comply with European labour laws and only local labour laws will apply to all labour related matters such as - for example - working time, fixed-term contracts and minimum wages.

Intellectual Property

Intellectual property rights filed or registered under European law (essentially European trade marks and Community designs, since the European patent is not officially operational yet) will cease to have effect in the United Kingdom on 1 November 2019.

With regard to European trade marks and designs already registered at the date of Brexit, the Intellectual Property Office, which manages the registration of intellectual property rights in the English national territory, has planned to create, automatically and without cost for the owners, an equivalent English national registration, which will therefore allow the owners to maintain their rights on the trade mark and the design unchanged. Furthermore, the effective date of such equivalent registrations will correspond to the one of the original European registrations.

The owners of such equivalent registrations will then be able to decide whether to maintain them or have them removed from the Office in order to avoid unnecessary duplication of rights and cost increases. Should the European trade mark or Community design application be still pending on the Brexit date, owners may, within the next nine months, file an application for a UK national trade mark or design with the competent office without losing the first filing date of the national trade mark application

Privacy

The European Union's rules on the transfer of personal data "to third countries" will start applying to the United Kingdom as a result of the No-Deal scenario. In the event that no agreement of any kind is reached, the transfer of sensitive data between Member States and the United Kingdom will be dependent on the granting by the controller or processor of "adequate safeguards", such as data protection clauses, binding corporate rules approved by the competent data protection authority, or codes of conduct.

Otherwise, in the lack of such "adequate safeguards", the transfer of sensitive data may only take place in specific cases, for example on the basis of the consent of the parties, for the performance of a contract, for the exercise of legal rights or justified on the basis of public interest reasons connected with the public interest.

International Jurisdiction

The European Union's private international law provides harmonized rules for international jurisdiction in civil and commercial matters, such as - for example - bankruptcy law and family law. In general, these harmonized rules only apply if the defendant is domiciled or resident in a Member State. As a result, the European rules on international jurisdiction will no longer apply to proceedings against a defendant domiciled in the United Kingdom and that commence in a Member State after the date of exit. However, private parties could agree on jurisdiction and provide for a jurisdiction clause. In the absence of an agreement between private parties, any proceedings involving a party with the residence in the United Kingdom will be settled before the court having jurisdiction on the basis of the national and international rules on the jurisdiction governing the relations between the individual Member State of the European Union and the United Kingdom.

In addition, European Union private international law establishes rules to facilitate the recognition and enforcement of judgments passed by a court of a Member State. With regard to judgments passed and not yet enforced by an English court or a court of a Member State after Brexit, the European rules on the recognition and enforcement of judgments will no longer apply. More specifically, the procedures for the recognition and enforcement of judgments will be governed by the national and international rules of the Member State in which the party seeks recognition/enforcement or of the United Kingdom, as the case may be.

Conclusion

The No-Deal scenario will entail numerous changes on a multitude of issues having a legal impact: some can be - to a certain extent - predicted, whilst others still have an uncertain and blurred outline. In addition to implementing preventive measures in view of the possible No-Deal scenario, operators who intend to continue or start a business relationship with operators based in the United Kingdom – and UK based operators doing business with operators in the EU- should also consider bilateral or multilateral agreements or treaties to which the United Kingdom is – or will be- a party in order to assess if and to what extent such treaties might affect their business.