On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

As reported in Crowell & Moring’s previous post, the U.K. government announced a Sanctions and Anti-Money Laundering (AML) Bill to provide the U.K. with the necessary framework and powers to implement economic sanctions and AML regulations once it formally exits the European Union.

The Sanctions and AML Bill was introduced in the House of Lords in October 2017. Several matters were discussed and amended during the Report stage in the House of Lords:

Sanctions:
The government restricted the regulation-making powers of the executive branch to cases in which there is good and reasonable cause for action and where the Parliament has issued a report.
Designations require procedural fairness and proportionality. In addition, the power to designate by description is now limited to cases in which it is not practicable for the Minister to identify by name all the persons falling within the description, and the description is sufficiently precise that a reasonable person would know whether any person falls within it.
The licensing regime was also discussed and the U.K. government stated that an initial framework for exceptions and licenses will be published and the interested parties will continue to be consulted before the Sanctions and AML Bill enters into force.

 

AML:
The government did not establish a broad power to create new criminal offenses in the AML context.
The new Bill will not implement a beneficial owner registry in overseas territories or a register of beneficial ownership of U.K. property registered outside the U.K. However, Clause 44 of the report requires the Secretary of State to publish and lay before Parliament three reports on the progress that has been made to put in place a register of beneficial owners of overseas entities.

The review of the Sanctions and AML Bill in the House of Lords was completed on January 24. The Bill was then introduced in the House of Commons for first reading on January 25. The version of the Bill introduced in the House of Commons can be found here, along with Explanatory Notes.

No amendments were made during this first reading, and the Bill’s second reading is scheduled for February 20. Three more steps are still necessary within the House of Commons (Committee Stage, Report Stage, and Third Reading) before the Bill is ready to receive royal assent and be enacted into law. There is no set time period for the discussion of amendments and royal assent.

 

In the context of the negotiations on the terms of the transition period during which the U.K. will remain bound by EU rules following its official exit, the applicability and enforcement of international trade agreements between the EU and third countries is an important question. Although the U.K. would remain bound by the terms of the free trade agreements (FTA) concluded by the EU, the major trading partners with which these FTAs have been concluded would not necessarily be bound to respect the terms of the agreements in relation to the U.K.

Certain trading partners including Canada and Japan appear determined to follow a more conciliatory approach, emphasizing the desirability of preserving a degree of predictability in their trade relations with the U.K. Japanese officials have mentioned the onerous nature of renegotiating existing trading terms with the U.K., while Canadian officials refer to the fact that the FTA with the EU (CETA) has been concluded and entered into force so recently.

However, other trading partners including Chile and South Korea have suggested they might seek to condition the extension of their FTAs’ applicability to the U.K. during the transition period. South Korea in particular appears to see two opportunities to extract concessions from the U.K. to remedy the trade deficit it has maintained with the U.K. in recent years. The first opportunity would arise in the context of agreeing to the transition period, and the second in the subsequent negotiation of bilateral trade terms with the U.K. to apply after the transition period.

As a result, in an attempt to protect FTAs from renegotiation, the EU and U.K. will likely agree on a declaration confirming the continued applicability of these FTAs to the U.K. during the transition period.

Because the U.K. will require its own customs laws following its exit from the European Union, the U.K. Government has issued a White Paper outlining the options for the customs policy to be pursued by the U.K. from March 2019 onwards. In the context of the ongoing withdrawal negotiations with the EU and in view of the new Customs Bill’s passage, the U.K. Government is now following through on an important commitment made in the White Paper to engage with stakeholders and receive their comments.

Please click here for more information.

On 29 March 2017, the U.K.’s Prime Minister, Theresa May, formally began the Brexit process by giving notice pursuant to Article 50 of the Treaty on European Union of the U.K.’s intention to withdraw from the EU. Since then, the parties have held three rounds of negotiations. Frustration has been expressed in some quarters by the pace of these negotiations and a perceived lack of clarity of the U.K. government’s ultimate goals for Brexit.

Against this backdrop, on 22 September 2017, Mrs May delivered her third speech on Brexit from Florence, with the apparent goal of providing greater clarity and reassurance in key areas of uncertainty. A full transcript of the speech is available here.

Mrs May framed her speech with reference to “shared European interests and values” and noted a desire for the U.K. to remain the EU’s “strongest friend and partner as the EU, and the U.K. thrive side by side.”

Mrs May then went on to set out her government’s view on key areas of the negotiations.

Implementation Period

The Prime Minister confirmed the U.K. will seek a transition period, or, in her words an “implementation period”, set to last “around two years”. This implementation period aims to avoid the so-called “cliff-edge” Brexit, which some predicted would cause considerable damage to the British economy. The EU has made clear that any transition period would have to be on existing terms, which would mean free movement remaining in place, and the continued jurisdiction of the European Court of Justice. Mrs May appeared to accept this, but noted “there will be a registration system” for Europeans coming to live or work in the U.K., which she described as “an essential preparation for the new regime.”

An implementation period is not an uncontentious proposition. Unsurprisingly, Nigel Farage MEP, the former leader of the United Kingdom Independence Party, and one of the key architects of Brexit, had previously suggested “this is not what we voted for, we voted to leave not transitional arrangements.” Indeed, even among Mrs May’s cabinet colleagues whether there should be an implementation period, and, if so, of what length, was a matter of some debate. For its part, the British Chamber of Commerce has suggested a transition period of “at least three years.”

Mrs May’s approach appears to have been a compromise between the various conflicting proposals, and is likely to be welcomed by the U.K.’s business community.

Financial Settlement

The settlement of the U.K.’s financial liabilities to the EU (the so-called “divorce bill”) has been a particular source of consternation. In an effort to secure the implementation period, Mrs May made clear that “The U.K. will honour commitments we have made during the period of our membership.” While the Prime Minister did not propose a concrete figure, she suggested “I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave.”

This will give some reassurance to Michel Barnier, the EU’s chief negotiator, whose demands for financial settlement have to-date met with fierce opposition from David Davis, his U.K. counterpart. However, it is not clear whether Mrs May’s intervention will satisfy Mr Barnier that the U.K. is prepared to settle the full extent of the liabilities he has identified, reportedly somewhere in the region of €50-100 billion.

Protection for EU Citizens

Since Mrs May invoked Article 50, the EU has been looking for reassurance that its citizens already living and working in the U.K. will continue to enjoy the same rights post Brexit.

The Prime Minister emphasized that “one of my first goals in this negotiation is to ensure that you can carry on living your lives as before.” With this in mind, she added: “I know there are concerns that over time the rights of EU citizens in the U.K. and U.K. citizens overseas will diverge. I want to incorporate our agreement fully into U.K. law and make sure the U.K. courts can refer directly to it.”

However, this was not the end of the story, Mrs May added: “Where there is uncertainty around underlying EU law, I want the U.K. courts to be able to take into account the judgments of the European Court of Justice with a view to ensuring consistent interpretation.” The EU had previously insisted that the ECJ oversee the rights of its three million citizens living and working in the U.K. The U.K. rejected this outright: removal of the U.K. from the jurisdiction of the ECJ had been one of Mrs May’s “red lines” in the negotiations.

By ensuring EU citizens can enforce their rights in U.K. courts, which will continue to take into account ECJ jurisprudence, Mrs May will be hoping to satisfy the EU that its citizens will have sufficient recourse in the U.K., and, as such, further direct ECJ oversight will not be necessary.

Conclusion

The U.K.’s negotiating team has come under criticism for lack of clarity, and, indeed, members of Mrs May’s government have made numerous interventions in the U.K. press, projecting the image of an administration which, at best, lacks a unity of purpose. In particular, an article by Foreign Secretary, Boris Johnson, published only a week before the Prime Minister’s Florence speech was seen by many as an attempt to dissuade Mrs May from the softer Brexit favoured by, among others, her Chancellor Philip Hammond. There has been considerable speculation that, under normal circumstances, Mr Johnson’s intervention would have resulted in his losing his cabinet position. As it is, Mrs May is leading a minority government, without the political capital to respond decisively to such distractions. She has subsequently made the comment that she does not want to be surrounded by “yes men” and thus, for now Mr Johnson’s position seems to be safe and at the recent Conservative Party conference, Mr Johnson stated that he supports “every syllable” of Mrs May’s Florence speech.

In the face of her party’s lack of cohesion over Brexit, Mrs May has set out the basis of her own vision, and has called on the EU to approach the Brexit negotiations with a view to finding “imaginative and creative” solutions. Mr Barnier has called the speech “a step forward”, but will be looking for concrete proposals as the next round of formal negotiations get underway.

For more information, contact: Michelle Linderman, Gordon McAllister

The Election

On 29 March 2017, the U.K. invoked Article 50 of the Treaty of the European Union, setting in motion the two-year period to negotiate a settlement for their political separation.

The two sides began settlement negotiations in June. The talks are time-limited: under Article 50, the U.K. will leave the EU automatically in March 2019, absent either unanimous consent from the 27 remaining Member States or ratification of an exit treaty.

U.K. Prime Minister Theresa May sought to strengthen her hand in the Brexit negotiations by calling a snap election, which took place on 8 June 2017. Defying early expectations, the election resulted in Mrs May’s Conservative Party losing its slim majority in the House of Commons. The Democratic Unionist Party (DUP) of Northern Ireland agreed to provide the Conservatives with support for key legislation, providing the Conservatives a majority in Parliament. Mrs May remains Prime Minister.

The Government presented the Queen’s Speech, its legislative program for the coming two parliamentary years, on 21 June 2017. That program includes the “Great Repeal Bill”, the somewhat erroneously-named legislation which would convert all existing EU law into domestic U.K. law – thus allowing the U.K. to amend or discard EU rules as it sees fit after Brexit. The Conservative Party agreement with the DUP includes support for the Queen’s Speech. It was approved as the primary legislative agenda by a narrow Commons vote on 29 June 2017.

Negotiations Begin

The governing arrangements for the U.K. having reached a point of clarity, at least in the short term, allowed formal separation negotiations to begin on 19 June 2017. The lead negotiators are David Davis, a Member of Parliament and Minister at the Department for Exiting the European Union, and Michel Barnier of the European Commission.

At the first plenary session a terms of reference was drawn up which envisions further sessions every four weeks until the week of 9 October 2017. At present, the scope of negotiations under the terms of reference has been narrowly defined to establish initial working groups for the detailed negotiations regarding citizens’ rights and the U.K.’s financial settlement.

The principal focus of early negotiations has been on the status of EU citizens who have settled in Britain and Britons who have settled elsewhere within the EU under “freedom of movement” rules which allow EU citizens to live and work in other Member States. By those rules, all EU citizens are granted a right of permanent settlement after five years of residence in a host Member State.

The U.K. has published a policy paper proposing that those EU citizens already present in the U.K. for five years be treated equally with British citizens under local law, and for those citizens already settled in the U.K. by a certain cut-off date (likely 29 March 2017 or after) to be eligible to gain such rights after living in the U.K. for five years. The same would apply to British citizens settled elsewhere in the EU.

The EU position is for the reciprocal rights of EU and British citizens to have a wider scope, essentially on the basis of existing EU rules. Moreover, the EU wishes for the European Court of Justice to have continued jurisdiction over questions of immigration rights regarding U.K. and other EU citizens covered by this aspect of an eventual Brexit deal. It is highly unlikely that the U.K. will agree to such continued jurisdiction.

The “Divorce Bill”

The financial settlement, which has become colloquially known as the “divorce bill” that the U.K. may have to pay, is also contentious. On 4 March 2017, the European Union Committee of the U.K.’s House of Lords (the senior legislative chamber), published a report which questioned the enforceability of such a divorce bill in international law with reference to the Vienna Convention on the Law of Treaties.

Nevertheless, the EU’s initial position paper declares that there should be a financial settlement “based on the principle that the United Kingdom must honour its share of the financing of all the obligations undertaken while it was a member of the Union.” Regardless of the legal considerations, the political calculus of Brexit negotiations will doubtless hinge on further developments over what price the U.K. is willing to pay in this divorce bill debate. However, the U.K. has yet to publish an official position paper on a financial settlement.

Trade after Brexit

If no withdrawal treaty or agreement to extend negotiations can be confirmed before March 2019, the U.K.’s immediate relationship with its trading partners, including the EU, would revert to WTO rules until alternative trade treaty relationships can be established. However, one may note that this scenario also has its challenges. For example, although the U.K. is a WTO member in its own right, changes to its tariff schedule from the EU schedule of which it is currently part, could involve separate negotiations with the WTO.

For more information on the U.K. Government’s aspirations for Brexit, see its white paper, last updated on 15 May 2017.

For movement on potential U.K. trade policy more widely, please see Crowell & Moring’s recent alert, Update: Legal Considerations for U.K. and EU Investment and Trade Treaties after Brexit. Section 9 of the U.K. Government’s white paper on Brexit also notes the government’s hopes in this regard, stating, “Many countries including China, Brazil, and the Gulf States have already expressed their interest in enhancing their trading relationships with us. We have started discussions on future trade ties with countries like Australia, New Zealand and India. The new United States Administration, the world’s biggest economy, has said that they are interested in an early trade agreement with the U.K.”

However, given the U.K. cannot agree to trade treaties with non-EU countries until after its departure from the bloc, any further trade negotiations with third-party states are likely to remain preliminary for some time. Official negotiating documents and position papers of the parties are being made available on government websites as they are published. Please see the following two links: United Kingdom and European Union.

For more information, contact: Michelle Linderman, Gordon McAllister, Ed Norman, John Laird

In this alert, we provide updates on recent headlines:

  • European Court of Justice (ECJ) opines on scope of EU’s supremacy over the EU-Singapore Free Trade Agreement. The highlights include:
    • Investor-State Dispute Settlement (ISDS) requires unanimous Member States approval.
    • The possibilities for a U.K. trade treaty with the EU separate from any withdrawal agreement.
  • U.K. Conservative Party champions ratification of EU-Canada Comprehensive Economic and Trade Agreement (CETA), the EU-Singapore FTA, and other trade treaties in the U.K. parliamentary election due on 8 June 2017.

This article follows our previous alert, Legal Considerations for the U.K.’s Investment and Trade Treaties After Brexit, following the notification under Article 50 of the Treaty on the European Union (TEU) regarding the United Kingdom’s intent to leave the European Union.

THE SCOPE OF EUROPEAN UNION COMMON COMMERCIAL POLICY PRIMACY

As noted in our previous update, in 2016 the European Commission sought an opinion from the ECJ regarding the exact scope of the EU’s supremacy regarding the common commercial policy (see Treaty on the Functioning of the European Union (TFEU) Article 3(1)(e) and Article 207(1) and (3)) as part of the finalization of the EU-Singapore FTA. That opinion was released on 16 May 2017.

In reviewing the various topics of the Singapore FTA, the ECJ decided that the EU had sole competence to enter into treaties under the common commercial policy on the subjects of:

  • Access to the respective markets for goods and services.
  • Direct foreign investment.
  • Intellectual property rights.
  • Anti-competitive conduct.
  • Sustainable development.
  • A bundle of cooperation requirements including notification, verification, mediation, transparency, and dispute settlement between the treaty contracting parties.

UNANIMOUS MEMBER STATES APPROVAL OF ISDS REQUIRED

The ECJ decided that non-direct foreign investment was outside the scope of the common commercial policy. The ECJ also concluded that ISDS provisions for direct enforcement of an investor’s rights against the EU or a Member State by the investor itself fell outside the exclusive competence regime. Accordingly, a treaty which contains an investment chapter with ISDS provisions would fall to unanimous approval by the Member States under TFEU Article 207(4).  In the particular case of the Singapore FTA, because the treaty contains both of these aspects beyond the scope of exclusive competence, the treaty will require unanimous Member State ratification.

The ECJ’s opinion does not impact the ratification of CETA, the Canada-European Union treaty signed on 30 October 2016, which has already been treated as a mixed competence agreement and was approved by the European Parliament on 15 February 2017. Ratification by the Member States is pending.

The ISDS mechanisms in these two treaties replicate the existing approach in the EU-South Korea FTA, which involves a new Investment Court System (ICS) discussed in our prior alert that would replace the traditional arbitration model with a panel of publicly-appointed judges from among the Parties and third country appointees, as well as an appellate mechanism. ICS would also involve transparency measures that are finding currency elsewhere in the investment arbitration sphere, such as the Mauritius Convention on Transparency, which will enter into force on 18 October 2017 for those States which have ratified it. Of EU Member States, the following are signatories: Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Sweden and the U.K. However, at this time none of these EU signatories have ratified the Convention (only three States have ratified as of the date of this note: Canada, Mauritius, and Switzerland). A current list of States that have signed and ratified the Convention is available here.

Although the European Commission has indicated that it intends to pursue ICS in all its future investment treaty negotiations, the opinion of the ECJ confirms that any future treaties with ISDS mechanisms will require the consent of the EU’s membership. The concerns raised at the Member State level during the process of completion of CETA indicate that this could create significant challenges to the finalization of future treaties with ISDS features. Please see our 3 March 2017 Podcast on this topic: “PODCAST: CETA, ISDS, and the Belgian Veto – A Warning of Failure for Future Trade Agreements with the EU?”

IMPLICATIONS OF ECJ OPINION FOR BREXIT

There are also potential implications in the ECJ opinion for Brexit more generally. Under Article 50 TEU, a departing member leaves after notification under one of two conditions: (i) upon entry into force of a withdrawal agreement; or (ii) 2 years after the notification was given (unless extended by unanimous agreement of the remaining Member States) if no withdrawal agreement has yet been ratified. Such withdrawal agreement is approved by the European Parliament and ratified by qualified vote of the European Council (i.e., by 55 percent of Member States representing 65 percent of the EU population – a minimum of 20 of the remaining 27 members).

It is therefore theoretically possible that the U.K. will leave the EU without a withdrawal agreement but – given the scope of common commercial policy defined by the ECJ’s decision – could thereafter enter into an agreement as a third-party state within that scope which is solely within the purview of the EU itself to conclude, and not its Member States. Nevertheless, it would seem politically unlikely such an outcome could happen swiftly.

THE TRAJECTORY OF UNITED KINGDOM GOVERNMENT POLICY ON TRADE TREATIES

The recent announcement of a U.K. general election due to take place on 8 June 2017 raises another point from our previous alert: the intentions of the U.K. as to the future bilateral status of the EU’s agreements after Brexit. As we previously discussed, the EU has an extensive existing list of trade treaties with third party states. See here for lists of the EU’s current trade treaties.

The presently governing Conservative Party is expected to be returned with a continuing majority in the Westminster Parliament after the election. Its recently published manifesto states a policy to “seek to replicate all existing EU free trade agreements and support the ratification of trade agreements entered into during our EU membership.” The United Kingdom can therefore be expected to champion ratification of CETA and the EU-Singapore FTA, as well as to approach the EU’s existing trade partners to extend the scope of the existing treaties bilaterally, as we suggested could be practically possible. We note that the two other main national parties, Labour and the Liberal Democrats, do not have such express policy goals for the coming parliamentary term in their manifestos.

On February 1, 2017, the U.K. House of Commons voted preliminarily by a large majority (498 votes to 114) in favor of the Withdrawal from the European Union (Article 50) Bill 2016-2017 (the “Withdrawal Bill” – available here). Once the Withdrawal Bill receives royal assent, it will provide a formal mandate to the U.K. Government to notify the European Council of its intention to withdraw from the European Union. This notification will, itself, start the clock on the two-year window for negotiating the U.K.’s departure, pursuant to Article 50 of the Treaty on the Functioning of the European Union.

The large majority in favor in the House of Commons suggests that the bill will almost certainly become law, although the process for its full adoption still requires additional procedural steps. In particular, the Withdrawal Bill will now undergo in-depth discussions within a committee of the House of Commons. Following the committee stage, the Withdrawal Bill will be voted upon by the entire House of Commons, and then transmitted for a vote to the House of Lords.

U.K. Prime Minister Theresa May has stated she intends to give formal notice under Article 50 in March 2017. Given the lengthy parliamentary procedure, combined with the continuing political debates on the precise scope of the government’s mandate, one could be forgiven for questioning whether this timetable might prove unduly optimistic.

For more information, contact: Dj Wolff, Charles De Jager, Lorenzo Di Masi, Gordon McAllister

Government to Shortly Offer Legislation to Keep Timetable for Planned March 2017 Notice

In a judgment dated 24 January 2017, by a majority of 8 to 3,1 the Supreme Court has upheld the High Court’s ruling in November 2016 that an Act of Parliament is required before the UK Government may give notice under Article 50 of the Treaty of the European Union (TEU), thereby beginning the formal process of Britain’s withdrawal from the EU. However, the Court found unanimously that no pre-approval is required from the devolved governments of Scotland, Wales and Northern Ireland. A summary of the judgment is available here.

The Court was required to grapple with the interplay of two constitutional principles. The applicants based their argument in the High Court on the accepted principle that the British executive may not change the law of the land by use of royal prerogative or executive act (as enshrined as early as The Case of Proclamations (1610) 12 Co. Rep. 74). The effect of the European Communities Act 1972 (ECA 1972) was to incorporate European Union treaties and the rights granted therein into domestic law. Therefore, the applicants argued, the Government could not invoke Article 50 TEU – thereby ultimately removing those domestic rights by withdrawal from the treaties – without the approval of Parliament.

For its part, the Government relied on the equally settled constitutional principle that the executive has prerogative power in the field of making and breaking treaties on the international plane. The Government argued that no legislation, not least the ECA 1972 itself, nor the European Union Referendum Act 2015, had done away with the executive’s power unilaterally to withdraw the UK from the EU treaties, as constitutional custom would ordinarily allow.

In the High Court, Lord Chief Justice Lord Thomas, the Master of the Rolls Sir Terence Etherton, and Lord Justice Sales had held that, by its nature, the ECA 1972 is a part of the constitutional framework of the UK, and should be interpreted in that light.2 That being so, at the crux of the High Court’s judgment, it found that:

“Parliament having taken the major step of switching on the direct effect of EU law in the national legal systems by passing the ECA 1972 as primary legislation, it is not plausible to suppose that it intended that the Crown should be able by its own unilateral action under its prerogative powers to switch it off again”.3

Calling the ECA 1972 “unprecedented”4 in constitutional terms, the majority of the Supreme Court, led by its President Lord Neuberger, went further. A previous dictum in Attorney General v De Keyser’s Royal Hotel5had suggested that prerogative powers should be sustained unless a statute expressly, or by necessary implication, provided for their abrogation. Following such precedent, the High Court had found that the ECA 1972 created such a necessary implication. However, the majority of the Supreme Court held that, in the case of the ECA 1972 and its mechanism for bringing the European Union treaties into domestic legal effect:

“…the Royal prerogative to make and unmake treaties, which operates wholly on the international plane, cannot be exercised in relation to the EU Treaties, at least in the absence of domestic sanction in appropriate statutory form… the proper analysis is that, unless [the ECA 1972] positively created such a power in relation to those Treaties, it does not exist… [I]t is plain that [the ECA 1972] did not create such a power of withdrawal…”6

In so ruling, the majority of the Court also expressly overturned7 the dicta of a judgment of Lloyd LJ in R v Secretary of State for Foreign and Commonwealth Affairs, ex p. Rees-Mogg8. The position appears to be a novel development in British constitutional law that, where treaties have been given direct domestic effect in legislation with enough constitutional significance, the presumption should be that the prerogative has been curtailed unless the statute expresses the contrary. In any case, the majority’s finding means that primary legislation from the Westminster Parliament is required in order to authorize a notification of withdrawal under Article 50 TEU.

The minority, although recognising the ECA 1972 as a statute of constitutional importance for the UK, saw the matter differently. In the leading dissent, Lord Reed stated emphatically:

“The [ECA 1972] imposes no requirement, and manifests no intention, in respect of the UK’s membership of the EU. It does not, therefore, affect the Crown’s exercise of prerogative powers in respect of UK membership.”9

The Supreme Court was, however, unanimous on the other issue presented to it. Having considered references and interventions from the devolved governments of Scotland, Wales and Northern Ireland, it held that only the Westminster Parliament was required to give its assent for an Article 50 TEU notification.

This element of the judgment has removed one uncertainty for the process of Brexit. Earlier in January 2017, the arrangements for political power-sharing in the devolved Assembly for Northern Ireland at Stormont collapsed and elections have been called. Elections are unlikely to conclude before March 2017. There was concern that the lack of a constituted Assembly at Stormont would impede the Government’s intended process of Article 50 TEU notification, should the Supreme Court have held that the devolved assemblies would also need to give advanced legislative assent.

As for matters in Westminster, the Scottish National Party has already declared its intention to table several amendments to the now-required authorizing legislation. The Government continues to maintain its intention to make an Article 50 TEU notification to begin the formal Brexit process by the conclusion of March 2017, and it is expected to bring forward a very short bill for debate in Parliament before the end of this week. Prime Minister Theresa May has also indicated her Government will publish a White Paper, which will likely provide details of the Government’s goals for the subsequent negotiations with the EU. The timing of the publication has not been confirmed.

1 Lord Neuberger, Lady Hale, Lord Mance, Lord Kerr, Lord Clarke, Lord Wilson, Lord Sumption and Lord Hodge for the majority. Lord Reed, Lord Carnwath and Lord Hughes dissenting, with Lord Reed giving the leading opinion in dissent.

2 R (Gina Miller & Dos Santos) v Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin), paras. 43-44.

3 Id., para. 87.

4 R (Gina Miller & Dos Santos) v Secretary of State for Exiting the European Union and associated references [2017] UKSC 5, para. 60.

5 [1920] AC 508.

6 R (Gina Miller & Dos Santos) v Secretary of State for Exiting the European Union and associated references [2017] UKSC 5, para. 86.

7 Id., para. 89.

8 [1994] QB 552 (DC).

9 R (Gina Miller & Dos Santos) v Secretary of State for Exiting the European Union and associated references [2017] UKSC 5, para. 177.

In a judgment dated 3 November 2016, the High Court ruled that the government of the United Kingdom does not have the power to invoke Article 50 of the Treaty on the Functioning of the European Union (TFEU) to begin the formal process of Britain’s withdrawal from the EU. Instead, an Act of Parliament is required. A summary of the judgment is available here. The government intends to appeal the judgment to the Supreme Court, which, we understand, has indicated that the full panel of eleven judges will hear the case over four days during the week of 5 December 2016.

In July 2016, the Court (Lord Justice Leveson and Mr Justice Cranston) gave directions for the joint management of judicial review claims that challenged the government’s ability to trigger Article 50 of TFEU by means of the royal prerogative (CO/3809/2016 The Queen on the application of Gina Miller v Secretary of State for Exiting the European Union and CO/3281/2016 The Queen on the application of Deir Tozetti Dos Santos v Secretary of State for Exiting the European Union). The joined applications were heard on 13, 17, and 18 October 2016 before the Lord Chief Justice Lord Thomas, the Master of the Rolls Sir Terence Etherton, and Lord Justice Sales (transcripts available here).

The application was intended to settle the question of “whether, as a matter of the constitutional law of the United Kingdom, the Crown – acting through the executive government of the day – is entitled to use its prerogative powers to give notice under Article 50 for the United Kingdom to cease to be a member of the European Union.”1

The leading application was brought by Gina Miller, an investment manager, and was argued by Lord Pannick QC, a cross-bench peer. The applicants’ main argument2 was based on the constitutional principle that the British executive may not change the law of the land by use of royal prerogative – or executive act (as enshrined as early as The Case of Proclamations (1610) 12 Co. Rep. 74). Therefore, owing to the transmission of the European Union treaties and the rights granted therein to domestic law by the European Communities Act 1972 (ECA 1972), the government was barred from invoking Article 50 TFEU and dissolving those domestic rights without the approval of Parliament.

Attorney General Jeremy Wright QC MP, who argued for the government, relied on the equally settled constitutional principle that the executive has prerogative power in the field of making and breaking treaties on the international plane; and that no legislation, not least the ECA 1972 itself, nor the European Union Referendum Act 2015, had done away with the executive’s power unilaterally to withdraw the U.K. from the EU treaties as constitutional custom would ordinarily allow.3

The applicants and various interveners made other arguments in the alternative to the main position. However, the Court did not feel it necessary to consider these arguments, and settled the issue on the primary question of whether the ECA 1972 had restricted prerogative power. The Court had held that, by its nature, the ECA 1972 is a part of the constitutional framework of the U.K., and should be interpreted in that light.4 That being so, at the crux of the Court’s judgment, it found that:

“Parliament having taken the major step of switching on the direct effect of EU law in the national legal systems by passing the ECA 1972 as primary legislation, it is not plausible to suppose that it intended that the Crown should be able by its own unilateral action under its prerogative powers to switch it off again.”5

Its decision follows, and discussed, previous jurisprudence on the use of prerogative powers in Attorney General v De Keyser’s Royal Hotel [1920] AC 508, R v Secretary of State for the Home Department, ex p. Fire Brigades Union [1995] 2 AC 513 and Laker Airways Ltd v Department of Trade [1977] 643 (CA), that primary legislation may impliedly abrogate Crown prerogative, including in the sphere of treaty making. The Court particularly distinguished R v Secretary of State for Foreign and Commonwealth Affairs, ex p. Rees-Mogg [1994] QB 552 (DC), a previous holding that the ECA 1972 did not circumscribe the executive’s ability to use prerogative power in order to join the U.K. to further EU treaties which did not have direct domestic legal effects. The Court found that:

“In the very different context of the present case, the question is whether the Crown has power under its prerogative to withdraw from the relevant EU Treaties where such withdrawal will, on the [government]’s argument, have a major effect on the content of domestic law. It is clear that the court in ex p Rees Mogg did not touch on that question.”6

The first-instance decision, if upheld by the Supreme Court, suggests that a vote in Parliament will be required before the government may invoke Article 50 TFEU. This could potentially deal a blow to the timetable recently set out by Prime Minister Theresa May for formal exit procedures to begin by the end of March 2017, and perhaps even affect the prospect of the U.K.’s leaving the EU at all.

1 R (Gina Miller & Dos Santos) v. Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin), para. 4.

2 Id., para. 74.

3 Id., para. 76.

4 Id., paras. 43-44.

5 Id., para. 87.

6 Id., para. 91.


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