Brexit has far-reaching ramifications in private law

November 07, 2016

Brexit is a done deal. Prime Minister Theresa May now faces the gargantuan task of negotiating the UK’s exit from the European Union. Disentangling the finely woven network of EU directives and regulations and national and EU law is certainly no mean feat.

“While the text on notification of departure from the EU in the much-quoted article 50 of the Treaty on European Union is succinct, it nevertheless contains monumental ramifications,” explains Jürgen Basedow, Director at the Max Planck Institute for Comparative and International Private Law in his recently published lead article in the “Zeitschrift für Europäisches Privatrecht” (ZEuP). If the EU and the United Kingdom fail to reach agreement within two years, the treaties, including the freedom of movement enshrined therein, will cease to apply. The prospect of losing access to the single market and other guarantees of primary Union law simply due to the deadline expiring, will put the British economy and politicians under pressure and weakens their negotiating position vis-à-vis the EU. British voters were presumably unaware of this prior to the referendum.

In the terminology of EU law, the UK’s departure will make it a third country. This means that a number of directives and regulations, which expressly only apply to relations within the EU, will become invalid after the exit. Companies such as the British airline EasyJet will then very quickly feel the consequences. As soon as access to flight routes within the European Union are renegotiated after the UK’s exit, the competitors from the remaining EU countries, who have lost market share to the efficient UK competitor over the years, will push for the permanent blocking of EasyJet’s future access to flights within the EU.

The change to the UK’s status also has far-reaching consequences for British courts. Their rulings will no longer have to be executed in the entire Union, as art. 36 of the Brussels regulation ( no. 1215/2012), which governs court jurisdiction and the recognition and enforcement of decisions in civil and commercial matters, only applies to “decisions made in a member state.” If no bilateral agreements or autonomous right of recognition apply, international legal transactions must go “back to the start”. London-based legal firms, whose business model is based on the simple premise that using London in a choice-of-forum clause guarantees execution throughout Europe, will be deprived of their commercial basis.

The agenda of the exit negotiations will be of tremendous scope. Considering that accession negotiations with new member states – divided into over 30 negotiating chapters – take many years to complete, it is doubtful whether the opposite, in other words departure, can be concluded in the two years provided for by art. 50 (3) of the Treaty on European Union. Brexit also changes the situation regarding international competition. This brings many private interests in the EU into play which currently tend to favour a deepening of the divide between commercial and private law.

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