In 2014, the European Commission adopted rules for audit reform in the EU. A statutory audit certifies the financial statements of companies or public entities. Public-interest entities (PIEs) are listed companies, credit institutions, insurance undertakings, or other undertakings designated by EU countries to be of public importance.
The substantial gains made by the ruling UK Conservative Party in the general election on 12 December 2019 mean that, barring the unexpected, the UK will leave the EU on 31 January 2020.
The Conservative government now has sufficient majority to drive parliamentary approval of the draft withdrawal agreement renegotiated with the EU by UK Prime Minister Boris Johnson in October 2019. Mr Johnson campaigned in the run-up to the election for a mandate to “get Brexit done”.
Getting Brexit done is, however, only the first step in the process of redefining the UK’s new relationship with the EU.
In a historic decision issued 24 September 2019, the UK Supreme Court ruled that the UK prime minister, Boris Johnson, acted unlawfully when he advised the Queen to prorogue, or suspend, the UK Parliament for five weeks, until 14 October 2019. The effect of the very clear and unanimous decision of the 11 Supreme Court judges is that Parliament was not in fact suspended and can immediately resume its work.
This in turn means that Parliament has more time to scrutinise the government’s Brexit plans, as opposed to having to wait until 14 October to do so, and that it can continue to reject a no-deal Brexit by insisting on an extension to the Brexit timetable if Mr Johnson does not agree to new withdrawal terms with the EU at a council meeting on October 17-18.
Our last GT Alert on Brexit quoted the saying, “a week is a long time in politics”. New Conservative Prime Minister Boris Johnson has found that a mere 72 hours is an eternity as he seeks to break the political impasse on the terms of the UK’s exit from the European Union – so far, unsuccessfully.
Although the 2016 referendum decision to leave the EU was carried with a low majority – 52% to 48% – and was ‘advisory’ in UK law, successive UK Governments have held that the vote must be treated as a commitment. In January 2017 the UK Supreme Court, responding to a claim brought by an individual (the ‘Miller Case’), ruled that Government could not withdraw the UK from the EU by exercising its executive powers but must seek the consent of Parliament by proposing legislation. This is the origin of the impasse Mr Johnson now faces.
Brexit has driven fault lines through British politics as seen at no time since the 1680s. Fervent ‘leavers’ and fervent ‘remainers’ can be found in both of the main political parties, although most favour various compromise options in between.
This is reflected in the composition of the UK Parliament and has resulted in an impasse, with Parliament rejecting both the transitional ‘deal’ to leave the EU negotiated by former Prime Minister Theresa May at the end of 2018 and the prospect of leaving the EU without a deal – a ‘no deal’ Brexit. The election of Boris Johnson as the new UK prime minister and his appointment of a government leaning firmly towards leaving the EU, with or without a deal on October 31, 2019, throws up some distinctive legal challenges: If a new deal cannot be struck with the EU, is a no-deal Brexit inevitable, or can the remainer MPs stop it?
Click here for the full GT Alert, which explores Prime Minister Johnson’s options, the two legal routes open to remainer MPs, and more.
The UK’s new prime minister, Boris Johnson, will take office on 24 July 2019, just over three months before the UK is due to leave the EU, on 31 October 2019.
When the UK voted to leave the EU in June 2016, few predicted that Brexit would not yet be achieved over three years later. But repeated failure to gain UK parliamentary approval of the draft withdrawal agreement terms negotiated by then-Prime Minister Theresa May in late 2018 resulted in the original 29 March 2019 Brexit date being postponed to the current 31 October 2019 deadline. This failure also led to Theresa May announcing her intention to stand down as leader of the governing Conservative Party and as prime minister.
To read the full GT Alert, click here.
For more on Brexit, click here.
One of the consequences of a “no-deal” Brexit would be that the United Kingdom would no longer have access to the European financial market. This would affect LIBOR as a trusted and widely used benchmark.
LIBOR vs. EURIBOR
Currently, two relevant benchmarks exist in the European Union: LIBOR and EURIBOR. LIBOR stands for “London Interbank Offered Rate” and is a benchmark that is used for – among other things – loans based on Loan Market Association documentation. LIBOR is made available in five different currencies: U.S. dollar, British pound, Japanese yen, Swiss franc, and euro. EURIBOR stands for “Euro Interbank Offered Rate” and is, simply put, the interest rate at which European banks lend money to each other. EURIBOR is only available in euros. Both benchmarks are determined daily, but while LIBOR focuses on the London banking system, EURIBOR takes into account the entire European Union.
Developments around LIBOR
LIBOR has been the subject of increased scrutiny after it emerged that certain banks had manipulated LIBOR rates. Furthermore, insufficient activity in the unsecured interbank market raised questions about the sustainability of the LIBOR benchmark. Closely related to these developments is the new EU Benchmarks Regulation (EU) nr. 2016/11 and the development of a new secured overnight interest rate by the European Central Bank (ECB). The Benchmarks Regulation went into effect on 1 January 2018 and includes a two-year transitional period. The new interest rate for the euro will be based on data already available to the Eurosystem and is anticipated to be finalized before 2020.
The Future of LIBOR
Andrew Bailey, chief executive of the UK Financial Conduct Authority (FCA), has spoken to all current panel banks about agreeing voluntarily to sustain LIBOR until the end of 2021. However, a “no-deal” Brexit most likely will cause LIBOR to lose its authorized benchmark status in the European Union. This would leave nine months for the reference rate’s administrator to reapply as a third-country provider. Thus, even if LIBOR survives until 2020, a no-deal Brexit could come with enormous risks.
Market participants may wish to review and consider the amendment and waivers provision in loan agreements being concluded now, taking into account a possible “no-deal” Brexit and the development of the new overnight interest rate by the ECB. Furthermore, lenders should closely review the requirements posed by the Benchmarks Regulation to ensure they are compliant with its provisions.
To read more about Brexit, click here.
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It is now less than two months until 29 March 2019, the date set for the UK’s withdrawal from the EU. At this late stage, the terms of the UK’s withdrawal have still not been settled, and the Brexit issue remains clouded in uncertainty.
As a result of a vote in the UK Parliament 29 January, the UK will now seek to renegotiate one of the terms of the withdrawal agreement agreed in draft with the EU at the end of 2018. This term is the “Irish backstop”, the dual purpose of which is to preserve an open border between Ireland and Northern Ireland post-Brexit and to guarantee the integrity of the EU’s post-Brexit borders. The EU’s initial reaction to the vote has been to indicate that it sees no reason to renegotiate. Without amendment to this term, however, the UK’s withdrawal agreement as a whole is very unlikely to receive the parliamentary approval required for it to become binding on the EU and UK.
Key points in light of these developments:
- A no-deal Brexit on 29 March is still possible.
- An extension to the 29 March Brexit date is also still possible.
- Businesses should prepare for a no-deal Brexit.
- The withdrawal agreement is not the final EU/UK agreement.
To read the full GT Alert, click here.
Parties who do cross-border business often declare English law applicable in commercial contracts, accompanied by a jurisdiction clause making the English courts (exclusively) competent to hear claims arising out of the business relationship. In light of Brexit, the question arises what the position of decisions given by the English courts will be in the EU, and vice versa, post-Brexit. The draft withdrawal agreement published on 14 November 2018 does not offer a permanent solution. Therefore, the impact of Brexit on UK court decisions is still uncertain and could hold unexpected and unwanted consequences for parties bound by an exclusive jurisdiction clause.
English law is often chosen by parties to govern a cross-border commercial contract, even when parties have no connection to the UK. English law is generally considered comparatively stable, predictable, and as having an emphasis on the text of the contractual arrangements between parties. English law provides a lot of freedom to contracting parties and generally adheres to contractual obligations. There is a limited scope for public policy or similar principles to interfere with contractual obligations.
The main factors that make English law an attractive choice for contracting parties, therefore, have little to do with the UK’s membership in the EU or the influence of EU law. Most of the important contractual issues, such as offer, acceptance, applicability, and implication of general terms and conditions, breach, and damages are derived from substantive English law, and are for the most part not affected by EU law and a Brexit. However, a choice of law clause for English law currently means English law including the applicable EU law. After Brexit, EU law will no longer automatically apply, which can in some circumstances lead to a different outcome based solely on English substantive law.
Recognition and Enforcement of UK Court Decisions
Like governing law clauses, jurisdiction clauses for English courts are commonly incorporated into contracts between commercial parties who are located in different countries. English courts have a reputation for being reliable, sophisticated and, most importantly, commercially orientated. However, proceedings before English courts are generally perceived as expensive.
Currently, decisions from English courts are automatically recognized and can be enforced in other EU member states based on Regulation (EU) 1215/2012 (Brussels Recast Regulation). If a Brexit is ultimately avoided, the Brussels Recast Regulation will continue to apply. However, if the UK leaves the European Union, the UK will in principle no longer be subject to the Brussels Recast Regulation.
On 14 November 2018, the Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (Draft Withdrawal Agreement) was published. Title VI of the separation provisions (part three) of the Draft Withdrawal Agreement contains provisions on judicial cooperation in civil and commercial matters. Article 67 states that in the United Kingdom, as well as in the EU in situations involving the United Kingdom, the provisions of the Brussels Recast Regulation regarding jurisdiction and recognition and enforcement of decisions shall continue to apply for legal proceedings instituted before the end of the transition period. The transition period is currently set to end on 31 December 2020, but can be extended. However, the fate of the Draft Withdrawal Agreement remains uncertain, as it still needs the required majority vote in the UK Parliament to be finalized.
Without a permanent deal on this subject, decisions by English courts rendered in proceedings instituted after the transition period will only be enforceable in other EU countries under the rules each individual country applies for recognition and enforcement of non-EU court decisions. In general, this will mean that decisions from UK courts will not be automatically recognized and enforceable in other EU member states but will be subject to a stricter regime for recognition and potentially time-consuming proceedings. Furthermore, court decisions from EU member states will no longer be automatically recognized and enforceable in the UK.
To counter this, the UK and the EU could negotiate a permanent deal that involves the UK acceding to a convention on enforceability of court decisions. In this regard, there are several options. In theory, the EU and the UK could agree that the Brussels Recast Regulation will continue to apply to the UK indefinitely after the transition period. The UK could also join a convention to which the EU has already acceded. The most probable option would be the Lugano Convention of 2007, which also applies between the EU, Norway, Switzerland, and Iceland. This convention allows for enforcement on broadly the same terms as the Brussels Recast Regulation. Another possibility for the UK would be to join the 2005 Hague Convention on Choice of Court Agreements. This convention, however, applies only in case of an exclusive jurisdiction clause in a contract.
The exact arrangements under which the United Kingdom will leave the European Union remain uncertain. Parties involved in cross-border business who use contracts governed by English law and with an exclusive jurisdiction clause for the English courts should be aware of potential issues when it comes to recognition and enforcement of English court decisions in other EU member states after the transition period, and potentially change their contract clauses accordingly.