Brexit & Cross Border Business

Brexit may result in cross-border commercial trading arrangements being significantly impacted, for example, if additional tariffs or customs arrangements are imposed on goods being imported from or exported to the UK which make the arrangements uneconomic, or if Brexit results in a change of regulatory regime applicable to the arrangements.

Commercial contracts (both existing agreements and those negotiated between now and Brexit, particularly with UK suppliers and customers) should be reviewed for certain Brexit-related risks:

• Force Majeure, termination rights – review the Force Majeure clause (the one that talks about war, flooding and acts of God) to see if it is broad enough to potentially include Brexit. Broad Force Majeure clauses with language like “any event beyond a party’s reasonable control” may allow a party to stop performing under the contract after Brexit in certain circumstances. For new contracts being negotiated, consider including clauses explaining how the parties’ arrangement will change if a certain type of Brexit occurs, i.e. the UK leaves the EU single market and/or customs union without a free trade agreement that covers the goods or services in the contract. In some cases, you may simply want the right to terminate the contract in the event of a Brexit scenario which results in additional tariffs or regulatory requirements being imposed.

• Taxes clause – Review the taxes clause of your contracts. In the event the UK leaves the EU customs union, and/or the single market, new tariffs and VAT charges may apply to goods and services imported from the UK into Ireland and from Ireland into the UK. You should seek to understand how these tax changes will affect your business, and who is liable in your contracts for increased tax costs.

• Choice of law / jurisdiction – review the choice of law and jurisdiction clauses. Many commercial contracts (even those between non-UK parties) list English law as the law of the contract and give English courts exclusive jurisdiction over contract disputes. Going forward, parties that want to apply the law of a common law, EU, English-speaking country will need to choose the law of Ireland. In addition, you should think carefully before giving exclusive jurisdiction to English courts, because it is unclear how judgments of UK courts will be enforced outside the UK after Brexit. Ideally, reciprocal judgment recognition arrangements will be agreed in the Brexit negotiations. If that is not the case however enforcement of UK judgments in Ireland (or vice versa) might become more difficult. In other words, you might win a case against a defendant in an English court, but if all the defendant’s assets are outside the UK that award could be difficult to collect.

Brexit poses a great risk to financial service providers who are licensed with the UK Financial Conduct Authority (FCA) and offer services across the EU based on that license, as well as those who offer services in the UK based on a license from another EU country’s regulator. This type of “passporting” is a benefit of the EU single market. The UK is adamant that it will negotiate continued EU passporting rights for UK financial services firms, but it is unclear how this will work if the UK leaves the single market. The UK’s most likely option is to negotiate continued passporting rights as part of a trade agreement with the EU, but typically trade agreements cover trade in goods rather than services.

To ensure continued access to the EU market, UK financial services firms should take steps to become licensed with the regulator in another EU jurisdiction, such as the Central Bank in Ireland. One key requirement for gaining a license from the Central Bank is that the firm has a “substantive presence” in Ireland, which generally means that the firm is managed and controlled from Ireland. This is why many UK firms have begun moving operations to Ireland and other EU jurisdictions, to qualify for a license which will allow them to continue passporting across the EU.

Irish and other EU financial services firms which offer services in the UK should equally begin discussions with the UK FCA to potentially become licensed there, to ensure your ability to continue offering services in the UK post-Brexit.

As part of its membership of the EU, the UK’s intellectual property regime has, to a large extent, been governed by European Law. This is particularly applicable in trademarks, where the EU Intellectual Property Office provides for a centralised application and granting system of trademarks, which have an effect across the whole of the EU, including the UK.

A huge concern for businesses and brand owners is whether their EU registered trademarks will continue to have effect in the UK in a post-Brexit world. Practitioners have largely been quite confident that this would have to be the case, with many feeling some sort of ‘grandfathering’ regime converting existing EU Trademarks into UK registered trademarks at some point down the line is a likely outcome.

The EU moved to reduce uncertainty on 28 February 2018 in the first draft agreement governing the UK’s withdrawal. It sets out that “the protection enjoyed in the United Kingdom on the basis of Union law by both UK and EU 27 holders of intellectual property rights having unitary character within the Union before the withdrawal date is not undermined by the withdrawal of the United Kingdom from the European Union”. This would apply to the unitary IP rights (EU trademarks, registered community designs, plant varieties).

One final concern which has attracted a lot of headlines is what will happen to goods which have ‘geographic indication’ protection under EU law, such as the Cornish Pastie and Scottish Whiskey. What will happen to these remains to be seen, though again, most industry experts believe those rights will be preserved through bilateral or other agreements.

Businesses that transfer personal data between the UK and other EU countries must review whether those transfers will be legal after Brexit. This includes transfers between your own group companies as well as transfers with other organisations. Once the UK leaves the EU, all transfers of personal data from the EU to the UK will need to be justified in the same way as transfers to other non-EU countries. The UK may be able to secure an adequacy decision from the EU Commission, which would deem UK data protection equivalent to EU data protection and allow transfers to the UK. Short of that, the UK may be able to negotiate a special arrangement similar to the EU’s Safe Harbour arrangement with the US, allowing data transfers so long as certain conditions are met. However, the UK is likely to face significant political hurdles to achieving either of these outcomes and even then either outcome would likely be challenged in the courts by data protection advocates. For those reasons, you should plan to treat personal data transfers from the EU to the UK as transfers to a third country with no special arrangement, using other legal bases for transfers were available under GDPR (ie. explicit consent of the data subject, standard contractual clauses, binding corporate rules). In some cases it may make sense to move data processing activities from the UK to an EU jurisdiction, to avoid GDPR compliance concerns.

Ireland is already a leading location for pharmaceutical and medical technology companies and is therefore a natural hub for businesses in this area who wish to expand their presence in the EU-27 remaining member states in preparation for Brexit. Regulatory authorisations will also need to be reviewed.

On 10 January 2018 the European Commission published an important notice warning concerning CE marking on industrial products, which will be relevant for companies in the medical devices sector. The notice advises CE mark holders to take steps to ensure that post-Brexit, where applicable conformity assessment procedures require the intervention of a Notified Body, they will hold certificates issues by an EU-27 Notified Body. Where economic operators hold certificates issued by a UK Notified Body prior to the Brexit withdrawal date and plan to continue placing the product concerned on the EU-27 market, the notice advises that they consider either applying for a new certificate issued by an EU- 27 Notified Body or arranging for a transfer of the file and corresponding certificate from the UK Notified Body to an EU-27 Notified Body.

With regard to pharmaceutical products, the European Commission has published a Notice (latest version dated 29 January 2018) and practical guidance for Marketing Authorisation Holders (MAHs) on procedures related to Brexit, including procedures for transfer of marketing authorisations from UK based MAHs to MAHs based in the EU-27.

See our full Brexit Special Report here