Brexit. It’s the Supremes again!

More judicial fun and games around Brexit – this time arising out of  the Court of Session sending a reference to the CJEU seeking a preliminary ruling on whether EU law permitted unilateral revocation of an article 50 notice of withdrawal by a notifying state.

The CJEU applied its expedited procedure and fixed an oral hearing  for tuesday week, 27 November 2018.

An application was made to appeal to the Supreme Court on 16 October 2018 against the Court of Session’s reference. The First Division of the Inner House refused the application on 8 November 2018.

The Secretary of State for Exiting the European Union has now applied to the Supreme Court for permission to appeal.

Secretary of State for Exiting the European Union (Appellant) v Wightman and others (Respondents)

UKSC 2018/0209

The Draft Withdrawal Agreement. The financial settlement.

A useful summary of the ‘divorce settlement’ in the Draft Withdrawal Agreement from the EU Commission’s press release  http://europa.eu/rapid/press-release_MEMO-18-6422_en.htm

“How much will the UK pay?

The objective of the negotiations was to settle all obligations that will exist on the date of the UK’s withdrawal from the European Union. Therefore, the agreement is not about the amount of the UK’s financial obligation, but about the methodology for calculating it.

Both sides agreed on an objective methodology which allows honouring all joint commitments vis-à-vis the Union budget (2014-2020), including outstanding commitments at the end of 2020 (“Reste à liquider”) and liabilities which are not matched by assets.

The UK will also continue to guarantee the loans made by the Union before its withdrawal and will receive back its share of any unused guarantees and subsequent recoveries following the triggering of the guarantees for such loans.

In addition, the UK agreed to honour all outstanding commitments of the EU Trust Funds and the Facility for Refugees in Turkey. The UK will remain party to the European Development Fund and will continue to contribute to the payments necessary to honour all commitments related to the current 11th EDF as well as the previous Funds.

How do you calculate the UK’s share?

The UK will contribute to 2019 and 2020 budget and its share will be a percentage calculated as if it had remained a Member State. For the obligations post-2020 the share will be established as a ratio between the own resources provided by the UK in the period 2014-2020 and the own resources provided by all Member States (including the UK) in the same period. This means that the British rebate is included in the UK’s share. 

How long will the UK be paying for?

The UK will be paying until the last long-term liability has been paid. The UK will not be required to pay sooner than if it had remained a member of the EU. The possibility for both sides to agree to some simplification is foreseen. 

Will the UK pay the pension liabilities of the EU civil service?

The UK will pay its share of the financing of pensions and other employee benefits accumulated by end-2020. This payment will be made when it falls due as it is the case for the remaining Member States. 

What would be the financial implications of an extension of the transition period?

During any extension of the transition period, the UK will be treated as a third country for the purposes of the future Multiannual Financial Framework as of 2021. However, extending the transition period will require a financial contribution from the UK to the EU budget which will have to be decided by the Joint Committee established for the governance of the Withdrawal Agreement.”

 

There is no reference to any payment in the event of the Backstop period.

 

The Northern Ireland Protocol. The ‘Backstop’

The most contentious part of the draft withdrawal agreement signed off by the Cabinet last night is the Northern Ireland Protocol.

This is helpfully explained by the Commission’s press release of 14 November, http://europa.eu/rapid/press-release_MEMO-18-6423_en.htm

Highlighted in italics are those elements that are likely to cause the DUP to vote against the Draft Withdrawal Agreement when it comes before the House of Commons.

“If an agreement on the future EU-UK relationship is not applicable by 31 December 2020, the EU and the UK have agreed that a backstop solution will apply until such a time as a subsequent agreement is in place.

Alternatively, the UK may, before 1 July 2020, request an extension of the transition period. Such a request would be dealt with under article 132 of the Withdrawal Agreement and must therefore be agreed by the Joint Committee.

In the scenario where the “backstop solution” would apply, this would mean the following in practice:

  • There will be a single EU-UK customs territory. This will avoid the need for tariffs, quotas or checks on rules of origin between the EU and the UK.
  • The EU and the UK have agreed on a set of measures to ensure that there is a level playing field between the EU and the UK.
  • The Union’s Customs Code(UCC), which sets out, inter alia, the provisions for releasing products into free circulation within the EU, will continue to apply to Northern Ireland. This will ensure that Northern Irish businesses will not face restrictions when placing products on the EU’s Single Market.
  • The UK in respect of Northern Ireland will remain aligned to a limited set of rules that are related to the EU’s Single Market and indispensable for avoiding a hard border: legislation on goods, sanitary rules for veterinary controls (“SPS rules”), rules on agricultural production/marketing, VAT and excise in respect of goods, and state aid rules.

Is there any review mechanism foreseen? Can the EU or the UK ask to stop applying the backstop in whole or in part?

If at any time after the transition period, the EU or the UK considers that this Protocol, in whole or in part, is no longer necessary, it may notify the other party, setting out its reasons. The Joint Committee [as established in Article 164 of the Withdrawal Agreement] will consider the notification and may seek an opinion from institutions created by the Good Friday (Belfast) Agreement 1998. Following discussions in the Joint Committee, the EU and the UK may decide jointly that the Protocol, in whole or in part, is no longer necessary to achieve its objectives.”

The UK would be unable unilaterally to withdraw from the Backstop.

During the Backstop the UK would be unable to implement any trade agreements it had negotiated with non-EU states. Another red line for some Members of Parliament.

 

 

 

The Draft Withdrawal Agreement and Shipping Law

 

They came, they argued, they agreed (but now minus Raab and McVey).

This evening the Cabinet signed up to the Draft Withdrawal Agreement, all 586 pages of it – and also the seven page outline of the Political Declaration on the future relationship between the United Kingdom and the European Union.

All eyes are now focussed on the special status of Northern Ireland in the ‘backstop’ in the Agreement and on the inability of the UK unilaterally to withdraw from that agreement in article 21 of the Northern Ireland Protocol.

Less controversial are the provisions of the Agreement on Jurisdiction, Applicable Law, and Insolvency that are to be found in Articles 66 and 67, as follows.

Applicable law.

ARTICLE 66

Applicable law in contractual and non-contractual matters

In the United Kingdom, the following acts shall apply as follows:

(a) Regulation (EC) No 593/2008 of the European Parliament and of the Council shall apply in respect of contracts concluded before the end of the transition period;

(b) Regulation (EC) No 864/2007 of the European Parliament and of the Council shall apply in respect of events giving rise to damage, where such events occurred before the end of the transition period.

Jurisdiction.

ARTICLE 67

Jurisdiction, recognition and enforcement of judicial decisions, and related cooperation between central authorities

  1. In the United Kingdom, as well as in the Member States in situations involving the United Kingdom, in respect of legal proceedings instituted before the end of the transition period and in respect of proceedings or actions that are related to such legal proceedings pursuant to Articles 29, 30 and 31 of Regulation (EU) No 1215/2012 of the European Parliament …the following acts or provisions shall apply:

(a) the provisions regarding jurisdiction of Regulation (EU) No 1215/2012

Insolvency

Article 67

  1. In the United Kingdom, as well as in the Member States in situations involving the United Kingdom, the following provisions shall apply as follows:

(c) Regulation (EU) 2015/848 of the European Parliament and of the Council shall apply to insolvency proceedings, and actions referred to in Article 6(1) of that Regulation, provided that the main proceedings were opened before the end of the transition period;

For financial service providers, the following statement on p2 of the Political Declaration is of interest.

 

“Commencement    of    equivalence    assessments    by    both    Parties    as    soon    as    possible    after    the    United     Kingdom’s     withdrawal     from     the     Union, endeavouring     to     conclude     these     assessments     before the    end    of    June 2020.”

.

Back to the common law. Jurisdiction and judgments if there’s a ‘no deal’ Brexit.

 

 

On 13 Sept 2018 the UK government stated that in the event of a no-deal Brexit, it would repeal most of the existing civil judicial cooperation rules and instead use the domestic rules which each UK legal system currently applies in relation to non-EU countries. This is due to the lack of reciprocity from EU Member States that would pertain after ‘exit day’.

So, for the bin, would be:

The 2012 Brussels Regulation (Recast). Back to common law. The return of the anti-suit injunction to protect London arbitration agreements from suits commenced in EU states.

The Enforcement Order, Order for Payment and Small Claims Regulations: which establish EU procedures for dealing with, respectively, uncontested debts and claims worth less than EUR5,000

The EU/Denmark Agreement: which provides rules to decide where a case would be heard when it raises cross-border issues between Denmark and EU countries, and the recognition and enforcement of civil and commercial judgments between the EU and Denmark

The Lugano Convention: which is the basis of our civil judicial relationship with Norway, Iceland and Switzerland.

Most of the Insolvency Regulation, which covers the jurisdictional rules, applicable law and recognition of cross-border insolvency proceedings, although the EU rules that provide for the UK courts to have jurisdiction where a company or individual is based in the UK will be retained.

In addition, last year shipping minister John Hayes told members of the UK Major Ports Group that the hated 2017 Port Services Regulation will be “consigned to the dustbin” in the UK due to Brexit.

 

Staying out of the bin will be Rome I and Rome II on choice of law in contract and non-contractual matters. No reciprocity is involved with these regulations.

The Government intends the UK to accede to the 2005 Hague Convention on Choice of Court Agreements in its own right and anticipates that the convention would come into force across the UK by 1 April 2019. This is somewhat of a surprise as article 31 (a) provides the convention to come into effect for each state ratifying it on the first day of the month following the expiration of three months after the deposit of its instrument of ratification, acceptance, approval or accession. So, 1 July 2019.

The Convention does not apply to: consumer or employment contracts; insolvency; carriage of passengers or goods; maritime pollution; anti-trust/competition; rights in rem in immovable property, and tenancies of immovable property; the validity, nullity or dissolution of legal persons, and the validity of decisions of their organs; various matters concerning the validity or infringement of intellectual property rights; the validity of entries in public registers; arbitration and related proceedings

 

 

 

Insurer’s ‘exposure’ to risk of US sanctions.

 

 

In Mamancochet Mining Ltd v Aegis Managing Agency Ltd [2018] EWHC 2643 (Comm).  the effect of the on-off-on again of US sanctions against Iran which are due to kick in again this Sunday 4 November at 1159 pm EST came under consideration. A claim under the marine insurance policy was made in respect of the theft of cargo carried from Russia to Iran in 2012, under a bill of lading naming an Iranian national was the consignee. The US sanctions regime came into effect in 2013, was lifted in 2016, and is reimposed this Sunday. The policy provided ““to the extent that …payment of such claim …would expose that insurer to any sanction, prohibition or restriction under …the trade or economic sanctions, laws, or regulations…” and the issue was whether the insurer could refuse to pay out on the ground that payment would ‘expose’ it to US and/or EU sanctions within the meaning of the policy clause.

 

Teare J held that the present clause referred to a payment which “would expose” the insurer “to any sanction, prohibition or restriction”, rather than being “exposed” to the risk of being sanctioned (in the sense of being subject to the risk of a sanction).  Before a sanction can lawfully be applied there must be conduct which is prohibited. It was not enough that that the regulatory agency in question might conclude that there was prohibited conduct (when in law there was not or may not be) and so impose a sanction. Accordingly, the clause provided that the insurer was not liable to pay a claim where payment would be prohibited under one of the named systems of law and thus “would expose” the Defendants to a sanction. Nor did the sanctions clause extinguish liability under the policy when sanctions against Iran were previously imposed in 2013.

 

The claimants had also argued that the EU Blocking Regulation[1] would preclude the claimants from refusing to pay out under the policy. In the light of the construction of the sanctions clause, this issue did not fall to be decided but Teare J saw “[c]onsiderable force in the Defendants’ “short answer” to the point, namely that the Blocking Regulation is not engaged where the insurer’s liability to pay a claim is suspended under a sanctions clause such as the one in the Policy. In such a case, the insurer is not “complying” with a third country’s prohibition but is simply relying upon the terms of the policy to resist payment.”

 

[1] Regulation (EC) 2271/96 protecting against the effects of the extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom, as amended by Commission Delegated Regulation (EU) 2018/1100, amending the Blocking Regulation with effect from 7 August 2018 by including the various US sanctions against Iran

Brexit leaks boost the pound

 

Two pieces of leaked news regarding Brexit have seen the pound rise to US $1.32 today.  The first, reported in yesterday’s Times, was that agreement had been reached by the EU and the UK on financial services after Brexit. Nice, when it happens but of no immediate relevance. Any future relationship between the UK and the EU will have to be negotiated after Brexit. For now, the urgency is about the terms on which the UK leaves the EU and its position during the transition period after exit day while the new trade treaty is being negotiated with the EU. The withdrawal agreement covers: the position of EU citizens in the UK on exit day and the position of UK citizens in EU member states on exit day; the ‘divorce’ settlement to be paid by the UK; the avoidance of a hard border on the island of Ireland; the role of the CJEU in supervising the withdrawal treaty. It is the third of these that is proving most problematic.

Today’s news that the EU may be prepared to compromise on this issue is certainly of immediate relevance. The Financial Times reports that the E.U. is ready to offer the UK a “bare-bones” U.K.-wide customs union with the E.U. in the event of the Irish backstop being triggered.

But getting a withdrawal treaty agreed with the EU is one thing. Getting it through the UK Parliament is another.

Trump, the IMO and scrubbers

 

US President Trump’s plans last week for delaying the 0.5%  sulphur cap were defeated in the IMO who have introduced a supplementary measure about banning carriage of non compliant fuels unless the ship is fitted with scrubbers, to come into effect on 1 March 2020.

One method of ensuring compliance with the sulphur cap which comes into effect on 1 January 2020 would be the fitting of scrubber systems which though costly initially may prove more economical than the use of low sulphur diesel. Maersk has recently outlined its plans to go down the scrubber route, backtracking from its earlier position not to fit them to its fleet.

An article in todays ‘Guardian’ claims that the use of open-loop scrubbers which discharge wash water into the sea will simply transfer pollution from air to sea. Such discharges would have to comply with IMO regulations but there may still be a risk of some pollution involved. A 2015 study by UBA, a German environment agency, concluded that “wet scrubbers influence the marine environment through ph decrease, temperature increase, pollutant discharges and possibly through the use of active substances. Open scrubbers in particular have a greater environmental impact than closed or dry scrubbers due to their high water consumption and significantly larger amounts of generated washwater…The discharges of large amounts of washwater with partially persistent substances, lower ph and elevated temperature, however, are not compatible with the precautionary principles of [the EU’s] waste framework directive and Marine Strategy Framework Directive.”

The use of open-loop scrubbers is effectively banned in German and Belgian waters. However, the use of low sulphur diesel fuel in ports will contribute to other forms of air-borne pollution, such as from Nitrogen Dioxide emissions.

This could be the last time? Clocks go back in the UK. Brexit Update (5).

 

On September 12, 2018, the European Commission issued a draft directive which proposes the abolition of seasonal clock changes in the European Union. Each Member State would have to decide whether they want to stay on summer time or not, and then stick to it. If the directive is approved the last clock change in the EU will be on Sunday, March 31, 2019, two days after ‘exit day’. Will this affect the UK? That depends on whether there is a hard Brexit or not.

 

The UK and the EU are currently negotiating a treaty of withdrawal to cover the period after ‘exit day’ during which the future relationship between the parties will be negotiated.  During this period, which is scheduled to end at the end of 2020 (although it now seems possible there may be a further extension to this time) the UK would remain subject to EU law, including new legislation coming into effect in the transition period, but would not participate in the EU institutions. The UK would continue to benefit from the free trade agreements negotiated by the EU with third party states but would be free to start negotiating its own such agreements, although these could not come into effect until the end of the transition period. At this stage a new agreement should come into effect between the UK and the EU – or maybe not. Politically it is highly uncertain whether a withdrawal agreement will be capable of conclusion in which case the UK will leave the EU on ‘exit day’ in a ‘cliff-edge’ deal.

 

Prime Minister Theresa May has stated that the agreement is 95% concluded – but it is the 5% that is the sticking point. That is the ‘Irish Question’ which did for Gladstone. The question now is how to avoid a hard border between Northern Ireland, which as part of the UK will no longer be in the EU, and the Republic of Ireland, a member state of the EU. An open border is a fundamental part of the 1998 Good Friday Agreement which brought an end to the troubles. The UK and the EU have very different views on the meaning of article 49 of which states.

The United Kingdom remains committed to protecting North-South cooperation and to its guarantee of avoiding a hard border. Any future arrangements must be compatible with these overarching requirements. The United Kingdom’s intention is to achieve these objectives through the overall EU-UK relationship. Should this not be possible, the United Kingdom will propose specific solutions to address the unique circumstances of the island of Ireland. In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation, the all island economy and the protection of the 1998 Agreement.”

This is the so-called ‘backstop’ which the EU would want to be permanent, and the UK would wish to be limited in time. The EU contemplates a customs union applying within Northern Ireland which would be politically unacceptable to the Democratic Unionist Party, on whose support Theresa May’s is dependent – the metaphorical border in the Irish Sea. Accordingly, the prospects of a cliff-edge Brexit look increasingly likely.[1]

However, an abrupt exit would not have to lead to a hard border on the island of Ireland. The EU will insist that the Republic erects such a border but that would be politically impossible for the Republic. Chancellor Philip Hammond has said that the UK would be required under WTO Rules to erect such a border. Up to a point, Chancellor. There is no WTO institution policing compliance with its rules. It is up to individual members to bring proceedings for violation of WTO rules. In the case of border between the North and the South that would lead to potential suits by non-EU states for violation of the principle of ‘most favoured nation’. However, the UK would be able to raise as a defence the security principle in Art. XXI of GATT, recently invoked by President Trump to justify imposed tariffs on imported steel and aluminum and threatened ones on imported cars. In any event it could just decide not to comply with any WTO award against it – as the EU has done for 20 years in relation to its ban on the import of hormone treated beef from Canada, the US– and take the consequences of trade sanctions from the other party.

For Banks and Insurers a cliff-edge Brexit would mean the immediate loss of ‘passporting’ rights – hence the rush of P&I Clubs setting up subsidiaries in EU states, such as Ireland, the Netherlands, Cyprus. There is even talk that national regulators in EU states may feel required to prevent payments being made out under policies with UK insurers that were written before ‘exit day’ although this would very probably constitute a breach of art 1, Protocol 1 of the ECHR as amounting to an expropriation of contractual rights which constitute ‘possessions’. [2]

 

[1] As of 26 October 2018 a leading bookmaker is offering odds of 8/11 that the withdrawal agreement will be approved by the Council of the EU and the UK Parliament before ‘exit day’ and evens that it won’t. Odd of 4/11 for Theresa May still to be PM on 1 April 2019, 5/6 for the UK to rejoin the EU by 2027, 15/8 for a second referendum to be held by the end of 2019 in the UK.

 

[2] This provides that “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”

 

Brexit update (4). A “third way” for the UK parliament?

 

As we all know, the UK government gave notice of withdrawal from the EU under article 50 on 29 March 2017. Article 50(3) provides “The Treaties shall cease to apply to the State…from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification…”. The European Union Withdrawal Act 2018 provides that parliament will vote on any agreement between the UK government and the EU Council (if there be any such agreement). If parliament votes against the agreement and no alternative is proferred the UK leaves the EU at 11pm on 29 March 2019, the so-called ‘Brexit forte et dure’.

However, there may be a third option open to members of parliament wishing to take back control – to vote to revoke the notification under article 50 and to stay in the EU – at least for now. The UK government and the Commission take the view that a notice of withdrawal, as is the case with a similar notice under a time charter, once given cannot be revoked. But are they right? In Andy Wightman MSP v Secretary of State for exiting the European Union[2018] CSIH 62 the First Division, Inner House, Court  of Session has referred this question or a preliminary ruling under Article 267 of the Treaty on the Functioning of the EU to the Court of Justice of the EU under the expedited procedure. The question framed is:

“Where, in accordance with Article 50 of the TEU, a Member State has notified the European Council of its intention to withdraw from the European Union, does EU law permit that notice to be revoked unilaterally by the notifying Member State; and, if so, subject to what conditions and with what effect relative to the Member State remaining within the EU”.

If the CJEU rules that unilateral revocation is possible, then we are in for interesting times in 2019.