Brexit update: the Article 50 Challenge, the Great Repeal Bill and Issues around Timing | White & Case LLP International Law Firm, Global Law Practice
Brexit update: the Article 50 Challenge, the Great Repeal Bill and Issues around Timing

Brexit update: the Article 50 Challenge, the Great Repeal Bill and Issues around Timing

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Given the current Article 50 challenge before the UK Supreme Court, there is uncertainty as to whether the UK government will be able to retain its original Brexit timeline of March 2017. The Supreme Court's judgment is expected later this month. Further issues could also arise in relation to the UK prime minister's proposed Great Repeal Bill and whether the UK's departure from the EU could come before the ECJ.

 

Introduction

There is still much uncertainty surrounding the timing and process by which the United Kingdom ("UK") would officially commence the "departure process" by invoking Article 50 of the Treaty on European Union ("TEU") ("Article 50") following the EU referendum result on 23 June 2016.

Withdrawal agreement from the EU Article 50 (TEU)

European Council (excluding the UK) agrees by consensus guidelines for the EU's negotiation

    ↓

Possible further stage where the European Commission submits recommendations to the Council of the European Union and the Council (excluding the UK), by enhanced qualified majority voting, authorises the opening of negotiations and appoints negotiator

    ↓

European Commissions undertake negotiations

    ↓

European Parliament consents to the withdrawal agreement by a simple majority

    ↓

Council of the European Union (excluding the UK) agrees to withdrawal agreement by enhanced qualified majority voting

 

Source: HM Government, "The Process for withdrawing from the European Union", February 2016

    
Prime Minister Theresa May said in a Conservative party conference in November 2016 that she would trigger the exit negotiation process by the end of March 2017.[1] This intention of the UK government (the "Government") was reiterated by the Secretary of State for Exiting the European Union (the "Secretary of State"), David Davies, in his statement to Parliament on 7 November 2016.[2] This would effectively mean that the UK will leave the EU by March 2019, unless there is a unanimously agreed extension of the standard two-year period. However, a current UK court challenge on the Government's power to trigger Article 50 without parliamentary approval has thrown into question the likelihood of the Government being able to retain its original Brexit timeline. So far, the Government has not made it clear as to how the outcome of the court case would affect its plan.

 

EU Treaty provisions

Article 50 (1) TEU states: "Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements". Article 50 (2) TEU states: "A Member State which decides to withdraw shall notify the European Council of its intention".

Article 50 Treaty on European Union

  1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
  2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
  3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
  4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
  5. If a State which has withdrawn from the Union asks to rejoin, its request shall be subject to the procedure referred to in Article 49.

    
    

Article 50 court challenge

In the recent case of R (on the application of Miller & Dos Santos) v Secretary of State for Exiting the European Union[3] (the "Article 50 Case"), the Divisional Court ("DC") ruled in its judgment dated 3 November 2016 that the Government does not have power under the Crown's prerogative to give notice pursuant to Article 50 for the UK to withdraw from the EU. Therefore, Parliament will have to vote on authorising the Secretary of State to trigger Article 50 which would inevitably repeal the European Communities Act 1972 ("ECA 1972").

In reaching its decision, the DC rested its ruling on two important constitutional principles. Firstly, the Crown cannot use its prerogative powers to alter domestic law and that the prerogative powers of the Crown are subject to "the overriding powers of the democratically elected legislature as the sovereign body".[4] In particular, the DC was of the view that (1) the wide and profound extent of the legal changes in domestic law created by the ECA 1972 makes it especially unlikely that Parliament intended to leave their continued existence in the hands of the Crown; (2) 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, could not have intended that the Crown should be able to switch this off again through unilateral action under its prerogative powers; and (3) being a statute of major constitutional importance, the ECA 1972 should be exempt from casual implied repeal by Parliament. Secondly, the Crown's prerogative powers operate only on the international plane.

The DC considered that it is clear Parliament intended EU rights to have effect in domestic law and that this effect should not be capable of being undone or overridden by action taken by the Crown in exercise of its prerogative powers. The ECA 1972 cannot be regarded as silent on the question of what happens to EU rights in domestic law if the Crown seeks to take action on the international plane to undo them. It either does or does not reserve power to the Crown (including giving notice under Article 50) and DC was of the view that the ECA 1972 clearly does not. Interestingly, the DC further stated that the European Union Referendum Act 2015 ("the Referendum Act 2015") must be interpreted in such a way which leads to the conclusion that a referendum on any topic can only be advisory unless there is clear language to the contrary in the Referendum Act 2015 itself.

The UK Supreme Court carried out a four-day hearing[5] on the appeal of the Article 50 Case in December 2016 with final judgment expected later this month.

The Appellant (the Secretary of State) has submitted that the DC was wrong to uphold the Respondents' (Miller and Dos Santos) claims and rests its case on a number of key arguments, which are set out in summary terms as follows:[6]

(a) Within the UK's constitution, the power of the Government to exercise its prerogative powers on the international law plane is long established and a vital modern necessity.

(b) The UK has a dualist constitutional system (prerogative actions of the Government on the intentional law plane on one hand and the Parliament giving effect as necessary to the rights and obligations on the domestic plane on the other) and where Parliament has chosen to implement treaty rights and obligations through legislation, that fact carries no implicit restriction on how Government should or must later act in relation to those treaties on the international plane.

(c) When Parliament wishes to impose forms of prior control upon the Government's prerogative powers to enter into or withdraw from treaties, it must make its intention clear. The ECA 1972 is a conduit by which the relevant treaty rights and obligations are given effect in domestic law, but carries no implication about any future action or decision on the international plane. Moreover, these domestic legal rights and obligations existing through such a conduit from time to time are contingent on alterations by the Government through the exercise of its prerogative powers on the international plane.

(d) The De Keyser principle[7] should be applied in considering whether the Government's prerogative powers relating to the conduct of foreign affairs (including the making and un-making of treaties) have been removed either through express abrogation or by necessary implication. Parliament has considered with care and in detail the nature of controls over the exercise of prerogative powers in the context of treaties generally but also specifically in the context of changes to the EU legal regime and has evinced no such intention on the many opportunities it has had, including in the Referendum Act 2015.

The Respondents (also Claimants) have made the written submissions to the Supreme Court that the Appellant's case suffers from several main errors of analysis, namely that (1) the Appellant fails to recognise the exceptional nature of the ECA 1972 and its effect on the dualist principle (distinguishing domestic and international law so that action on the international plane does not affect the content of domestic law); (2) the Appellant fails to recognise certain fundamental principles of domestic law[8] which support the case that Parliament cannot have intended when enacting the ECA 1972 to authorise the Government by the use of prerogative to take action or defeat or frustrate the rights Parliament has created.[9]

The Respondents have put forward their alternative case that notification under Article 50(2) is unlawful without statutory authorisation by an Act of Parliament by stating that:

(a) Parliament created statutory rights under the ECA 1972, with their scope and effect being determined with binding effect by an international court. For the Secretary of State to give notification under Article 50(2) TEU that the UK intends to withdraw from the EU would cause those statutory rights to be destroyed or frustrated.

(b) The ECA 1972 is a piece of "constitutional" legislation of fundamental importance which means that it can only be repealed by a deliberate and express provision. In this case only Parliament could defeat the statutory rights which Parliament itself has created. Parliament did not intend that the rights it had created could be defeated or frustrated by the actions of a Government minister purporting to exercise prerogative powers. In any event, the Government has no prerogative power at common law to take action which will defeat those rights. Clear statutory authority is required.

Both the Appellant and the Respondents further developed their arguments through oral submissions in front of eleven Justices of the Supreme Court. The arguments mounted were complex and interesting, and we note in particular the emphasis of the oral submissions on examining the very nature of Parliamentary supremacy itself and whether it can constitutionally demonstrate that supremacy by either action, inaction, or both. Much also rests on the proper reading of the UK "dualist system", and whether legislation is merely a conduit for the contingent rights and obligations developed on an international plane, or whether it provides the ultimate source of authority for the creation, alteration and removal of such rights and obligations, thereby rendering any attempt to frustrate or destroy the same through the prerogative illegal. We will provide a further update in due course when further details on this landmark case are revealed.

 

The "Great Repeal Bill"

Of crucial importance is the announcement by Theresa May that a "Great Repeal Bill" (the "Bill") will soon be put before Parliament which will "remove from the statute book – once and for all – the European Communities Act".[10] The Bill will be included in this year's Queen's Speech (scheduled for May 2017) meaning that the ECA 1972 will no longer apply from the date upon which the UK formally leaves the European Union and simultaneous, the Bill will transpose the 'acquis' (which is the body of existing EU law) into British law.[11] The Bill will include powers for ministers to alter the acquis by secondary legislation, meaning that pending the Bill being given Royal Assent, Parliament "will be free – subject to international agreements and treaties with other countries and EU on matters such as trade – to amend, repeal and improve any law it chooses".[12]

It has been argued that there are several potential issues associated with this plan:

(a) When section 2(1) of the ECA 1972 (which currently provides that EU law provisions which are directly applicable or have direct effect are automatically binding without further enactment) is repealed, EU law provisions which have not been separately implemented (e.g. Regulations such as EMIR and MiFIR) will disappear unless there is a separate provision enacted incorporating them into national law. To incorporate Regulations wholesale may cause great political unease, but a more tailor-fit plan would be complex and time-consuming. It is questionable whether this can be completed before the introduction of the Bill this Spring.

(b) The Bill will include powers for ministers to alter the acquis by subordinate legislation. Using such powers could become a critical issue both from a constitutional and political perspective.

(c) Once the UK legal system is severed from the EU legal system, keeping up with a "living" body of acquis which is frequently consolidated, amended and/or supplemented by legislative activity may be particularly challenging. It has been argued that there is a risk that UK ministerial resources will be expended on assessing any updates and refreshers to EU laws. The process will be particularly challenging where the UK is hoping to establish "equivalence"[13] to the EU regime.

(d) Issues could also arise regarding the current jurisdiction of EU institutions, such as the European Court of Justice (the "ECJ"), the European Securities and Markets Authority ("ESMA"), the European Banking Authority ("EBA") and European Commission, which will not have jurisdiction over the UK. It has been argued that the Bill must transpose existing Regulations in such a way that the provisions would still make sense without references to the jurisdiction of EU institutions.

(e) There is much uncertainty as to whether the body of ECJ cases will remain persuasive as precedents in the UK court system. This is both in relation to any transposed acquis as well as any new UK statute law provisions that are aligned with EU laws coming into force after an effective Brexit. Divergences in interpretation and implementation could grow which would create further problems for the UK where it may be desirable to establish equivalence or maintain consistency for various reasons.

Potential involvement of the ECJ in the Brexit process

There is the possibility that the UK's departure from the EU could end up before the ECJ, in particular in relation to the revocability of Article 50. This is because the UK Supreme Court, as a final court of appeal, is required by EU treaties to refer to ECJ for a preliminary ruling on any question of interpretation of the Treaties, the answer to which is necessary for its judgment, unless there is no reasonable doubt as to the meaning of the specific EU law provision in question.[14]

One issue in relation to which a reference could be made in the present case is whether a notification to leave the EU under Article 50 could be unilaterally withdrawn, or revoked, after it is given, but before Brexit has taken effect. Lord Kerr of Kinlochard who has been credited with authorising the text of Article 50 said in an interview with the BBC[15] that the process of Article 50 is revocable. As a question of EU law this could require an authoritative interpretation by the ECJ.

The DC assumed in its judgment[16] that an Article 50 notification is irrevocable, but this was on the basis that the parties were agreed on this point. A reference could be made on this point in the event that the Supreme Court (or indeed a lower court following fresh legal action) decides it needs this question answered. It is worth noting that the Government's skeleton grounds for appeal do not mention irrevocability.[17]

Under Article 68 ("Article 68") of the Vienna Convention on the Law of the Treaties (the "Vienna Convention"), a notification of intention to withdraw from a treaty "may be revoked at any time before it takes effect".[18] This provision does not override any specific arrangements in a treaty, and treaties vary widely on this point.[19] The TEU is silent on this matter. The recently published House of Commons Library briefing paper on this very issue examined a number of different academic viewpoints but did not rule out the possibility of the ECJ making a determination on the revocability question, rather it says that the ECJ would interpret "purposively" and not according to academic opinions and might take account of the general principle of international law as set out in Article 68.[20] No specific conclusions were drawn in that paper.

If a notification can be reversed, this will be crucial for the political handling of Brexit during the negotiation process. It can also be argued that the ECJ's jurisdiction can extend to not only the process, but also content and implementation of exit terms with wide implications for rights of citizens, companies and institutions under EU treaties.[21]

In addition to the revocability issue, any withdrawal agreement between the UK and the EU may be subject to judicial review by the ECJ.[22] It has been argued that the European Council's decision to conclude the agreement could be challenged before the ECJ through an action for annulment (Article 263 TFEU).[23] Some have argued that the ECJ may be requested to opine on the draft withdrawal agreement on the issue of its compatibility with EU law (Article 218(11) TFEU), whereas others see this as impossible since Article 50 only refers to Article 218(3).[24]

In summary, it would seem that there are still many ways by which the Brexit question could end up in front of the ECJ.

 

Concluding Remarks on Timing

The European Commission's chief Brexit negotiator, Michel Barnier, during his first public speech on the issue since being appointed said that "it is clear that actual [Brexit] negotiations will be shorter than two years" because such period would include the time for the European Council to set guidelines and to authorise negotiations, approval of the negotiated deal by the Europe Council and the European Parliament, and finally UK's approval of the agreement[25]. This effectively sets an October 2018 deadline for completing the exit talks.

On the 7 December 2016, Theresa May won the backing of Members of Parliament for her March 2017 timetable after agreeing to set out UK's Brexit strategy before triggering Article 50. Government sources say that it is not an attempt to short-circuit the Supreme Court ruling on the issue. However, the Prime Minister's team argues that it will be hard for Members of Parliament to reserve their support come March if they have already voted for the timetable.

In a further speech on 17 January 2017, Theresa May outlined the 12 objectives of the UK Government's Brexit negotiation plan. Crucially, she confirmed that a final deal on Britain's exit from the EU will be put to a vote of both Houses of Parliament. However, no clarification was given by the Prime Minister when asked by the press what the implications on timing and Britain's then status in the EU would be should the Parliament vote to reject such a deal in due course.

We will continue to track developments of the Brexit topic and provide further updates on points of interest. Please also see our previous article in the Delta Report "Brexit: Implications for the Derivatives Market".

 

THE DELTA REPORT
Derivatives Newsletter
January 2017

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[1] The Prime Minister, Theresa May, speaking on 2 November 2016 at the Conservative Party Conference at The ICC, Birmingham, "The good that Government can do".
[2] Oral statement to Parliament delivered by David Davies on 7 November 2016, see "A statement from the Secretary of State for Exiting the European Union on the process for invoking Article 50".
[3] [2016] EWHC 2768.
[4] Ibid [86].
[5] The hearing dates were 5th – 8th December 2016.
[6] Appellant's Case, On Appeal from the High Court of Justice Queen's Bench Division (Divisional Court), UKSC 2016/196, in the Supreme Court of the United Kingdom.
[7] Attorney-General v De Keyser's Royal Hotel Ltd [1920] AC 508.
[8] Such principles include (i) Parliamentary sovereignty which means that the prerogative power to enter into and terminate treaties may not be used to defeat or frustrate domestic law rights created by Parliament; (2) even a statutory power to alter primary legislation by delegated legislation will be narrowly construed, all the more so when a prerogative power is replied upon; (3) a statute is construed as defeating rights only when Parliament has clearly so provided, all the more so when the dispute concerns the scope of prerogative power; and (4) the special constitutional status of the ECA 1972 means it is exempt from the doctrine of implied repeal by the enactment of later inconsistent legislation and for the same reason cannot be subject to removal by the exercise of prerogative power.
[9] Written Case for the Lead Claimant, Mrs Gina Miller, on appeal from the High Court of Justice Queen's Bench Division, in the Supreme Court of the United Kingdom.
[10] The Prime Minister, Theresa May, speaking on 2 November 2015 at the Conservative Party Conference at The ICC, Birmingham, "The good that Government can do".
[11] Ibid.
[12] Ibid.
[13] On establishing "equivalence" under certain important EU Regulations such as EMIR, see related article "Brexit – Implications for the Derivatives Market" in our September 2016 issue of Delta Report here.
[14] The "act eclair" doctrine as established in the case law of ECJ (largely in the judgment dated 6 October 198 2 in Case 283/81, Srl CILFIT and Lanificio di Gavardo SpA v Ministry of Health) and Article 267 of the Treaty on the Functioning of the European Union (TFEU).
[15] The BBC interview and article can be accessed here: bbc.co.uk/news/uk-scotland-scotland-politics-37852628
[16] Paragraph 10, judgment dated 3 November 2016 in R (on the application of Miller & Dos Santos) v Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin).
[17] Grounds of Appeal to the Supreme Court of the Secretary of State for Exiting the European Union.
[18] Vienna Convention on the law of treaties, concluded on 23 May 1969.
[19] Article 5 of the Vienna Convention. See also Laurence R Helfer, "Exiting Treaties", Virginia Law Review, Vol 91 (2005) 1579, 1597.
[20] House of Commons Briefing papers CBP-7763, as published on 14 November 2016, "Brexit and the EU Court".
[21] Koen Lenaerts, President of the ECJ, in an interview with Financial Times, said that the legal path for a country to leave the EU, "can be interpreted by our court like any other provision of union law" and he "can't even start intellectually beginning, imagining how and where and from which angle it might come". See "'May ways' Brexit may go to EU courts, top ECJ judge says – Europe's most senior judge outlines potentially pivotal role in UK's departure", Financial Times, 21 November 2016.
[22] European Parliament briefing February 2016: "Article 50 TEU: Withdrawal of a Member State from the EU".
[23] Ibid.
[24] C M Rieder, 'The withdrawal clause of the Lisbon Treaty in the light of EU citizenship'.
[25] Press conference by the European Commission on 6 December 2016 in Brussels as reported in all the major papers.

 

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