Brexit: a full menu

The shock to the established order from the United Kingdom’s vote to leave the European Union has been felt all the more keenly in Scotland, which voted to remain and which in 2014 was told that staying within the UK was the way to retain EU membership. While an active debate has sprung up as to the constitutional requirements surrounding UK withdrawal, active legal consideration is being given in parallel to the political desire to give effect to the Scottish vote. What are the possible outcomes, as things stand?

Teasing out the constitution

The deceptively simple terms of article 50 of the Lisbon Treaty state that any EU member state “may decide to withdraw from the Union in accordance with its own constitutional requirements”.

But what are these requirements as respects the UK? It appears that the Government’s legal advisers take the view that it would be an executive act in exercise of prerogative powers. According to a sizeable body of opinion, however – see, for example Barber, Hickman and King, at ukconstitutionallaw.org (post of 27 June 2016) – this would be invalid under both UK and EU law. Since the effect of invoking article 50 would be to cut across rights conferred under legislation, principally but not solely the European Communities Act 1972, they argue that a further Act of Parliament is required, because prerogative powers cannot be used in conflict with legislation: the Fire Brigades Union case [1995] 2 AC 513 is cited in support.

The contrary view, set out by Professor Mark Elliott in his blog publiclawforeveryone.com (post of 30 June 2016), is that the 1972 Act itself simply facilitates the discharge of treaty obligations entered into under the prerogative, and “does not occupy the same legal space as, and therefore does not conflict with, the Government’s prerogative power to contract, renegotiate or extricate the UK from treaty obligations”.

Aileen McHarg, Professor of Public Law at Strathclyde University, and Adam Tomkins, of Glasgow University and a Conservative MSP for Glasgow, who each provided comments for the Journal, both incline to the latter position. “I think the better view is that withdrawal per se – i.e. the triggering of article 50 and the subsequent negotiations – is strictly a matter for the UK Government acting under the prerogative, and any domestic legislative action to implement the effects of withdrawal is separate and comes later,” McHarg states.

Tomkins describes the unlawfulness argument as “difficult to sustain”, even if it might be unwise for a Prime Minister to invoke article 50 without seeking and obtaining Parliament’s consent in some form. He observes, however: “One of the interesting things about all of this is that a lot of people think the vote was about returning sovereignty to the UK Parliament, but there is of course no majority in either House in favour of Brexit. So quite how you square the instruction of the British people to leave the EU with the desire of the British people to return sovereignty to the UK Parliament in these circumstances, is a very difficult question for the next Prime Minister.”

The question may be tested judicially before long, as London solicitors Mishcon de Reya have begun proceedings designed to do exactly that. Equally, Parliament may decide to acquiesce in the vote and put the issue of consent beyond doubt.

Waiting in the wings also is the question whether article 50 notice, once given, can be withdrawn before negotiations are complete. Barber, Hickman and King believe that an affirmative answer “depends on reading such a right into a text from which it is conspicuously absent”; Sir David Edward and Professor Derrick Wyatt, in evidence to the House of Lords European Union Committee, both agreed that a member state could legally reverse a decision to withdraw at any point until the withdrawal agreement took effect – whatever political complications might arise.

Holyrood's status

What about the Scottish Parliament? Immediately after the referendum the First Minister was reported as suggesting that Holyrood might be able to block a British withdrawal due to the legislative consent motion (LCM) requirements. Tomkins maintains that it is necessary to distinguish between Brexit itself (withdrawal from the EU) and its consequences. “The former is a matter for Westminster, because the UK’s relationship with the EU is reserved and the UK’s constitution is reserved under the Scotland Act. So there will be no need for a LCM to certify Holyrood’s consent to the UK withdrawing from the EU.”

Were it to be the case, however, that certain powers now exercised at EU level would come to Holyrood rather than to Westminster once repatriated, the necessary UK legislation, even if adding to devolved powers, “would presumably under the Sewel convention require the consent of the Holyrood Parliament. So there are numerous ways in which the consequences of Brexit might require Holyrood’s consent, but Brexit itself, so far as I can see, won’t”.

McHarg’s position is that Holyrood’s consent will be necessary to remove the requirements in the Scotland Act 1998 for the Scottish Parliament and Scottish Government to comply with EU law, and also for any legislation implementing the Brexit negotiations which recasts the law in areas currently covered by EU law, but within devolved competence (such as agriculture or fisheries).

She continues: “Of course, consent is only ‘normally’ required, and it might be argued that this is a situation in which devolved consent could be dispensed with. I think that would not be sensible (to put it mildly). The Prime Minister was wise to announce that the devolved governments would be fully involved in the withdrawal negotiations in order to reduce the risk of conflict at a late stage in the withdrawal process. However, it may well prove impossible to reach a settlement that is mutually acceptable.”

Tomkins observes that much about what is being sought for Scotland, and the UK, still needs to be “teased out over time” under the next Prime Minister, but also comments: “One of the things that the current Prime Minister has said, which again I very much welcome, is that he expects the devolved administrations in Scotland, Wales and Northern Ireland to play a leading role in these negotiations to ensure that the interests of all parts of the UK are fully taken into account.”

A foot in each camp?

Is it conceivable that, in view of its pro-EU vote, Scotland (and also Northern Ireland, and Gibraltar) could remain within the EU, while also remaining part of a UK that otherwise secedes? This question has also attracted much attention. The precedent most frequently cited is that of Greenland and the Faroe Islands, both part of Denmark but having withdrawn from the EU by choice, but the Channel Islands, Isle of Man and certain overseas territories of other member states also retain a different position to their parent state.

Tomkins welcomes the First Minister’s commitment to look at all the options, of which this presumably is one, while making the obvious point about Scotland’s very different situation, geographically and as one of the smaller units within the UK.

McHarg recognises that the EU has shown itself able to accommodate “differential participation”, but comments: “instinctively this feels very unlikely”. For her, significant practical problems include:

• Only states can be members of the EU, so how would Scotland be represented in EU decision-making, and any future treaty renegotiations?
• How far would EU law extend – only to areas within devolved competence, or to reserved matters as well insofar as they apply to Scotland?
• Would it require adjustment to the division of competences between Holyrood and Westminster?
• What implications would it have for trade and free movement within the UK?
• Would there be a meaningful union between Scotland and the UK with such a fundamental difference in their legal and constitutional orders?

Tomkins makes the further point that it is not yet clear what “leave” means. If we retain membership of the European Economic Area, with continued access to the single market such as Norway has, “then it might be that most of what the Scottish Parliament and Government want, in terms of status within the EU, can be achieved without there being any differential between Scotland and London. But the only honest thing that one can say is that nobody knows because the negotiations haven’t even started... I think we have to give ourselves time to let those negotiating outcomes crystallise before we make any further decision”.

Other important questions arise. For Tomkins these include the ambiguity of the Scottish Government’s favoured phrase, “protect Scotland’s position within the EU”, which could mean various things. “One thing we could very easily do, for example, is that the Scottish Parliament could say that all legislation passed by it is to be read and have effect subject to European law, and confer on the Court of Session the jurisdiction to quash any of our legislation that is contrary to European law. We could do all of that whether we were a member state of the EU or not.”

If independence becomes the most likely scenario in which Scotland remains within the EU, the first issue to be resolved would be the legality of a second independence referendum. For McHarg, it would be hard for the UK Government to justify refusing to permit this; and if the question arose whether Holyrood had the power to authorise a referendum by itself, “ironically, as my colleague Dr Chris McCorkindale has pointed out, the insistence that the EU referendum is only advisory and need not be followed would strengthen the case for saying that an independence referendum would be intra vires”.

Independent or not, any continued Scottish membership of the EU would require the consent of other member states. France, and more particularly Spain, have so far appeared to rule out the Denmark/Greenland option; Spain was previously hostile also to the idea of an independent Scotland joining the EU, though McHarg maintains that the differences between Scotland and Catalonia, whose independence movement Spain wishes to counter, are now greater than they were.

Can the constitution be repaired?

If the UK does survive intact, should we learn lessons for its constitution, especially on how to effect major change? McHarg believes that the odds now favour independence “in the relatively near future”, the Union in its current form having become inherently unstable: change in a more federal direction would be necessary for long-term stability, but “the political and constitutional-cultural obstacles to significant change in the UK’s territorial constitution are overwhelming – something the EU referendum has simply served to expose”.

On the use of referendums, she differs from those who question their compatibility with a fundamentally parliamentary constitution. “I think it is appropriate to use referendums to resolve fundamental constitutional questions, particularly existential questions such as independence or EU membership, and the referendum is now quite firmly embedded in the constitution – the Scotland Act 2016, for instance, requires a referendum before the Scottish Parliament and Government could be abolished.”

How they are regulated may however require scrutiny: the franchise, potentially fundamental to the outcome, has been controversial in both the 2014 and 2016 referendums. She opposes requiring special majorities, or double referendums, or anything that makes change more difficult to secure, as arbitrary and being liable to cause resentment.

When should we have one at all? “Short of a full-scale constitutional codification, I think this must inevitably remain something which is dealt with on a piecemeal basis.”

Tomkins also believes the need is clear to look at the relationship between parliamentary democracy/decision making and referendums. “This referendum has revealed quite a chasm of opinion between the majority of parliamentarians and the people, and that is I think a challenge for the British constitution – I don’t know what the solution is right now, but it is a challenge that we should not duck.”

While some have argued for a Constitutional Convention to be convened, Tomkins does not support this at present: “I’m in favour of acting prudently and cautiously, waiting for the dust to settle and seeing where we go from here. As I said, we don’t know when the negotiations are going to start, or what the British Government’s end point is going to be, what it is trying to achieve in these negotiations, and those are the critical questions we have got to understand before we go any further.”

He takes a more positive view of the UK's future than McHarg. “I’m not pessimistic by nature, and I’m not pessimistic about this. It was a very bruising battle, but there’s no such thing as a referendum that matters that isn’t a bruising battle. The Scottish independence referendum was bruising too. But those bruises will heal, people will start talking rationally with one another; they already are” – he welcomes the various talks taking place between Scottish and London Government figures, and with opposition parties in Scotland – “and I am confident that we will find a way of achieving a satisfactory solution that meets with the requirements and interests of all parts of the UK. But I don’t pretend it’s going to be easy.”

Selected further reading

House of Lords European Union Committee, “The Process of Withdrawing from the European Union”: www.publications.parliament.uk/pa/ld201516/ldselect/ldeucom/138/138.pdf (4 May 2016)

Nick Barber, Tom Hickman and Jeff King, “Pulling the Article 50 'Trigger': Parliament's Indispensable Role”: https://ukconstitutionallaw.org/ (27 June 2016)

Brendan O'Leary, “Detoxifying the UK's exit from the EU: a multi-national compromise is possible”: blogs.lse.ac.uk (27 June 2016)

Richard Ekins, “The Legitimacy of the Brexit Referendum”: https://ukconstitutionallaw.org/ (29 June 2016)

Mark Elliott, “On why, as a matter of law, triggering Article 50 does not require Parliament to legislate”: https://publiclawforeveryone.com/ (30 June 2016)

Leonard Besselink, “Beyond Notification: How to Leave the European Union without Using Article 50 TEU”: https://ukconstitutionallaw.org/ (30 June 2016)

Law Society of Scotland's Q&A for members: www.lawscot.org.uk/members/international/our-international-work/eu-referendum-2016/

Brexit and Business – In-house Lawyers Comment

Within hours of the UK voting to leave the European Union, the Prime Minister had resigned, the pound fell to its lowest level against the dollar in nearly 30 years and everyone was asking – what next?

The Journal asked a number of Scottish in-house lawyers for their immediate reaction as to how Brexit could affect business and how lawyers should react to it. These are some of their comments:

Stephen Swan, legal director, Edinburgh Airport

How should business react?

Edinburgh Airport’s CEO, Gordon Dewar, was clear in the run-up to the referendum that from the airport’s perspective a vote to remain in the EU best reflected our aspirations to grow the airport’s international business and was thought to be the preferred option for our business partners, customers and the Scottish economy. Like many businesses we were surprised by the referendum result, but we are used to dealing with change and will now focus on minimising the impact and finding the opportunities.

From a regulatory perspective, like many sectors of the UK’s economy the aviation sector is bound up in EU rules, many of which seek to promote common standards, fairness and transparency, and ease of use and movement. It is far too early to speculate on how the UK might deal with aviation regulation post-Brexit, but there could be a difficult balancing act between perceived opportunities through the removal of EU regulation and a need to keep the status quo – we certainly believe continued access to "open skies" is important for the industry and the economy.

How should lawyers react?

When the added dimension of a potential second independence referendum is added to the mix, the only real conclusion to be drawn at the moment is that these are interesting times. Businesses will, more than ever, be looking to their external and in-house advisers to best steer them through the upcoming turbulence.

In-house lobbyist, global organisation

How should business react?

Businesses can usefully start taking practical steps now, such as looking at the key EU legislation which applies to their organisation and whether it comes directly from EU law (a regulation) or indirectly via UK implementing legislation (a directive), as this may well affect their continuity at least in the short term. Also a review of new EU legislation which they were expecting to have to implement over the next two years or so would be useful, as this would still need to be implemented, unless the UK Government purposefully decides not to. If it's coming into force later than that, it might no longer be relevant. For example, a key question for many will be whether the UK will still need to adopt the new EU data protection rules (which are certain to be complex and costly to implement), to allow equivalent protection when data is transferred into the UK.

How should lawyers react?

There may be a longer term opportunity for in-house lawyers or the Law Society of Scotland to help their organisations lobby for the UK Government to repeal EU rules that have proved to be unnecessarily restrictive for UK businesses and unhelpful for customers, or for a complete simplification and rewrite in some areas. Parliamentary time will be at a premium, though, so drawing up your lobbying top 10 priority list now could well be worthwhile.

Joe Boyd, in-house solicitor, Registry & Operations, The Royal Bank of Scotland plc

How should business react?

Businesses will react differently, depending on their size, structure and service industry. This is understandable, as a small private fishing industry firm, for example, will be pleased with the potential future lifting of restrictions regarding their operations around the UK. A bigger publicly listed company, however, whose value is determined by the stock market, will be watching its share price intently over the coming weeks and months, as the world markets continue to react to the result, the initial reaction of which wiped billions of pounds off the value of some companies. Going forward, and dependent on the speed and detail of the exit negotiations, there will emerge both opportunities and challenges for businesses to explore and contend with.

How should lawyers react?

Given I wrote my honours dissertation on the legality of an event just like this happening, my initial reaction was one of relative excitement at the constitutional events that began to unfold. Already we have had talk of second referendums, parliamentary consent to facilitating the result, and the prospect of some parts of the UK seeking a way to remain in the EU. All these arguments are of course taking place, primarily because the UK is one of only a handful of countries in the world not to have a written constitution, and therefore no absolute process for dealing with matters such as this. Both practising lawyers and also lawyers who act as politicians up and down the UK, will play key roles on both sides of the constitutional arguments as they unfold.

European legal counsel, water and maintenance services sector (multinational >£1 billion)

How should business react?

Shortly after the result was announced we received an email from our CEO stating that the business had made contingency plans for the eventuality months ago and that basically there would be no change in our activities for the foreseeable future. The message is "steady as she goes" and wait until we see how the situation pans out. The consensus seems to be that business expects a period of turbulence, but not turmoil, with definite scope for opportunities.

The immediate effects of the Brexit vote will be felt operationally as well as financially: for example, there will be pressure for contracting parties to review transnational contracts – particularly their termination and price escalation/market indexing clauses and other currency related provisions. Despite the uncertainty of recent days, it is important for businesses to bear in mind the fundamentals – e.g. the UK’s relative economic strength.

How should lawyers react?

It’s a very ill wind that does not blow some business the legal profession’s way! Some businesses are setting up Brexit task forces or committees, including in-house legal teams, to model the various scenarios – the Norway, Switzerland or Canada options (or some hitherto untried variant of these) – and report back to senior management. Businesses which operate in regulated sectors or those which are especially integrated with the EU, such as utilities, telecoms and finance, will likely experience more of an impact than others. The June 23 vote ushered in not just a new Europe but, for a period of years, a whole new legal landscape for the UK in which we as lawyers to some extent will all have to become, for our clients and employers, EU lawyers.

General counsel, construction industry (SME >£100 million)

How should business react?

On Friday 24 June, our chairman, who voted to remain in the EU, emailed all staff and said: "We come to work today with a glint in our eye and a cheeky smile... There will be many opportunities in the coming months and we're ready for them."

If you voted to stay in the EU, there are two ways at looking at the referendum result. You can think that you've been caught in a storm, soaked to the skin in your summer shorts, or you can be working hard selling umbrellas. I know which way I want to look at it.

How should lawyers react?

A politician is someone who can tell you that words mean nothing. A lawyer is someone who can tell you that words mean something. When times are uncertain it's up to lawyers to explain what's happening, what it means and act swiftly and confidently to reassure people.

For in-house lawyers in the private sector, that means reminding colleagues that while Brexit may affect every aspect of the operations of a company, from its commercial contracts to IP, data protection, funding, employees and how it’s affected by competition law, it doesn’t affect it yet. The law is the same today as it was on the Wednesday before the vote. Nothing has changed. In short – don't panic!