By referendum on 23 June the majority of the electorate in the United Kingdom (UK) voted to leave the European Union (EU). The outcome was surprising to many and the news has dominated international headlines for the past week.
There is little clarity about what will happen in the coming days, weeks and months, as the process for bringing about binding change following the referendum will not begin until the British government invokes Article 50 of the Lisbon Treaty. This is uncharted territory and there is considerable speculation about exactly how and when this step will be taken.
What is clear is that the 'leave' vote has brought about a climate of great uncertainty for businesses all over the world.
How might Australian businesses be impacted?
Many Australian companies with a presence in the EU will have structured their market access to the vast and attractive European market via the UK. As a result of the Brexit referendum result, they may well be wondering what they might need to do to ensure the continued smooth conduct of their business in the EU, including whether they may need to consider establishing a parallel structure in a different EU member state such as Ireland, The Netherlands or Germany.
It is likely to be quite some time before we see how the UK's exit from the EU will be managed in practical terms, making it difficult to predict the legal consequences that might be triggered. For Australian businesses with an interest in the UK and EU markets, some of the issues that may need to be considered include:
- Corporate law and contracts: At what point might Material Adverse Change (MAC) clauses, or other contractual provisions such as Change of Law clauses, be triggered? Could MAC clauses have been enlivened already by the referendum result and the global market movements that emerged almost immediately? How can parties account for the evolving Brexit situation in future contractual negotiations?
- Agency and distribution arrangements: The UK is currently bound by the agency directive of the EU which allows agents and some distributors to claim goodwill compensation after an agency or distribution arrangement has been terminated. Will that principle continue to apply in a post-Brexit UK? Further, where a distribution agreement defines the relevant territory as 'the European Union', will it need to be amended to include the UK or could it be terminated in its entirety based on the UK's departure from the EU?
- Employment law issues: Where British subsidiaries of Australian companies currently shift their workforces around between the UK and EU, how will they deal with any limitations that may be placed on that mobility in future? Further, in relation to business transfers, the UK is currently subject to the Transfer of Undertakings (Protection of Employment) Regulations, also referred to as TUPE, which apply across the EU. These regulations demand that there be continued employment for existing employees after the sale of a business. Will these principles be upheld in a post-Brexit UK?
- Life sciences & healthcare industry issues: The European Medicines Agency (EMA) is the centralised EU agency responsible for protecting some issues of public health through scientific evaluation and supervision of medicines. While all member countries of the European Economic Area (EEA) (which also includes non-EU member states such as Iceland and Norway) are able to benefit from the activities conducted by the EMA, will the UK lose those benefits if it leaves the EU and does not become part of the EEA? Further, as the UK will lose access to R&D funding from the EU in a post-Brexit world, how might this impact Australian businesses with UK subsidiaries that currently benefit from this funding?
- Intellectual property issues: Will businesses need to change their strategy for intellectual property rights management in a post-Brexit world? Looking at trade marks in particular, at present, protection in the UK can be secured through either a national UK or EU registration. For those with EU registrations, it is unclear what steps they may need to take in the future to ensure the continued protection of their rights in the UK, but for now at least nothing changes.
- Environmental law issues: A large number of the UK's environmental laws are derived from EU Directives and Regulations. How might the legislative landscape for environmental protection change in a post-Brexit UK?
We will continue to monitor developments as the consequences of the Brexit referendum unfold.
DibbsBarker is an associated member of the Trans European Law Firms Alliance (TELFA). For over 14 years, DibbsBarker has operated a European Desk supporting Australian clients on their dealings with the EU and vice versa. While DibbsBarker does not advise on foreign law, there are practitioners within the firm with dual qualifications and experience practising in the UK and EU.
This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories