United States: Not So Fast – The High Court Decides Parliament Gets A Say In Brexit

While the dust was still settling on the United Kingdom's June referendum to leave the European Union, the "Remain" campaign scored a major win in the English High Court of Justice on Thursday, Nov. 3, 2016. This decision casts even more uncertainty over an already uncertain time in global politics.

Though the results of the June 23 referendum immediately sent the pound spiraling, withdrawal from the EU is anything but an overnight process. The June vote was a decision in favor of invoking Article 50 of the Treaty on European Union, which governs the withdrawal of a member state. Once Article 50 has been invoked, a two-year period of negotiations ensues to determine the rights of the exiting member state. While Prime Minister Theresa May has yet to invoke Article 50, she considers it solely within her purview, a controversy at the heart of the recent High Court case R (Miller) v Secretary of State for Exiting the EU [2016] EWHC 2768. The question presented to the High Court was whether the Crown (i.e., the executive branch of government) could act unilaterally in invoking Article 50 of the Treaty on European Union. 

The court decided that the issue was a matter of constitutional law since it addressed the tension between Parliament's sovereign powers over domestic law and the Crown's prerogative powers over international affairs. While the conduct of international relations falls solely within the prerogative powers of the Crown, a basic tenet of UK constitutional law is that "the Crown cannot, in ordinary circumstances, alter domestic law by using such power to make or unmake a treaty." The court explained further that "[the Crown] cannot without the intervention of Parliament confer rights on individuals or deprive individuals of rights."

After examining the texts of both the European Communities Act 1972 and the Treaty on European Union and finding them silent on the procedural aspect of an EU exit, the court turned to an analysis of the practical effects of Brexit on the rights of UK citizens. The court found that three categories of rights exist for UK citizens as members of the EU, namely (i) rights originating from EU directives that have been transposed into local UK law, (ii) rights enjoyed throughout other EU member states as a benefit of membership and (iii) rights that inure only to citizens of EU member states. The court determined that each category will be affected by departure from the EU. In tandem with analysis of relevant UK case law and the constitutional canon, the court decided that due to the inevitable effect on domestic law, the Crown would be exceeding its prerogative powers and abrogating the rights of UK citizens. Consequently, the High Court concluded that Parliament itself must vote on Brexit before Article 50 is invoked.

While pro-Remain advocates rejoiced at the decision, Brexit's occurring is still likely. While many MPs were vocal about their disagreement with Brexit, most accept that defying the will of the people and refusing to exit the EU could lead to even greater consequences within the UK. Throughout the judgment, the court noted that it was not a judgment on the merits of Brexit but only on the constitutional issues triggered by the referendum. However unlikely, the court did leave some breathing room should Parliament vote against Brexit, noting in the decision's final paragraphs that the referendum itself was merely advisory and true sovereign legal power rests with Parliament.

Should the decision withstand an appeal, a more likely outcome is that Parliament would vote in favor of Brexit, but Prime Minister May will have less elasticity in her negotiating tactics. She vehemently opposed the court's interference, explaining that parliamentary involvement will lead only to more bureaucracy and weaken her negotiations with the EU. Hypothetically, a scenario could now exist wherein the UK exits the EU but Parliament insists on negotiating to remain in the single market to allow the continued free movement of goods and services throughout the EU. For many businesses, this so-called "half-Brexit" could solve some of their potential fluidity problems and ease the transition out of the EU. However, such an outcome is far from certain.

It follows that the question of where to find relief during this period of upheaval has anything but an obvious answer. The uncertainty concerning future trade and investment agreements may have the unintended collateral effect of diminishing the allure of English law as the governing law of contracts and the London Court of International Arbitration as the forum to decide disputes. Currently, English law and the LCIA are the law and forum of choice for many companies due to London's importance in the global and European financial markets. Although Brexit won't affect the laws governing arbitration in the UK, specifically the 1996 Arbitration Act and the New York Convention, businesses may not want to gamble as the UK potentially renegotiates the entirety of its trade deals. Practitioners are debating how to proceed as banks and other financial institutions consider relocating operations to Paris or another EU member state's capital. Whether any significant changes will happen remains to be seen; however, markets do not like uncertainty. Businesses will be considering a change in the traditional law they rely upon and possibly seeking alternate arbitration venues to align with a potential diminishment of London's prominence as a global financial center. Even though Brexit should not alter the enforceability of an LCIA award, the venue may cease to make geographic sense.

The only certainty right now is delay. No matter what happens, this legal battle ensures that Article 50 will not be triggered in the very near future. Prime Minister May has already vowed to appeal the decision to the Supreme Court, with emergency hearing dates set for Dec. 7 and 8. If that appeal fails, a new act of Parliament will need to make its way through the House of Lords and the House of Commons, a process with an indefinite timeline. Despite the ambiguity in the UK's current position, this additional time may be a blessing. Businesses and citizens alike have the opportunity to more fully prepare for and possibly even lobby for the final outcome, whenever and whatever that may be.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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