How the UK might amend its legal system to take account of Brexit: can historic examples of when a state has left a larger union or federation provide clues as to how Brexit might be achieved?

On 29 March 2017, the UK formally gave notice of its intention to leave the European Union in accordance with Article 50(2) of the Treaty on European Union. Negotiations will shortly begin as to the terms of the UK’s departure between the UK and the European Commission, as EU negotiator.

Following the referendum result, press coverage made much of the level of work that will be needed by the UK to extricate itself from the EU. At the furthest end of the spectrum, there were suggestions that the UK would possibly need to tear up all existing EU-influenced law and begin again.

But this is not the first time a state has left a larger union or federation of states and whilst past history does not necessarily guarantee future performance, clues can be taken from other occasions where one state has separated from a wider union. Those interested may take some comfort from historical precedent that there may be more stability and continuity for both the UK and the other EU Member States than might first seem to be the case.

This briefing considers the legal system of the “UK” generically, notwithstanding that in a large number of areas the UK’s domestic legal systems differ between the laws of England and Wales, Scotland and Northern Ireland. The nature of the UK as a Member State of the EU has generally meant that EU measures have been implemented consistently across the whole of the UK. Therefore this briefing addresses the impact that Brexit might have on the UK legal system for simplicity rather than because the UK is likely any time soon to convert to a single legal system. There are some areas of this briefing where the approach might differ between a common law and a civil law jurisdiction and in these areas reference is made specifically to English law, meaning the laws of England and Wales.

To identify those historical occurrences that might be relevant, it is best to start first with an analysis of the legal issues that will be facing the UK in relation to its separation from the EU. In no particular order, these are:

• The UK has a large number of laws that are currently applicable domestically but have emanated from the EU.
• At present, UK court proceedings in relation to these rules are required to interpret UK legislation consistently with the purpose of the underlying EU law and the jurisprudence of the European Court of Justice (CJEU). On matters of EU law, the CJEUis the highest court (whether as a provider of precedent or as an appellate body).
• The EU has competence over a number of areas in which the EU makes agreements with third states on behalf of all Member States. Upon a Brexit, how will the UK replicate those agreements?

The Government has announced that it will introduce a “Great Repeal Bill” with the intention of converting the majority of EU-derived law into domestic law. It subsequently published a White Paper providing more detail as to how the Great Repeal Bill will operate. In particular, the Bill will have three principal aims:

• to repeal the European Communities Act 1972, which currently establishes the supremacy of EU law in the UK;
• to preserve EU law where it stands at the moment before the UK leaves the EU; Parliament will then be able to decide which elements of that law to keep, amend or repeal; and
• to enable changes to be made by secondary legislation to those laws that would otherwise not function sensibly after Brexit.

The approach is intended to avoid the significant gaps and consequent uncertainty if all EU-derived law were repealed without replacement and this broad objective of maintaining continuity is likely to be welcomed by businesses. It also takes account of the fact that the UK civil service is likely to be stretched in assisting with the negotiation and implementation of the terms of the exit of the UK from the EU itself.

Nevertheless, in a number of areas, a simple grandfathering of EU-derived laws without more will not allow those laws to function sensibly or at all. Examples include:

• laws based on reciprocity with EU Member States;
• laws relying on EU regulators or courts; and
• treaties signed by the EU and directly applicable in the UK by virtue of s2(1) of the European Communities Act 1972.

Notwithstanding the publication of the Great Repeal Bill White Paper, no draft Bill has yet been published and there are few clues as to how the Government will address some of the more difficult issues.

EU law currently has effect in the UK in a number of ways. The key types of EU law are:

• Directives, which have to be implemented into UK domestic law by UK processes, but can be relied upon directly against Member States in certain circumstances.
• Regulations, which are directly applicable and accordingly do not need to be implemented into UK domestic law as they already form part of UK domestic law.
• Treaty provisions. Certain provisions of the EU treaty have similar direct applicability into UK domestic law.

Further detail on these distinctions can be found in our previous blog post.

At present, all of these areas of law are part of the legal framework of the UK. Many of these rules have also been implemented into UK statutes and statutory instruments through the UK’s own domestic legislative process. Other areas, such as those areas covered by EU Regulations, are implemented as part of the UK’s law by virtue of membership of the EU and the UK’s own European Communities Act 1972.

These different types of rule have shaped domestic law in the UK in three broad ways. First, there are those rules that relate to the way the UK should govern its domestic affairs as a result of being an EU member state (such as the Working Time Directive). Second, there are those rules that govern the relationship between Member States (such as the Customs Code of the EU governing the single customs area of the EU). Finally, there are rules that govern the UK’s relationship as an EU Member State with non-EU states, such as free trade agreements. Clearly, some Directives have provisions that deal with more than one aspect, but they can effectively be split into these categories for the purposes of this note.

Domestic provisions

For those rules that already form part of domestic law, and only affect UK domestic affairs, it would seem to be a sensible presumption that there are good reasons why the UK would try and preserve those rules as they currently exist, to the extent possible as has been proposed in the Great Repeal Bill. Aside from the practical point that the UK Government will have more important matters to contend with in negotiating and implementing the terms of the exit, these rules have developed during the course of the UK’s membership of the EU and have now become part of the UK legal landscape.

Moreover, this approach generally accords with other historic examples which we have outlined below.

• India and Pakistan – The partition and independence of India and Pakistan provides a useful case study of the way in which a relatively short Act of Parliament preserved the law as it stood immediately prior to independence, but gave the newly separated nations the freedom to make future changes to those laws as they saw fit. The Indian Independence Act 1947 prevented the UK government from exercising any further legislative power over India or Pakistan. It also provided that, broadly, the law of British India was to continue as the law of the new states until the states made provision of their own.
• Zambia - Similar wording can be found in the Zambia Independence Act 1964, preserving the laws as they operated in the territory save for certain exceptions.
• Hong Kong’s handover – To provide continuity of law following Hong Kong’s “handover” from Britain to China on 1 July 1997, specific measures were put in place to preserve the laws in force in Hong Kong before the handover (except for those that contravene the Basic Law¹ and subject to amendments by the post-handover legislature) and specific steps were taken to “localise” relevant UK legislation into Hong Kong domestic law to ensure that there was no legal gap resulting from the UK legislation no longer applying after the handover.

As can be seen from these examples, it has generally been the approach of the seceding state to preserve the status quo at the point of secession (including those laws that were part of the law of the state or federation which they were leaving), but asserting the sovereign right to allow for the ability to make changes to those rules in the future. They also show the general tendency to allow for gradual rather than overnight change. This can thus provide businesses with comfort that the day-to-day legal framework for operating as a business in the UK will not undergo wholesale change overnight and that existing systems and procedures are likely to remain relevant in the short- to medium-term. As a matter of UK domestic law, the direction the country takes on these domestic matters will then become a question for the government of the day which will in turn depend on the outcome of subsequent General Elections.

Intra-EU provisions

For those rules that go to the heart of the relationship between EU Member States themselves, there is a different approach to be taken as these rules will form the ground on which any exit deal will be based.

It would be open to the UK to declare that it will unilaterally continue to preserve the existing position in relation to some of these EU rules (for example, in assuring EU Member States that the UK will continue to acknowledge European Enforcement Orders in respect of judgments of the courts of EU Member States). However, this approach is unlikely to be productive if the EU and/or its Member States do not give reciprocal confirmation. It will, therefore, be necessary for the UK to identify those areas of law which fall into this category and ensure that they, to the extent possible, form part of the exit deal with the remainder of the EU.

Again, it is interesting to draw some parallels with equivalent positions that have been taken in previous circumstances.

• India and Pakistan -The Indian Independence Act 1947 provided that, although treaties between the UK and areas or persons within the Indian subcontinent would lapse on independence, effect should “continue to be given to the provisions of any such agreement … which relate to customs, transit and communications, posts and telegraphs” until renounced or superseded. Whether the EU would be willing to agree to a similar provision is of course a different question.
• Ukraine – Although the law in Ukraine has changed significantly since its declaration of independence in 1991, existing Soviet laws were preserved until such time as overridden by new Ukrainian laws.

As described above, the jurisprudence of the CJEU has now become part of UK law in a number of areas. Principally, the influence of the CJEU can be seen in three separate areas:

• first, in interpreting those provisions of EU law that are required to be implemented into domestic law of the Member States and, in particular, whether they are being implemented correctly; with a plethora of languages and legal systems in the EU, it is inevitable that some Directives are applied differently in different Member States and the CJEU aims for uniformity of interpretation;
• second, in assessing whether a Member State is complying with its obligations under the constitutional documents of the EU, such as ensuring that its domestic laws do not contradict the fundamental freedoms enshrined in the EU treaty; and
• third, in developing the concepts that form the backbone of EU jurisprudence, which concepts are to be applied in looking at matters that have an EU angle; examples of these concepts are the concepts of proportionality and fiscal neutrality.

In all these areas, the CJEU operates as an appellate body in particular disputes, but also as a body that then provides precedent for the courts of Member States to apply when interpreting these matters. Again, there is some doubt about how these concepts would continue to be applied after a Brexit and what the role of the CJEU might be in a post-Brexit UK, although the UK Government has now set out its proposed approach as discussed below. In addition, precedent provides some useful clues as to how this might work.

Precedent value of the CJEU decisions

One of the Government’s stated aims in the Brexit process is that CJEU decisions will no longer be binding in the UK. However, in an effort to avoid uncertainty, the Great Repeal Bill White Paper provides that “any question as to the meaning of EU-derived law will be determined in the UK courts by reference to the CJEU’s case law as it exists on the day we leave the EU.”

To this end, the White Paper proposes that CJEU decisions before Brexit will have the status of Supreme Court decisions. This has the effect of preserving continuity, although allows for future divergence insofar as the Supreme Court is able to overturn its previous decisions and therefore will be able to depart from existing CJEU decisions.  In addition, changes can, of course, also be implemented by way of new legislation.

An area where one can see the English courts begin to diverge from the CJEU more quickly is in the application of wider concepts of jurisprudence such as the doctrine of abuse of law. This is a concept which appears in civil law and is applied in a number of EU law areas, such as in relation to VAT avoidance, where it enables the courts to find that abusive VAT avoidance schemes do not have the desired fiscal effect despite complying with the strict legislative provisions. This contrasts to some extent with the English law approach to tax avoidance cases, where the Supreme Court has recently affirmed that this is a question of interpreting the facts of the case realistically, whilst bearing in mind the purpose of the relevant statute.  Given that these approaches often provide different routes to achieving the same result (and sometimes different routes to different results), it is possible to see a post-Brexit Supreme Court deciding that there should only be one doctrine that should be applied in these cases, leading to EU concepts in relation to EU matters (such as VAT) being side-lined as UK judicial decisions progress. Interestingly, the White Paper suggests that the courts may not take this approach stating that “CJEU case law has over the past four decades clarified what is and is not subject to VAT, and failing to follow that case law in our own legal system would create new uncertainties about the application of VAT”, which suggests there is an expectation at Government level that EU case law will potentially remain relevant to enable a coherent system.

Value of future CJEU decisions

 The White Paper goes on to state that there will be no requirement for UK Courts to consider any new CJEU cases. This creates the risk that EU law will gradually diverge from UK law, even where they both remain bound by identical legislation. This is an obstacle to future deals that require continued convergence between UK and EU law (on environmental or consumer protections, for instance).

On the other hand, the UK courts now frequently take note of the way a court in, say, Australia or Canada would approach a similar matter, as these jurisdictions were formerly part of the same English law legal heritage. It remains to be seen whether English courts will adopt a similar approach to future CJEU decision, notwithstanding that they will not be required to take them into account.

From the EU perspective, it seems less likely that the CJEU will have regard to future UK court decisions given the civil law basis on which the CJEU is founded.

Australian case study

Although Australia’s independence is beyond dispute, the process took many years and was undertaken in stages. In fact, it was not until 1986 that the last ties with the British legal system were severed. Up to that point, the Privy Council was the ultimate court of appeal in Australia and decisions of the UK House of Lords, even though not relating to Australia at all, were taken to be precedents.

Both the UK and Australian parliaments (with the consent of Australian state legislatures) passed their own Australia Act 1986. These complementary Acts rendered Australian law fully independent of the UK Parliament and courts, undoing all remaining constitutional ties except retaining the British Monarch as formal Head of State. Perhaps most significantly, the Privy Council was closed off as an avenue of appeal, leaving the Australian High Court as the court of final appeal in Australia. Exchange of ideas is common, and although not binding, UK Supreme Court decisions are influential in Australia and vice versa.

South African case study

Similar to Australia, South Africa’s process in gaining independence was a gradual one.

The Privy Council remained the highest court of appeal in South Africa until 1950. Prior to that, all South African courts regarded themselves as absolutely bound by a decision of the Privy Council.  Post 1950, the Appellate Division (which then became South Africa’s highest court of appeal) treated decisions of the Privy Council made before 1950 on the same footing as it did its own previous decisions, however, the court assumed power to depart from a previous decision if it considered it to be erroneous.  Decisions of the Privy Council made after 1950, while in no way binding, could have persuasive force in all Union courts.

South Africa’s ties with the British Commonwealth of Nations were finally severed in 1961, when it officially became the Republic of South Africa. The Republican constitution of 1961, although bringing about a fundamental political change, altered little in the form of law and jurisprudence. It preserved all existing legislation with the necessary amendments to references that had previously been to the Union, Crown, King and Governor-General.  The state president replaced the British monarch and Governor-General.

Hong Kong case study

The continuity of the laws in force in Hong Kong before the handover is maintained by the Basic Law (which was the law that, broadly speaking, enacted the constitutional change). By virtue of this, English court decisions prior to 1 July 1997 that were binding on Hong Kong courts² remain binding on the Hong Kong Special Administrative Region (the HKSAR) courts below the Court of Final Appeal³ – this is also in accord with the common law doctrine of precedent and in line with the principle of continuity of the legal system as enshrined in the Basic Law.

Post-handover English court decisions are not binding on the HKSAR courts. On the other hand, the Basic Law expressly empowers the HKSAR courts to “refer to precedents of other common law jurisdictions” in adjudicating cases – English cases (as with cases from other common law jurisdictions) can, therefore, still be persuasive to the HKSAR courts after the handover.

In summary, assuming the forthcoming legislation matches what is set out in the Great Repeal Bill White Paper, the past jurisprudence of the CJEU will continue to be part of UK law and it is likely that English courts will continue to have regard to future EU jurisprudence in relation to legislation and concepts that originated from the EU, although they may not be formally bound to follow that jurisprudence.

A question arises as to how a dispute which, within the EU, would be capable of reference to the CJEU would proceed after the Brexit date. Would the parties still be able to refer the matter to the CJEU on the basis that it relates to a period when the UK was part of the EU?  Clearly, this will depend to a large extent on the terms of the exit arrangements themselves.  Again, some precedents can be found for how jurisdictions have dealt with this.

• Australia – The Australia Act 1986 provided that only appeals that had been instituted before the Privy Council before the commencement date of the Act would continue to be heard by the Privy Council. It was possible for some other appeals in respect of which petition had been made or consent had been granted before the commencement date also to be pursued to the Privy Council.
• Hong Kong – Thehandover laws in Hong Kong provided that any appeal in respect of which the Privy Council (or the Court of Appeal) has granted leave to appeal to the Privy Council but had not been finally disposed of on or before 30 June 1997 should instead proceed in the Court of Final Appeal of HKSAR.

It, therefore, seems likely that a similar approach would be taken in relation to the UK’s access to the CJEU. Indeed, it is of note that the European Commission’s recommendations for negotiation of the UK’s withdrawal from the EU (published on 3 May 2017) proposed that the CJEU should remain competent to determine proceedings pending before it as at the date of the UK’s departure – and for its rulings to be binding on the UK. In addition, the document stated that the withdrawal agreement should provide for the possibility to commence proceedings before the CJEU after the date of withdrawal in respect of matters which occurred before the withdrawal date.

Much has been made of the task that the UK now faces in negotiating trade deals not just with the EU, but also with all the third countries with which the EU has previously negotiated deals on behalf of the Member States (including the UK). This covers, for example, many trade agreements and many areas of foreign policy.How might the UK government simplify this process?

A deal will need to be done between the UK and the EU as to the nature of the continuing nature of the relationship between the UK and the EU Member States in these matters, particularly trade, free movement of workers and customs territories, although there is no guarantee that this will be achieved prior to the UK’s exit from the EU.

However, in relation to those agreements that the EU has with third countries, it seems that there may be a relatively quick-fix solution available to the UK. This solution would be to approach those states with which the EU has an agreement and to request that this arrangement be applied following Brexit bilaterally between the UK and that state.  This would require the agreement of the relevant state, but it should at least provide a relatively straightforward route for the UK to function as a separate state in relation to these matters, allowing relations between the UK and those states to function until the parties have the time to negotiate a more specific agreement. Again, although it is not possible to forecast the exact nature of the deals that might be done, precedent shows some of the variants of what has been achieved in the past.

• Hong Kong. Hong Kong broadly adopted different approaches depending on whether the relevant international agreements were bilateral or multilateral. Clearly this position was complicated by the fact that Hong Kong was not simply separating from the UK but was also becoming a special administrative region of China.
  • Bilateral: For bilateral agreements previously extended to Hong Kong, the “Sino-British Joint Liaison Group” formed between the Chinese and the UK governments under the Joint Declaration⁴ (the JLG) agreed the Hong Kong government was to be authorised to negotiate directly (based on a model agreement agreed at the JLG and with China’s consent) with the foreign state concerned; where the negotiation was successful, the previous agreement would be replaced by the agreement between Hong Kong and the foreign state.
  • Multilateral: For the multilateral treaties previously extended to Hong Kong, the general approach was for the UK and Chinese governments to reach an agreement first; after that, notifications would be sent to the Secretary-General of the United Nations and the depositories of the treaties by the Chinese and the UK governments respectively - the UK would accord its intention to extinguish its responsibility under the treaties arising from their application to Hong Kong, whereas China would accord its intention to continue the application of the treaties in Hong Kong with effect from 1 July 1997; unless a member objected, the treaties would be assumed to continue to apply to the HKSAR.
• Czech Republic and Slovakia. Upon the dissolution of Czechoslovakia, the newly separate nations of Slovakia and the Czech Republic assumed the international treaty obligations of Czechoslovakia. Though not quite a straightforward instance of treaty succession, there may be a case for the UK immediately re-establishing bilateral treaties with third countries on the same terms as before.

The position as a matter of international law is not entirely clear. The Vienna Convention on Succession of States in respect of Treaties (1978) (the Succession Convention) contains provisions which deal with “successor” states and “newly independent” states. The distinction between the two types of state has been the subject of much academic debate, even in situations where the answer might have appeared to fall within the circumstances that the Succession Convention was designed to capture.

It is not obvious that the Succession Convention was designed to capture a state agreeing to leave the EU.⁵ The EU has a special nature in that it enters into some treaties as itself (under Article 24 Treaty on the Functioning of the European Union). It is not entirely clear whether, when the EU does this, it is doing it as itself or whether it is essentially acting on behalf of Member States. It is also unclear whether the EU also has separate obligations to those of the Member States in this regard. It does seem clear however that the EU has capacity of its own in respect of some areas of international law. However, it is unlikely that, the EU would be treated as a “predecessor state” for the purposes of the Succession Convention and therefore any attempt by the UK to rely on the Succession Convention to assert that treaties entered into by the EU should continue to apply to the UK post-Brexit would be a challenging position for the UK to adopt. 

Similarly, it may be difficult for the UK to assert that some treaties entered into by the EU, even though countersigned by the UK, should continue to bind the UK if the context of that treaty makes it clear that the UK’s countersignature were in its capacity as a member of the EU.

According to draft guidelines published by the European Council, the Council’s view is that following Brexit, the UK will no longer be covered by agreements concluded by the EU or by Member States acting on its behalf or by both acting jointly, i.e. both exclusive and mixed agreements (as discussed below), If the EU Council’s position is correct, the UK will cease to be party to such agreements on Brexit unless it makes appropriate arrangements to accede to them immediately thereafter.

On this basis, it is likely that the UK would have to take steps to preserve the effect of existing treaties with third countries. Despite the fact that the Succession Convention is unlikely to be regarded as applying to a Brexit, the UK’s approach is likely to follow the methodology set out by the Succession Convention for newly independent states. This approach differs depending on whether the treaty in question is a multilateral instrument or a bilateral instrument.  For multilateral instruments, the UK would generally be able to sign the instrument on its own behalf and ratify it in accordance with its own procedures, causing the UK to become bound by it in due course – although there is a risk of a post-Brexit void in the meantime.

For bilateral treaties, the UK would need to approach counterparty jurisdictions and ask whether they wish to continue to be bound by the terms of the agreement. In principle, one might expect that the UK would request that each treaty partner accepts (by way of exchange of notes) that the existing arrangement between the third country and the EU should continue to apply to the UK. Although there will clearly be political reasons why states might not agree to this approach (particularly where they do not yet know what the UK’s ongoing relationship with the EU will be), it does providean efficient route to providing continuity whilst more detailed bilateral terms are negotiated.

Of particular difficulty are ‘mixed agreements’. Mixed agreements are international treaties, parts of which are within EU competence and parts within the competence of Member States and which, accordingly, require ratification by both. There are several hundred such treaties, which mostly involve trade agreements with third party jurisdictions (for example, the Cape Town Convention on International Interests in Mobile Equipment).⁶ The UK Government’s position is that as a matter of international law, the UK is a contracting state under the Cape Town Convention, and that this will not be affected by the UK leaving the EU. Therefore, it believes that there will be no question of the UK ratifying such agreements again, an approach clearly at odds with the EU Council’s position as described above.

As can be seen from the above, businesses can take comfort from the fact that there is unlikely to be a wholesale change to the UK’s existing legal framework or regulatory regime, in particular in terms of the rules that apply to doing business within the UK itself. It is far more likely that, leaving aside the arrangements that will need to be put in place between the UK and the remaining EU Member States to effect Brexit, the laws that govern the way businesses operate in the UK will not drastically change. However, there will inevitably be areas where, whether for political or practical reasons, changes will need to be made and businesses should focus on those areas as they become apparent. The big uncertainties still lie in how Brexit will change the legal relationship between the UK and the EU and, to a lesser extent, the UK and third countries and this is the area where businesses will need to ensure they are on top of the legal framework as it applies to their business.