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Brexit: navigating the transition period

Brexit: navigating the transition period

Posted on 4 February 2020

The UK left the EU on 31 January 2020. However, nothing much has changed as, under the Withdrawal Agreement between the UK and EU27, we are now in a 'transition period' during which EU laws continue to apply in the UK, as if it were still a Member State. The transition period will end at 11pm UK time on 31 December 2020. It is possible that it will be extended by agreement between the UK and EU27, but the UK Government has said that it does not intend to seek an extension. 

Here we look at some key areas of law and how they are impacted during the transition period. We will continue to update you throughout this period, so please monitor our Brexit Matters page for further updates.

For an update on the impact of Brexit on intellectual property, please see our recent briefing ‘Brexit and IP: What happens next?’.

Free Movement 

EEA/Swiss nationals are still able to live in the UK on the basis of free movement until the end of the transition period, currently 31 December 2020. EEA/Swiss nationals and their family members who are living in the UK before the end of the transition period must make applications under the EU Settlement Scheme before 30 June 2021 otherwise they will be illegally in the UK, regardless of the length of time they have been in the UK.

They must make applications for either Pre-Settled Status or Settled Status:

  1. Pre-Settled Status – This is for those who have been in the UK for less than five years. The Home Office will grant them Pre-Settled Status for a period of five years and they must apply for Settled status once they have been in the UK for five years or, in any event, before their Pre-Settled Status expires; or
  2. Settled Status – This is for those who have been in the UK for at least five years and is the equivalent of permanent residency. After holding Settled Status for one year, applicants may be eligible to apply for British citizenship if they meet the qualifying criteria for such an application.

Irish nationals are not required to apply under the EU Settlement Scheme.

EEA/Swiss nationals arriving in the UK from 1 January 2021 will require a visa under the UK immigration rules in place at the time. It is anticipated that the Government will be introducing a new immigration system, although it is not clear whether this new system will be in place by 1 January 2021. It is not yet known what this new system will look like, but it is likely to be a skills-based immigration system, similar to the point-based system already in place.

Data Protection

For data protection compliance, it remains business as usual during the transition period.  GDPR remains applicable in the UK, and data flows between the EEA and the UK can continue as they do now. However, at the end of the transition period, the UK will be a 'third country' for the purposes of GDPR, and will need the benefit of an adequacy decision from the European Commission for data transfers to the UK to continue in a straightforward fashion. Now that the UK has left the EU, the Commission can start the process of considering whether the UK does offer adequate protection, as trailed in the Political Declaration. However, an adequacy decision for the UK is not a foregone conclusion: the UK plans to continue applying GDPR after the transition period (in the form of the 'UK GDPR') but there are concerns in relation to the UK's law enforcement agencies' approach to personal data. Further, 11 months is a short period in which to finalise an adequacy decision, with some earlier decisions taking the Commission up to five years to finalise.

At the end of the transition period, the 'actual GDPR' will no longer apply in the UK.  However, 'UK GDPR' will then come into effect and, of course, UK based organisations that also have an establishment in the EEA or that process personal data of individuals based in the EEA, will still need to comply with the 'actual GDPR'. Businesses will therefore need to navigate and comply with two regulatory regimes, and be alive to the possibility of enforcement action/complaints in several jurisdictions across the EEA and/or the UK, potentially from a single data incident. 

We have previously discussed the potential issues to consider at the end of the transition period. Much will depend upon how negotiations pan out over the following 11 months, but the following issues need to be kept in mind and planned for:

  • Data transfers: if no adequacy decision is in place at the end of the transition period, transfers of personal data from the EEA to the UK will only be able to occur using Standard Contractual Clauses (SCCs) (the legitimacy of which is under consideration by the Court of Justice of the EU (CJEU)), Binding Corporate Rules, Codes of Conduct and Certification Mechanisms, and derogations, such as data subjects' consent. It's assumed that transfers from the UK to the EEA will be able to continue as now, as the UK Government has previously said that it will treat EU data protection standards as sufficient. Businesses will have already started the process of preparing for the data implications of a No Deal last year, including auditing their international flows of personal data, and this should remain a priority for 2020. 
  • Lead supervisory authority: Under GDPR, EEA-based organisations carrying out processing in more than one EEA state need only deal with a single regulatory authority as their lead supervisory authority.  Businesses that operate across the EEA that currently have the UK ICO as their lead supervisory authority should consider whether any of their EEA establishments could be their main establishment in the EEA in order to take advantage of the GDPR 'one stop shop'.
  • EEA representative (and UK representative for non-UK businesses): UK businesses without an establishment in the EEA that offer goods or services to data subjects in the EEA or monitor their behaviour, will need to appoint a representative in the EEA after the end of the transition period, unless they can take advantage of an exception. Similarly, non-UK businesses operating in this way in the UK will need to appoint a UK representative.
  • Updates to Privacy Policies and related documents: bear in mind the necessary changes you will need to make to Privacy Policies, website terms and conditions, and terms of business. 

More information can be found in the ICO's Brexit Q&A.

Commercial Contracts and Dispute Resolution

Many businesses will have already reviewed their existing contracts to see if steps needed to be taken to ensure that they were 'Brexit-proof' (to the extent this is possible), and this review process should continue during the transition period. New contracts, of course, should take account of the fact the UK is no longer a member of the EU/EEA  when defining the territory. Further, in relation to contractual obligations which will continue beyond the end of the transition period, careful consideration should be given to references to relevant applicable laws (where these are derived from EU laws), the adequacy of termination or 'change control' provisions and other commercial terms of the contract which may be affected by the risk of a No Trade Deal at the end of the transition period.

Alongside governing law and jurisdiction clauses, one key point concerns dispute resolution provisions and enforcement of any judgments obtained after the end of the transition period. Where the relevant proceedings begin during the transition period, the Withdrawal Agreement provides that they will be within the scope of the existing reciprocal framework that governs determination of jurisdiction, service of proceedings, and recognition and enforcement of judgments. Accordingly, UK judgments arising out of those proceedings will remain enforceable in the EU after the end of the transition period, and vice versa. 

For proceedings which begin after the end of the transition period, the default position (subject to an agreement being reached) is that the reciprocal framework with the EU will come to an end. In this default scenario, therefore, UK court judgments will no longer be automatically enforceable in the EU and vice versa.  Instead, this will depend upon the rules for enforcement in the relevant country, potentially adding cost, time and uncertainty to the process of enforcing a judgment. The default position is not as clear in relation to the application of the Lugano Convention and the approach of the EFTA countries towards enforcement of judgments received after the end of the transition period, though in any event it appears likely that the EFTA countries will approve UK accession to the Lugano Convention, given recent statements of support for this to happen.

If the UK can accede to the Lugano Convention (it wishes to do so but this is subject to agreement by the Lugano members), this would mean that the regime in relation to jurisdiction and enforcement of judgments between the UK and EU/EFTA countries will not drastically change. The UK has also taken steps to accede to the 2005 Hague Convention on Choice of Court Agreements in its own right, and it is assumed that this will now be put in place to take effect from the end of the transition period. Again, Hague will provide an enforcement mechanism which is similar to the current regime albeit it is more limited in scope, including that it will only apply where there is an exclusive jurisdiction clause in favour of the relevant court concluded after Hague entered into force, and where proceedings began after its entry into force in the relevant state. There are therefore some doubts as to whether Hague will apply where the relevant exclusive jurisdiction clause was agreed before the end of the transition period. 

The choice of jurisdiction clause for contracts entered into during the transition period (i.e., before the UK has acceded to Lugano and/or Hague) will largely depend upon the nature of the contract and the location of any assets subject to enforcement, and so this should be considered carefully in relation to each contract. There are advantages and disadvantages to including a jurisdiction clause in favour of the English courts. In some cases, it may be appropriate to agree a jurisdiction clause in favour of another territory or, where appropriate, to consider providing for arbitration.

Competition & State Aid

As with many areas of law, the UK will continue to be subject to the EU's competition law and state aid regimes during the transition period. As a result, during this time large-scale mergers affecting UK markets may still fall under the EU's "one-stop-shop" regime, under which mergers are reviewed by the EU Commission as opposed to the Member States' competition authorities. The Commission will also retain jurisdiction to investigate alleged or perceived anti-competitive behaviour in markets within the UK as well as other Member States and to impose sanctions as it deems appropriate, and to rule actions by the UK Government to be unlawful state aid. Finally, decisions by the CJEU will (generally speaking) remain binding on the English Courts, and the English Courts will retain the right to refer questions of EU law to the CJEU for determination during this period.

It remains to be seen what arrangements will be agreed between the UK and the EU for their relationship post-transition period. However, whatever is agreed, it is clear that the UK's Competition & Markets Authority will take on a significantly increased workload, both in terms of merger approvals and competition and market investigations. The CMA anticipates that it will have to undertake 30 to 50 more merger assessments per year once the transition period has ended. Further, the CMA will have greater discretion in relation to competition and market investigations within the UK.

In terms of the UK's legal regime, the Competition (Amendment etc.) (EU Exit) Regulations 2019 (which will come into effect at the end of the transition period) state that EU competition law will cease to apply in the UK except for the various Block Exemption Regulations which are "retained" and will operate to exempt certain types of restrictive agreements from the Chapter 1 prohibition in the Competition Act 1998. The position on State Aid is complex. The Northern Ireland protocol requires that the EU State Aid rules are retained in respect of any aid that could affect trade between Northern Ireland  and the EU. As regards the rest of the UK, the Government will be free to decide what State Aid regime it wishes to impose but it will have to bear in mind likely countervailing measures from the EU if the UK seeks to benefit its own industry at the expense of EU competitors. The final position on State Aid will depend on the terms of any free trade agreement reached with the EU. 

Corporate structures

In relation to corporate structures, many businesses have of course been considering, depending on the nature and location of their business, whether any changes are required: whether to incorporate or establish in the UK where this was not the case before, or to take an EU presence where they had not previously. This trend is likely to continue, with an increased focus on corporate reorganisations and consolidations now that the UK's decision to leave has become a reality and as the negotiation of our future relationship with the EU and other countries takes shape.   

From a corporate perspective, cross border businesses/groups should also check whether any of the following is relevant to them and, if so, take advice in advance of the end of the transition period:

  • Whether any UK company has (or is likely going forward to have) its central place of business or administration in a remaining member state of the EU: if so - and if the other country operates a 'real seat' principle of incorporation - limited liability could be lost;
  • Whether any EU incorporated company operates a UK branch – if so, from the end of the transition period, additional filing requirements at Companies House will apply;
  • Whether any UK company has corporate directors incorporated in the EU - if so, from the end of the transition period, additional filing requirements at Companies House will apply.

Further information on these points, together with points to consider in relation to group accounting, is available in the BEIS guidance on the impact of a no-deal Brexit on Company law. This is likely to continue to be relevant at the end of the transition period unless alternative arrangements are agreed.

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