Considerations for a no-deal Brexit - Kuits Solicitors Manchester

Considerations for a no-deal Brexit

Considerations for a no-deal Brexit

10th November 2020 - Published by Kuits commercial team

Review of Commercial Contracts

Services

Goods

Consumer Law

Data Protection

Intellectual Property

Product Regulation

Movement of People

Employment

Competition Law

The experienced Kuits commercial team has prepared a checklist setting out the key considerations and actions that will be required in the event of a no-deal Brexit.

Review of Commercial Contracts

Key Issues

  • A no-deal Brexit would call into question many of the legal parameters within which businesses have become used to undertaking their commercial activities.
  • The UK currently benefits from the four freedoms of the EU’s single market being:
  • The elimination of tariffs on goods;
  • Freedom to sell goods and services in the EU;
  • Harmonised export rules; and
  • Harmonised minimum regulatory standards (product standards, trading rules, competition law, consumer law and commercial practices).
  • Therefore, depending on the extent to which the UK “grandfathers” EU law or a deal is reached, businesses may find that they have to comply with two or more (potentially different) legal systems, making regulatory compliance increasingly burdensome and complicated.
  • Brexit would remove many of the current EU “free trade zones” which has the effect of aligning broadly consistent VAT regimes. Therefore, such direct barriers to trade (whether tariff or non-tariff based) could result in additional costs for suppliers to move products or services between the UK and EU making existing arrangements either impossible, impractical or simply more expensive to carry out.
  • Many contracts include reference to a territory (territorial grant, territorial scope or territorial restrictions). Will references to the EU in a contract signed pre-Brexit be deemed to include or exclude the UK with respect to a period after Brexit? It is likely that the position under each contract will depend on the drafting of that contract and the applicable rules of interpretation.

Our Recommendations

  • Review all key contracts and consider how they might be affected by a no-deal Brexit.
  • Consider whether you will require the ability to recoup any additional costs imposed by direct barriers to trade (whether they are tariff based or non-tariff based) from your contracts.
  • Consider whether delivery terms need to be varied to reflect new arrangements.
  • If contracts do assume the EU contains the UK for territorial purposes, they may not operate adequately in the face of a Brexit so this would need to be considered and amended if necessary.
  • Ensure your contracts expressly state whether one party (or both) can terminate the contract based on the Brexit outcome.
  • Consider whether your governing law and jurisdiction clauses still work for your international contracts given additional complexities UK businesses may face in enforcing their rights against overseas firms.

Services

Key Issues 

  • In the absence of a UK-EU trade agreement, the UK will trade services with the EU under the World Trade Organisation’s General Agreement on Trade in Services.
  • Under the World Trade Organisation’s rules, some sectors will see little to no change, whilst others will have additional requirements and standards to comply with.

Our Recommendations

  • Understand whether the World Trade Organisation’s General Agreement on Trade in Services will increase or reduce restrictions on the provision of services in your sector.
  • Check what free trade agreements EU countries have with other counties outside of the EEA for an indication of what the EU will likely accept as a future UK-EU free trade arrangement.

Goods

Key Issues

  • As we set out above, the UK and EU will trade as third countries on the World Trade Organisation’s terms and consequently, duties will be imposed on goods shipped from the UK to the EU and the EU to the UK.
  • There will be a loss of duty relief under the EU free trade agreements on imports into and exports from the UK.
  • There will be an additional burden of customs declarations on goods shipped from the UK to the EU (and vice versa).
  • There is a risk that businesses will experience delays in getting goods customs cleared through the UK and EU borders.

Our Recommendations

  • Analyse supply chains and identify where goods are moved from/to the EU/UK.
  • Understand what manufacturing takes place in the EU/UK.
  • Calculate additional requirements to comply with, together with the financial impact on supply chains and consider how best to mitigate this. It might be that your supply contracts need amending to accommodate increased costs.
  • Review the Incoterms that apply to your contract and understand your responsibilities under these. For any additional duties and customs clearance requirements that will be brought about by Brexit, consider and agree who should be responsible for these.
  • Consider which entities will act as importers into the EU/UK and whether any formalities need to be completed for this.
  • Plan ahead and decide if there is any merit in stockpiling or moving existing stock before 31 December 2020 to mitigate the risks of getting goods through the border in a timely manner.
  • Plan for and undertake internal training for employees, particularly those who deal with customs and contracts.

Consumer Law

Key Issues

  • Whilst the UK government has taken steps to ensure that UK consumers will retain the protections they currently have, we can at the moment only be certain that the UK consumers will benefit from these when buying from UK businesses.
  • In addition to this, the UK consumers will no longer be able to access the EU Commission’s online dispute resolution platform.
  • On the other side, where EU consumers are purchasing from UK businesses, EU Member States will continue to apply EU consumer protection principles even if the trader is based in the UK. This is because EU law states that where contracts are concluded with a business in another country and it can be proved that the business directs their commercial activities to the consumer’s Member State, the law of that Member State where the consumer lives applies.
  • Be aware that Brexit will have no consequence on an EU consumer’s ability to take UK businesses to court in a Member State (as long as the business has marketed the goods or services in the Member State). If the UK business has not marketed the goods or services in the EU Member State, a consumers rights will depend on UK law.

Our Recommendations

  • Businesses should consider the relevant laws of the EU Member States they will continue to sell into.
  • Depending upon the identifiable risks, it might be a worthwhile exercise to update your businesses terms and conditions to seek to give your business greater protection.
  • You must also make it clear to consumers where they can bring a claim or initiate alternative dispute resolution proceedings.
  • Understand which Member States you market goods and/or services in and know what each EU Member State’s law is in respect of EU consumers bringing claims against UK businesses.

Data Protection

Key Issues

  • The General Data Protection Regulation (GDPR) will no longer directly apply to the UK. However, the UK’s Data Protection Act 2018 will remain in force and this incorporates the GDPR.
  • Unless the UK receives an EU adequacy decision prior to 31 December 2020, for data transfers from the EU to the UK, there would need to be appropriate safeguards in place to transfer personal data from the EU to UK. Examples of appropriate safeguards would be model clauses or binding corporate rules which would need to be implemented until the UK receives an adequacy decision.
  • For the transfer of personal data from the UK to the EU, the UK will recognise all EEA countries, Gibraltar and EU institutions as providing an adequate level of protection meaning that no further safeguards will need to be put in place to legitimise the transfer of personal data from the UK to EEA countries, Gibraltar or EU institutions.
  • UK companies operating in the EU but with no establishment in the EU will need to appoint a data protection representative.

Our Recommendations

  • Continue to comply with the Data Protection Act 2018 which will, in turn, ensure you comply with the GDPR.
  • Understand whether you transfer personal data from the EU to the UK (for example, if you receive personal data from a parent company situated in the EU or any of your service providers are located in the EU). If so, determine whether you need to put appropriate safeguards in place to legitimise such transfers.

Intellectual Property

Key Issues

  • Owners of registered European trade marks will automatically become owners of a comparable registered UK trade mark. A European trade mark will still provide protection in the EU-27.
  • For pending European trade mark applications, owners will have to apply for UK trade mark protection within nine months of the end of the transition period i.e. from 1 January 2021.
  • Trade mark oppositions and invalidity actions at the European Union Intellectual Property Office that are based solely on a prior UK national right will automatically conclude on 1 January 2021 and the contested mark will proceed to registration or remain valid (as the case may be).
  • Parallel exports of genuine goods from the UK to the EEA may no longer be possible as goods protected by intellectual property rights sold in the UK may not have had their rights exhausted in the EEA.
  • After 1 January 2021, owners of IP rights in the EEA will be able to prevent parallel import of goods from the UK that have not been authorised for circulation inside the EEA. However, there will be no changes to the rules affecting imports from the EEA into the UK. This is because IP rights of goods lawfully sold in the EEA will still be considered exhausted in the UK. On 1 January 2021, the holders of registered community designs will automatically become the owner of an additional equivalent UK right with the same renewal date, the same filing/priority date and UK seniority date.
  • For pending registered community design applications, owners will have to file for a separate UK registered design right within nine months of 1 January 2021.
  • Unregistered community designs existing before 1 January 2021 will no longer be valid in the UK. Instead such rights will be given equivalent protection in the UK for the duration of that right (up to 3 years) under a “continuing unregistered community design”. Due to a potential lacuna in protection the UK is also planning to create a new supplementary unregistered design right for those rights that arise in the UK after 1 January 2021, which will broadly mirror the unregistered community design.
  • Careful consideration will have to be given to how, when and where first disclosure of a design takes place as this could impact the validity of the design.
  • Holders of database rights arising under the Database Directive (96/9/EC) before 1 January 2021 will be accorded equivalent UK with the same term of protection as the EU rights.
  • However, as it stands, for database rights that arise after 1 January 2021 there is no obligation for the EU to provide database rights to UK nationals, residents and businesses. Similarly, only UK citizens, residents and businesses will be eligible for new UK database rights after the end of the transition period.
  • As the European Patent Office and the European Patent Convention are independent of the EU, the current European patent system and existing European patents covering the UK will remain unaffected.
  • After 1 January 2021 .eu domain names can be registered only to EU citizens, EU residents or businesses established in the EU (or having their registered office, central administration or principal place of business in the EU).
  • Copyright will be largely unaffected by a no-deal Brexit.

Our Recommendations

  • Consider dual filings of UK trade mark and European trade mark applications to avoid potential delays to registration at the UK Intellectual Property Office. You should consider doing the same in respect of your registered community design applications.
  • You should ensure that new IP licences and agreements that include a definition of the EU define the EU as constituted from time to time rather than at the date of the Agreement to allow for changes within the EU. If you have existing IP licenses and agreements which define the EU as constituted as at the date of the agreement, you will need to vary this or execute a new agreement.
  • In addition, the UK will have to be defined as a separate territory going forward in new IP licences.
  • Consider whether you currently export any IP protected goods from the UK to the EEA (where the goods have already been placed on the UK market and where the rights holder’s consent to export those goods is not currently required). You may need to contact the rights holder and obtain their consent to continue exporting such goods to the EEA after 1 January 2021.
  • Review your plans to disclose unregistered designs and take legal advice. This is because in the absence of any agreement it may only be possible to acquire valid unregistered design right either in the UK or in the EU.
  • To avoid the loss of any domain names, UK businesses should transfer registrations to an EU-domiciled entity, an EU resident or to other top level domains (for example .com, .co.uk, .net or .org).
  • With regard to your database rights, you should review where the obtaining, presenting and verifying of data is generally conducted and whether your database qualifies for database rights in the UK or EU.

Product Regulation

Key Issues

  • UK companies will lose their EU importer status, meaning that when importing from the UK after Brexit, UK companies will be required to check that products fulfil all EU safety, health and environmental protection requirements before placing them on the EU market.
  • UK companies who distribute products placed on the EU market must be able to tell which products are required to bear the CE marking and accompanying documentation. They should also be able to identify those products which are not compliant.
  • UK conformity assessment bodies will lose their status as accredited entities for EU product conformity assessments.
  • UK-based authorised representatives and responsible persons will no longer be recognised by the EU.
  • For pharmaceuticals and medical devices, the EU will not recognise UK marketing authorisation holders and certain activities will need to be provided in the EU. In addition, the EU will not recognise UK Notified Bodies and instead any medical device requiring Notified Body conformity assessments will need a certificate issued by an EU-27 Notified Body if it is to be marketed on EU-27 post-Brexit.
  • UK and EU Applications for Action (i.e. instructions that shipments of goods should be detained due to the goods infringing one’s IP rights) granted by the Customs authorities in the UK will continue to remain in place in relation to the UK only. Any EU applications granted by the Customs authorities of another EU Member State will cease to have effect in the UK.

Our Recommendations

  • Assess your supply chains and identify whether your importer/distributor status will change and what the product compliance obligations and liabilities you will need to comply with.
  • Medical device companies using UK Notified Bodies should either transfer to an accredited EU branch of their UK Notified Body or, if there isn’t one, appoint a new Notified Body in the EU-27.
  • Non-EU medical device manufacturers should ensure they have an EU-based Authorised Representative appointed for the EU market and a UK-based Authorised Representative for the UK market.
  • The UK Department of Health has recently issued a letter to those operating within the medicine and medical device industry for suppliers to stockpile six weeks’ worth of stock on UK soil to mitigate any disruption to imports caused by Brexit.
  • Review any existing AFAs in place and file any new AFAs required to ensure continuity of protection.

Movement of People

Key Issues

  • EEA nationals who are in the UK before 31 December 2020 will have a right to remain protected by the EU Settlement Scheme (open for applications until 30 June 2021).
  • EEA nationals and their families who arrive in the UK after 31 December (from 1 January 2021 onwards) will be able to visit the UK for a maximum of six months. If they wish to come to the UK long-term or work in the UK, they will need to apply under the immigration rules system, for which new rules are expected as of 1 January 2021.
  • UK citizens travelling to EEA states for work will be subject to the local requirements in place at that time.

Our Recommendations

  • Identify those of your staff who are non-UK EU citizens (or those who have close family members who are EU citizens).
  • Help your non-UK EU citizen workforce to register under the EU Settlement Scheme.
  • From 1 January 2021, you will need to comply with UK immigration arrangements to employ EU workers. In particular, the ability to recruit lower skilled and seasonal workers may be restricted.

Employment

Key Issues

  • Although a significant portion of the UK’s employment law comes from the EU, much has been incorporated into UK law through primary and secondary legislation which will mean that most EU derived employment legislation will remain applicable in the UK immediately after the transition period, just on a different constitutional basis.
  • On 12th July 2018 the Government proposed maintaining the existing UK’s employment legislation. Therefore major changes appear unlikely.
  • The Equality Act 2010 is primary UK legislation that implements EU provisions. Therefore this will remain in force. Alterations to this legislation might include imposing a statutory cap on discrimination claims however it seems unlikely that any government would propose diminishing equality rights.
  • The UK Government has pledged to remain a signatory to the ECHR (European Convention on Human Rights) until the end of the transitional period. It is unclear what their stance will be after this date. It has been mooted that the government may propose the creation of a British Bill of Rights to replace the Human Rights Act, however there are no immediate proposals to this end.
  • It is anticipated, that small changes may be made to TUPE legislation. These changes have not yet been prescribed but could include making harmonisation of terms following a TUPE transfer easier. This is something that is not currently permitted by EU law.
  • Changes might be made to employee’s rights to holiday pay. These may include changes to the right to keep accruing holiday pay whilst on sick leave and what pay is included in remuneration as this is something prescribed by EU law.
  • The minimum time limit (45 days) for starting collective consultation could be altered.
  • Agency Workers Regulations could be revoked, however the government have indicated that they aim to strengthen agency worker rights rather than reduce them.
  • Data Protection legislation will remain in force through the Data Protection Act 2018 and the later Data Protection Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (SI 2019/419). See above for further details on data protection.
  • Movement of People discussed above may affect your workforce depending on the length of time they have been residing in the UK.

Our Recommendations

  • There is no clear indication as to what changes will be made to the employment law framework. It seems likely that only minor tweaks will be made. Therefore, employers should ensure their current policies and procedures are up to date.
  • Ensure that any EU members of staff have applied for the relevant status which applies to them before 30th December 2020. This will ensure their ability to work is not interrupted.

Competition Law

Key Issues

  • Businesses will only be significantly affected if they are subject to an ongoing investigation by the EU Commission or the UK CMA.
  • Conduct which infringes both UK and EU competition laws after Brexit will be subject to a separate investigation by the CMA and the European Commission.
  • EU competition legislation such as Articles 101 and 102 of the TFEU (which prohibit anti-competitive agreements and abuse of dominance) will continue to apply to agreements/conduct of UK businesses having an effect within the EU.
  • The EU Block Exemption Regulations also known as “safe harbour” regulations (i.e. regulations that exempt certain types of conduct from prosecution will be adopted into UK law with the same expiry dates. This means that UK businesses entering into agreements after 1 January 2021 will be able to benefit from the retained block exemptions provided they meet the relevant criteria. After their expiry however the position is uncertain.

Our Recommendations

  • Obtain advice on how to comply with parallel competition investigations in the UK and EU.
  • Ensure compliance with EU competition laws if your business may affect trade in the EEA.

Get in touch with a commercial solicitor in Manchester

For further information on how Brexit may affect your commercial position, please contact us or call partner James Wall on 0161 838 7996 or email jameswall@kuits.com.

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