Breaking-up Is Hard To Do – The Legal Complications for the UK Leaving the EU

By Oshin Shahiean of OTS Solicitors

Brexit just got more complicated. Economically, socially, politically and legally. Today, the Governor of the Bank of England, Mark Carney slashed its capital requirements for UK banks, paving the way for an extra £150bn to be pumped into the UK economy, in his latest efforts to stop the UK spiralling into a post-referendum crisis.

The Bank’s Financial Policy Committee (FPC) cut one of its extra capital requirements - the countercyclical capital buffer - from 0.5 per cent of a bank’s risk-weighted assets to zero. This gives banks the green light to reduce their capital holdings by £5.7bn, and unlocks a potential £150bn in loans to businesses and households in the real economy.

In a statement, the FPC stated, “A number of economic and financial risks are materialising.” It added, “There is evidence that some risks have begun to crystallise. The current outlook for UK financial stability is challenging.”

Reaction from the business sector was swift. When asked how business was reacting to the news, Simon Walker, Director General of the Institute of Directors stated, “While this may not have been the result that the majority of our members wanted, Britain has voted to leave the EU, and it is now imperative that our political leaders manage the transition as smoothly as possible. The weeks and months ahead are going to be a nervy time for business leaders, so they need to know that the Government is focussed on maintaining stability while a new relationship with the EU is established.

“British businesses are resilient and, with their characteristic ingenuity, they will weather this storm. It is now beholden on politicians to negotiate a deal with European leaders which preserves the ability of British firms to trade easily with the remaining member states. Even once we have left, the EU will continue to be our biggest trading partner, and the first destination for many companies when they start to export. One thing the Government must do immediately is to guarantee the right to remain of EU citizens currently in the UK. Companies do not want to have to worry about losing valued staff.

“Governor Carney has done what he can to reassure businesses that the Bank of England will take the measures it thinks necessary to ensure financial stability. Companies will adjust to whatever trading relationship eventually emerges, and will be putting their faith in the Bank and the Treasury to help them ride out the inevitable uncertainty that faces them now.”

Thank goodness for the Institute of Director’s optimism, because it is something British business and the British people sorely need right now. Someone to tell them (to quote Bob Marley) that, “every little thing…is gonna be alright”.

Law firm sues over Brexit

In another development this week, a prominent law firm is taking pre-emptive legal action against the government, following the EU referendum result, to try to ensure Article 50 of the Lisbon Treaty is not triggered without an act of Parliament.

Can this action be successful? It is possible that those bringing the action are seeking a declaration as to the scope of Article 50 in UK law.

The relevant parts of Article 50 reads:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.
2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

Once Article 50 is invoked, there is no turning back. In a recent article discussing withdrawal, the authors pointed out correctly that Article 50 massively tips the negotiating power in favour of the EU. Representatives of the leaving state are not permitted to even be attend the meetings in which the exit agreement is hammered out.

The UK does not have a written constitution. Therefore, one of the key questions is, can the new Prime Minister trigger Article 50 alone (by Royal Perogative), or will he or she require an Act of Parliament?

The law firm mounting the challenge argue that triggering Article 50 would automatically, although not immediately, override the European Communities Act 1972, and that only Parliament can change its own legislation.

But some legal experts argue that the 1972 act would remain part of UK law until it is repealed by Parliament at the end of the process, rather than the beginning. Defining this is crucial because although no written constitution exists, it can be implied that due to the existence of the European Communities Act 1972, the invoking of Article 50 in ‘accordance with its (the UKs) own constitutional requirements’ can only be done by an act of Parliament, not by the Prime Minister exercising prerogative power.

For instance, Scott Styles writes:

“In Britain it is Parliament which is sovereign, not the Prime Minister or even the whole Cabinet. The UK entered the EU by means of the European Communities Act 1972. The repeal of an Act of Parliament may only be done by a subsequent Act of Parliament to that effect. As the effect of an Article 50 notification is to trigger a two-year timeline at the end of which that even UK would automatically cease to be an EU Member State that would be to nullify the effect of the 1972 Act as a matter of EU law. But as a matter of British law a statute may only be repealed by another statute. It therefore follows as a matter of British law that to have sufficient authority a Prime Minister would need that authority of an Act of Parliament to that effect giving him the authority to make an Article 50 notification and prospectively repealing the 1972 Act with effect from two years of making the notification.”

If an Act of Parliament is needed to invoke Article 50, then withdrawal from the EU would certainly not occur by October 2016, and it may not occur at all. Consider:

1. The referendum was advisory only, no Government is duty bound by law to act on its results;
2. MPs, who are elected as representatives of the people are charged with making decisions, not the people themselves;
3. MPs, when exercising this power, have a duty to act in the best interests of their constituents and in good conscience;
4. Therefore, if an MP believes that leaving the EU is not in the best interests of the UK and its people (and there is scant evidence to prove otherwise), then they must vote against passing an Act to trigger Article 50.

Even commentators that believe the Government could legally trigger Article 50 without an act of Parliament do not believe it is a sensible thing to do given the enormous ramifications of the move.

Closing remarks

How and when Article 50 will be triggered is as unclear as the consequences that will result in such a move being made. The most important step EU nationals who are working, living or studying in the UK can take is to solidify their residency status by obtaining a permanent residence Card or British Citizenship.

OTS Solicitors is a fully regulated, highly regarded law firm, based in the centre of London. Our solicitors are considered to be some of the best Immigration lawyers in the UK. We are regularly called on by the media and press to make comments on developments in Immigration law. To make an appointment with one of our Immigration solicitors in relation to obtaining a UK permanent residence Card or British Citizenship, please phone us on 0203 959 9123.