New legal challenge to Brexit
A new challenge has emerged against the UK Government’s plans for Brexit. “British Influence”, a lobby group campaigning for UK access to the European Union (EU) single market, has addressed a formal request to the British Government (“HMG”) to clarify its position on whether the UK’s withdrawal from the EU will, in HMG’s view, also involve withdrawal from the European Economic Area (EEA), which is an agreement between the EU Member States and three member states of the European Free Trade Association (EFTA), namely Norway, Iceland and Liechtenstein, giving them access to the EU single market.
What is the EEA?
The EEA arrangements recognise equal rights and obligations within the EU single market for citizens and economic operators in the EEA. It also covers cooperation in other important areas such as research and development, education, social policy, the environment, consumer protection, tourism, and culture, collectively known as “flanking and horizontal” policies. All EEA states accept the four freedoms of the EU – namely free movement of goods, services, persons and capital. All EU states are automatically members of the EEA Agreement and any new state becoming a member of the EU also becomes a party to the EEA Agreement (pursuant to Article 128 of the EEA Agreement). However, the three EEA states are not parties to the following EU internal and external policies unless they specifically opt-in; these are:
- The Common Agriculture and Fisheries Policies (although the Agreement contains provisions on various aspects of trade in agricultural and fish products) – Norway has opted out of fisheries policies, for example;
- The EU Customs Union;
- The EU external Common Trade Policy;
- The EU Common Foreign and Security Policy;
- Justice and Home Affairs, although the UK Government has already indicated it would wish to continue participating in police and judicial cooperation for security reasons; and
- The EU Monetary Union (i.e. the Euro).
Implications for business of the UK remaining in the EEA
Should the UK remain a party to the EEA Agreement, this would remove a large degree of uncertainty that currently exists over so-called “passporting” rights for UK companies operating in the EU single market. For example, retaining access to the EU single market via the EEA would preserve for UK airlines their ability to use current air services rules and agreements on access to the EU single market and to benefit from bilateral Air Services Agreement with non-EU countries like the USA. Regulation 1008/2008 on “common rules for the operation of air services” in the EU applies to the EEA states, for example. Should the UK leave the EU but remain in the EEA, this would therefore remove the uncertainties over continued air operating rights under Brexit that have raised great concern in the UK civil aviation industry. The same process would be likely to apply to insurance, banking and other sectors requiring “passporting” rights to continue accessing the EU single market.
The grounds of challenge to Brexit based on the EEA agreement
Article 127 of the EEA Agreement provides that “Each Contracting Party may withdraw from this Agreement provided it gives at least twelve months' notice in writing to the other Contracting Parties.” Article 50 of the EU Treaty does not cover EEA issues and therefore the two treaties exist in parallel. Whether exiting the EU Treaty automatically involves exiting the EEA Agreement is not a question covered by either treaty. The court with jurisdiction over EU Member States’ status and implementation of their EEA obligations is the Court of Justice of the European Union (CJEU).
British Influence has announced that it will make an application for judicial review of HMG’s interpretation of the UK’s EEA obligations to the High Court. This would then constitute a second legal challenge to the Brexit process additional to the current application before the UK Supreme Court on the Government’s use of executive (or “prerogative”) powers to trigger the process of EU withdrawal under Article 50 of the EU treaty. This new challenge is solely based on the constitutional arrangements of the EEA Agreement and therefore it is highly probable that any UK court seized of this dispute will make a “Reference” to the Court of Justice of the EU (CJEU) for an interpretation ruling under Article 267 of the Treaty on the Functioning of the European Union (a mechanism devised to ensure uniformity of interpretation throughout the Union). Even with an expedited hearing, a Reference is unlikely to be heard and the interpretative questions answered by the CJEU in less than 12 months, especially as in a case of such importance, most if not all the 31 EU/EEA States will wish to participate in this case, (as well as the institutions of the EEA and EU).
Potential impact of the challenge to Brexit based on the EEA agreement
This further challenge may therefore delay the launch of any withdrawal negotiations from the EU by the UK beyond the Government’s self-selected deadline of March 2017. Should dealing with the legal challenges under Article 50 EU and Article 127 EEA Agreement delay the start of Brexit negotiations until early 2018, the UK’s withdrawal would coincide with the next UK general election (scheduled for 7 May 2020 under the Fixed-Terms Parliament Act 2011) and the UK’s negotiations for EU and EEA exit would be likely to be a central issue in that general election.
We will provide readers with further updates as this new challenge to Brexit develops.
Related news & insights
News / Court confirms issuer’s liability under letter of credit
22-11-2022 / Commodities & Trade
Heytex Bramsche GmbH v. Unity Trade Capital Ltd  EWHC 2488 (Ch) The Court has rejected a finance company’s contention that the documents presented under a letter of credit (LC) that it had issued were discrepant, rendering the LC void. Among other things, the issuer had sought to argue that the standard UCP 600 terms that were incorporated into the LC had been modified and overriden by additional terms, such that the documents were discrepant. The Court, however, emphasised that clear notice would have to be given to effectively incorporate such additional terms which were a clear departure from the UCP 600 and which conflicted with the commercial nature of a LC. Here, any notice given was insufficient and the issuer remained liable under the terms of the LC.
News / Court rejects jurisdictional challenge in petroleum dispute
18-02-2022 / Commodities & Trade
Addax Energy S.A. v. Petro Trade Inc.  EWHC 237 (Comm) In a dispute arising out of the supply of petroleum products, the English Court has dismissed a challenge to its jurisdiction, finding that the claimant supplier had a good arguable case that an English jurisdiction clause was incorporated into an alleged oral agreement by way of course of dealing. In doing so, the Court confirmed that the evidence required to establish a course of dealing need not be extensive or consistent to meet the relevant legal test.
News / EU Blocking Regulation, US sanctions and contractual termination – when sanctions and business collide
18-02-2022 / Commodities & Trade, Maritime
In a recent ruling, the European Court of Justice (“ECJ”) was asked to consider the interpretation of Article 5 of EC Regulation No. 2771/96 of 22 November 1996 (commonly referred to as the “Blocking Regulation”) in relation to the termination, by a German telecoms company, of a contract with a bank subject to US sanctions.
Insights / Court upholds validity of Notice of Arbitration in commodities dispute
12-01-2022 / Commodities & Trade
This commodities dispute highlights the importance of drafting a notice of arbitration carefully to ensure that it covers all the disputes that are intended to be referred to arbitration.
Insights / Tribunal’s findings in commodities dispute result in substantial injustice
04-08-2021 / Commodities & Trade
PBO v. DONPRO & others  EWHC 1951 (Comm)
Insights / Where’s my crude oil? Court upholds claim for return of monies paid under FOB contract
24-06-2021 / Commodities & Trade
BP Oil International Limited v. (1) Vega Petroleum Limited & (2) Dover Investments Limited  EWHC 1364 (Comm)