28 July 2017
Evaluation of Future Legal Effects and Commercial Dealings for Hong Kong Exporters Due to Brexit
Hong Kong businesses should monitor developments in certain areas of legal uncertainty which have arisen following Britain’s official triggering of Article 50 on 29 March 2017. This action officially marks the intention of the UK government to leave the European Union by 29 March 2019, and has many implications on commercial practice for businesses which currently operate concurrently within the UK market and other EU Member States. Hong Kong companies may like to be kept abreast of some of the more relevant legal questions and attendant effects following Brexit.
M&A Controls: Currently, companies carrying out M&A in Europe enjoy the benefit of having their deals, if above the EU filing threshold, routinely reviewed only in Brussels, and not by multiple Member States under the one-stop-shop principle. Post-Brexit, mergers that meet both UK and EU thresholds will face scrutiny under both systems, expanding jurisdiction for the UK in cases which would have been previously subject to EU review. Companies will at that time be required to submit filings to both authorities increasing financial and logistical burdens. These parallel reviews will raise the possibility of one authority permitting and the other blocking a merger, or of diverging remedies.
EUTMs: Post-Brexit, EU trade marks (TMs) owned by Hong Kong businesses will cease to have effect in the UK. The only way to obtain a new registered trade mark protection in the UK will be to file a new UK trade mark. The expectation is that there will be some form of mechanism to ensure that there is no loss of rights in the UK for owners of existing EUTMs, although at present it is not clear what that mechanism will look like.
Digital Single Market (DSM): The DSM area and policy are developing at a steady pace in the EU. Hong Kong businesses should bear in mind that while there will no longer be any binding effect to DSM regulations and directives in the UK post-Brexit, the UK government has indicated its willingness to independently adopt and coordinate its approach to the DSM with the EU. Businesses should operate under the assumption that relevant laws will be largely harmonised between the EU and the UK, absent declarations to the contrary.
Unified Patents Court: While such a court is not yet in effect, Hong Kong businesses should welcome the seemingly likely synchronization of patent law protection and enforcement across the EU Member States and the UK. In spite of Brexit, the UK government has announced its intention to ratify the UPC even though this agreement empowers the Court of Justice of the EU (CJEU) as the highest adjudicating legal authority. Ironically, one of the central ambitions behind Brexit was to move the UK away from the jurisdiction of the CJEU. It is unclear how this conflict will be reconciled or navigated politically, although it seems most likely that patents will remain an exception to the larger CJEU disengagement.
Trade Secrets Directive: Member States have until June 2018 to assess their existing trade secrets regime and implement legislation to comply with the Directive. For Hong Kong businesses operating in the UK, it is likely there will be no meaningful legal change as the UK’s existing law on trade secrets is felt to be, in many respects, stronger than the foundations set out in the Directive. In effect, the impact of Brexit therefore will likely be minimal with regards to the legal treatment of trade secrets in the UK.
CJEU Case Law in UK Supreme Court: For the near future Hong Kong businesses will not need to worry about changes to the enforcement of current EU law within the UK. The UK’s so-called Great Repeal Bill will enact all existing EU law onto the UK’s statute books following Brexit. Although the CJEU will play no role in interpreting these or other UK laws post-Brexit, nevertheless, existing CJEU case law will be given the same status as decisions of the UK Supreme Court. Thus, absent a future ruling to the contrary, CJEU case law will remain controlling within the UK, although there is potential for divergence in the future on a case by case basis.
The General Data Protection Regulation (GDPR): The GDPR covers data protection rules and affects any entity that holds or uses European personal data both inside and outside of Europe. The GDPR allows for a one-stop-shop mechanism within the EU, and any Hong Kong organisation carrying out cross-border processing of personal data may appoint one lead supervisory authority (LSA) with primary responsibility for the organisation’s processing and coordinate investigations where necessary. The UK Government has confirmed its intention to bring the GDPR into UK law and it is likely it will be accepted as a compliant “3rd country.” The 3rd country designation will not lead to any particularly disruptive legal effect from the perspective of Hong Kong businesses, except that they will have to change their LSA for GDPR purposes to the EU Member State where the corporation has its main establishment.
Commercial Contract Concerns: With regard to the effect of Brexit on outstanding and future commercial contracts, Hong Kong businesses should remain cognizant of certain developments and evolving contractual ambiguities.
- Goods or Services Subject to EU Law: Where a UK law is based on an EU Directive, it is likely to continue to apply ‘as is’ post-Brexit unless amended. Where UK laws directly apply EU regulations, the latter will cease to apply upon Brexit and the UK government will need to enact UK law to replace them. The extent to which relevant laws will change will need to be monitored on a case by case basis, although it is likely that no major disruptions will take place.
- Contracts Subject to Territorial Limitations: If the duration of an agreement is likely to continue post Brexit, Hong Kong businesses may no longer have the same rights to distribute goods into the UK. Commercial contracts need to be reviewed and possibly amended to ensure that the UK remains within (or out of) their scope.
- Increased Trade Barriers: Trade barriers between the EU and the UK will likely be imposed. It is important to assess the impact this will have on commercial dealings, i.e., on current and future agreements, and what actions should be taken in light of the expected increase in costs.
It must be noted that at this stage no one can predict the exact form Brexit will take. The above insights represent an appraisal of the likely scenario within the given subject matter, but there is currently no clear way of knowing whether exceptions will be carved out in the course of negotiations or as a consequence of particularised bilateral agreements.