 "Bracing up for brexit impact")
It will be business as usual over the next two years as the United Kingdom negotiates the terms of its retreat from the European Union. In this interim period the UK will remain subject to EU law and European Commission decisions. However, in a parallel track running over the same period the UK will start making a new legal and regulatory regime applicable in the post-Brexit era.
As Rabindra Jhunjhunwala, partner, Khaitan & Co, puts it, a lot will be left to speculation as no member state has left the EU before. "There is no precedent and the rules of exit are very brief," Jhunjhunwala said.
Here are some key FAQs and insights from legal experts on how corporate India could prepare itself for the uncertain times ahead.
Currently a contractual provision stipulating English law as the governing law of the contract also includes applicable EU law. Post-Brexit, that may not be the case.
On the face of it there may not be a significant impact on existing or new contracts. However, in situations where Brexit has a severe impact on business, and leads to a breach of contract, one could invoke force majeure clauses as the ground for termination.
"Brexit could be construed as a force majeure event, effectively suspending discharge of obligations in a contract. However, the impact on each contract would vary, depending on provisions in individual contracts," said Akshay Chudasama, managing partner, Mumbai region, Shardul Amarchand Mangaldas & Co.
Legal experts point out there could be uncertainty in contracts - such as those pertaining to distribution agreements, joint venture agreements, franchises and licence agreements - that come with territorial provisions. Several Indian IT companies may need to take a fresh look in the terms and conditions of their service agreements with clients, given the volatility in exchange rates and the likely restrictions in the movement of employees between the EU and the UK in the post-Brexit years.
However, there will be question marks over enforceability of judgments. "One has to see, depending on the outcome of the withdrawal process, how English judgement will be enforced in the EU and vice-versa," said Chudasama.
How are tax laws expected to change post-Brexit?
As part of doing business in the European zone, companies will have to bear the risk of changes in law, including re-introduction of customs duties and tariffs. The UK may cease to be part of the customs union. Post-Brexit, the UK is likely to impose 'import' VAT when goods enter the EU from the UK, and vice-versa. Tax experts expect changes in how VAT is charged in the UK, which could be different from the EU VAT.
Will there be changes in the competition law landscape?
The substance of the UK competition law is very similar to that of the EU competition law. There is a statutory requirement to interpret the UK competition rules in a manner consistent with the competition case law of the European Court of Justice.
Legal experts note post-Brexit EU competition rules will continue to apply to agreements or conduct of UK businesses that have an effect within the EU.
"We do not expect any immediate impact on the competition law landscape in the UK and the EU. The UK already has its own competition legislation. However, over time there could be divergence between the UK and the EU rules reflecting a new insular approach," said John Handoll, national practice head, competition law, Shardul Amarchand Mangaldas & Co. On mergers, the one-shop stop approach might be abandoned, and companies might have to face scrutiny under both the UK and the EU systems, he added.
Will Brexit impact the intellectual property rights regime?
The EU Trade Marks and Registered Community Designs are governed by the EU laws and will eventually cease to apply in the UK. Experts noted that treatment of positions based on EU laws would depend on the negotiations between the UK and the EU over the next two years. However, the patent system will remain unaffected as the European Patent Office is not an EU institution.
Going forward the regulatory requirements may require independent compliance in both the UK and the EU for entry into the respective markets. Sectors such as pharmaceuticals and automobiles will be required to comply with two distinct sets of regulatory guidelines and obtain distinct approvals for operation in the UK and the EU.
"Indian businesses will now have to contend with two separate jurisdictions. This could call for additional outlay in the short term," said Dev Robinson, national practice head, intellectual property, Shardul Amarchand Mangaldas & Co. In the post-Brexit era, UK courts are no longer mandated to base their opinions in line with EU laws and guidelines. Legal experts said judges could develop positions that were distinct from those of the EU.
How will the changes in immigration laws impact movement of employees?
The EU's immigration policies have been human-rights based-- something that the UK and some other EU member states have not been entirely happy with.
Going forward there could be increased divergence in immigration legislation between the EU and the UK. "Immigration laws in the UK may become even stricter. The free movement of nationals from other member states is likely to be restricted, given that this issue was an important plank in the 'leave' campaign. This will have a bearing on the mobility of labour and the way companies hire and retain talent," said Handoll.
According to Nishith Desai of Nishith Desai Associates, immigration is the worst form of protectionism. "A lot will depend on how aggressive the UK will be on tightening of immigration laws," said Desai. Indian IT companies would face the brunt of this uncertainty over sending people to the UK, he added.
As Rabindra Jhunjhunwala, partner, Khaitan & Co, puts it, a lot will be left to speculation as no member state has left the EU before. "There is no precedent and the rules of exit are very brief," Jhunjhunwala said.
Here are some key FAQs and insights from legal experts on how corporate India could prepare itself for the uncertain times ahead.
More From This Section
What impact will Brexit have on existing and new contracts?
Currently a contractual provision stipulating English law as the governing law of the contract also includes applicable EU law. Post-Brexit, that may not be the case.
On the face of it there may not be a significant impact on existing or new contracts. However, in situations where Brexit has a severe impact on business, and leads to a breach of contract, one could invoke force majeure clauses as the ground for termination.
"Brexit could be construed as a force majeure event, effectively suspending discharge of obligations in a contract. However, the impact on each contract would vary, depending on provisions in individual contracts," said Akshay Chudasama, managing partner, Mumbai region, Shardul Amarchand Mangaldas & Co.
Legal experts point out there could be uncertainty in contracts - such as those pertaining to distribution agreements, joint venture agreements, franchises and licence agreements - that come with territorial provisions. Several Indian IT companies may need to take a fresh look in the terms and conditions of their service agreements with clients, given the volatility in exchange rates and the likely restrictions in the movement of employees between the EU and the UK in the post-Brexit years.
However, there will be question marks over enforceability of judgments. "One has to see, depending on the outcome of the withdrawal process, how English judgement will be enforced in the EU and vice-versa," said Chudasama.
How are tax laws expected to change post-Brexit?
As part of doing business in the European zone, companies will have to bear the risk of changes in law, including re-introduction of customs duties and tariffs. The UK may cease to be part of the customs union. Post-Brexit, the UK is likely to impose 'import' VAT when goods enter the EU from the UK, and vice-versa. Tax experts expect changes in how VAT is charged in the UK, which could be different from the EU VAT.
Will there be changes in the competition law landscape?
The substance of the UK competition law is very similar to that of the EU competition law. There is a statutory requirement to interpret the UK competition rules in a manner consistent with the competition case law of the European Court of Justice.
Legal experts note post-Brexit EU competition rules will continue to apply to agreements or conduct of UK businesses that have an effect within the EU.
"We do not expect any immediate impact on the competition law landscape in the UK and the EU. The UK already has its own competition legislation. However, over time there could be divergence between the UK and the EU rules reflecting a new insular approach," said John Handoll, national practice head, competition law, Shardul Amarchand Mangaldas & Co. On mergers, the one-shop stop approach might be abandoned, and companies might have to face scrutiny under both the UK and the EU systems, he added.
Will Brexit impact the intellectual property rights regime?
The EU Trade Marks and Registered Community Designs are governed by the EU laws and will eventually cease to apply in the UK. Experts noted that treatment of positions based on EU laws would depend on the negotiations between the UK and the EU over the next two years. However, the patent system will remain unaffected as the European Patent Office is not an EU institution.
Going forward the regulatory requirements may require independent compliance in both the UK and the EU for entry into the respective markets. Sectors such as pharmaceuticals and automobiles will be required to comply with two distinct sets of regulatory guidelines and obtain distinct approvals for operation in the UK and the EU.
"Indian businesses will now have to contend with two separate jurisdictions. This could call for additional outlay in the short term," said Dev Robinson, national practice head, intellectual property, Shardul Amarchand Mangaldas & Co. In the post-Brexit era, UK courts are no longer mandated to base their opinions in line with EU laws and guidelines. Legal experts said judges could develop positions that were distinct from those of the EU.
How will the changes in immigration laws impact movement of employees?
The EU's immigration policies have been human-rights based-- something that the UK and some other EU member states have not been entirely happy with.
Going forward there could be increased divergence in immigration legislation between the EU and the UK. "Immigration laws in the UK may become even stricter. The free movement of nationals from other member states is likely to be restricted, given that this issue was an important plank in the 'leave' campaign. This will have a bearing on the mobility of labour and the way companies hire and retain talent," said Handoll.
According to Nishith Desai of Nishith Desai Associates, immigration is the worst form of protectionism. "A lot will depend on how aggressive the UK will be on tightening of immigration laws," said Desai. Indian IT companies would face the brunt of this uncertainty over sending people to the UK, he added.