Christopher Muttukumaru CB argues that, in a post Brexit UK, the environmental protection rules that apply to the delivery of major infrastructure projects would be difficult to abandon, either as a matter of policy or because the legal issues go far deeper than merely abandoning EU rules.

1. It is difficult to predict the course of events which will unfold in the exit negotiations between the UK and the EU. In order to gain access to the EU Single Market, the UK might seek to negotiate membership of the European Economic Area or might wish to negotiate bilateral agreements, as Switzerland has been doing for some years. To the extent that environmental protection rules which affect the delivery of major infrastructure projects are considered by the negotiators to form part of the Single Market acquis,  the UK would be required to continue to comply with them. Even if not, the probability is that the EU would demand that the UK should comply with them.
2. It is also possible that the UK might choose not to seek access to the Single Market on either basis set out above. In the context of delivery of major infrastructure projects, the purist Brexit thinker may argue that the UK should be free to abandon environmental (over-) regulation stemming from EU Law and instead to implement domestic regulation which better suits the UK . Significantly, however, even if the UK Government were to decide to abandon EU-derived environmental protection rules, it seems probable that the Government would decide to maintain some aspects of regulation as a matter of domestic policy rather than leave some sectors unregulated. But even if the UK were to decide to abandon its EU environmental obligations , what would happen to cases where, in that field, the UK is already under a duty to comply with pre-existing public international law obligations?
3. With decisions in prospect on major infrastructure projects such as Heathrow or Gatwick expansion or the building of High Speed Two Phase 2 , what might happen in respect of the applicability of the EU rules on (a) strategic environmental assessment under the Strategic Environmental Assessment Directive)(“SEAD”) , (b) environmental impact assessment under the amended Environmental Assessment Directive (“EAD”) and (c) air quality under the Ambient Air Quality Directive (“AQD”)?
4. First, the answer to the question requires consideration of the policy reality of abandonment of rules that are intended to strike a balance between two national interests – on the one hand, the delivery of major infrastructure projects to drive economic growth and, on the other, the protection of the environment.
5. Given the UK’s high profile stance as a global leader in encouraging/taking action on combating climate change and protecting the environment , is it realistic to think that the Government would sweep away adherence to strategic environmental assessments and environmental impact assessments ? Is it credible to think that, at a time when there is an increasing domestic focus on the transparency of public authorities, the Environmental Information Regulations (derived from the EIAD) would be dispensed with? Finally, given the evidence that a failure to reduce air pollutants contributes to significant (and costly) health risks, is it conceivable that the UK could sensibly abandon the content of the rules under the AQD, designed to mitigate against harmful ambient air quality risks?
6. Secondly, the Government would , if it wished to abandon, wholly or in part, the requirements of the SEA and EIAD , have to address the extant obligations which would still arise under public international law:

• The SEA Protocol. The obligations under the SEAD are broadly paralleled in the SEA Protocol, a UN/ECE Convention signed by the UK on 21 May 2003. By Decision dated 20 October 2008, the Council decided that the SEA Protocol was thereby approved by the European Community. The President of the Council was authorised to deposit the instrument of approval with the United Nations. The European Commission , which had competence in the matters covered by the Protocol, notified the then EC’s compliance measures on behalf of the Member States. It follows that, even if the UK were to cease to be bound by the SEAD as part of its Brexit negotiations and even if it sought to revoke the domestic regulations implementing the Directive, it would also have to take steps to comply with its obligations under , or withdraw from, the SEA Protocol.
• The Aarhus Convention. Most obligations arising under the amended EIA Directive also derive from an antecedent international convention, the Aarhus Convention. The Convention was opened for signature in 1998 and ratified by the UK in February 2005. The Commission, in its declaration on the Convention , affirmed that the EC had adopted several legal instruments , binding on the Member States, implementing the Convention. By way of illustration, the First Pillar of the Aarhus Convention gives citizens the right to access environmental information held by public authorities, by private companies providing public services and by the EU institutions. The First Pillar of the EIAD is implemented in the UK through the Environmental Information Regulations. If the UK, as part of its exit negotiations, were to cease to be bound by the EIAD, it would also have to take steps to comply with, or withdraw from, the Aarhus Convention too.
• Ambient Air Quality Directive. The UK is already in breach, as are a number of other Member States, of the AQD. In the event of exit from the EU, might the Government take the opportunity to abandon compliance with the directive? The applicable policy factors would be finely balanced. But ultimately the Government would have to weigh the costs of the AQD’s restrictions on delivery of major infrastructure projects against the human costs of serious ill health if adequate action against poor air quality concentrations were not taken. The fate of extant legal proceedings in respect of breaches of the AQD would also need to be addressed.

The subject matter of this article is covered more fully in the text of Christopher Muttukumaru’s talk to the Society of Construction Law in April 2016 [read here]

A further post by Peter Oliver on the subject matter of this post is likely to follow in the autumn.

Jean-Claude Juncker has created a new portfolio for the new UK-appointed Commissioner, Sir Julian King, as “Commissioner for the Security Union”. The UK’s last Commissioner, Lord Hill, resigned in the immediate aftermath of the referendum vote on 23 June, having held the financial services portfolio.

Mr Juncker’s Mission Letter gives an interesting insight into the Commission’s view of Brexit and the present role of the UK. The letter begins by acknowledging that this is “a particularly challenging time for the European Union” and expresses a wish for the new UK Commissioner “to fully play your part in this team”. It also closes by stating that this is “one of the most testing periods” in the Union’s history. He places most emphasis on the effects of the economic and financial crisis and the position of the unemployed, but goes on to say that “[i]n addition, we have to cope with the refugee crisis, with the aftermath of the UK referendum and with the increased threat of terrorism”.

The newly created Security Union portfolio covers measures in respect of terrorism and returning foreign terrorist fighters; improving information and intelligence sharing; the security response to radicalisation; reinforcing the capacity to protect critical infrastructure and soft targets; fighting cybercrime; and working in relation to EU-financed security research.

The European Union Committee of the House of Lords has today published a report on the role of Parliament in scrutinising Brexit. The report also comments interestingly on the shape and timing of Article 50 negotiations on Britain’s exit from the EU and negotiations on Britain’s future relationship with Europe. Most importantly it gives some insight into how those negotiations could play out domestically.

As regards Parliamentary scrutiny, the Committee considers that Parliament’s role in the forthcoming negotiations on withdrawal from the EU will be critical to their success: ratification of any treaties arising out of the negotiations will require parliamentary approval, while national legislation giving effect to the withdrawal and new relationship will need to be enacted by both Houses. It also emphasises Parliament’s duty to carry out such scrutiny any to leave an “audit trail” for future generations. The Committee believes that such scrutiny is necessary at all stages of the process, including during any informal discussions which precede the Article 50 notification, as well as during the Article 50 process and during any subsequent negotiations on a new trading relationship.

The Committee does not comment on the legal challenges that have been brought concerning Parliament’s role in Brexit (as to which see here) and does not state whether a Parliamentary vote is necessary to trigger Article 50. However, it does state that Parliament will have to approve the ratification of the treaties that emerge from the negotiations under Part 2 of the Constitutional Reform and Governance Act 2010.

The report’s comments on the form of the scrutiny are interesting, as they throw into sharp relief the fact that the UK Government will not simply be conducting Article 50 negotiations with the Commission on the basis of its own agenda: rather the agenda itself may be the subject of vigorous domestic debate. The report insists that there should be regular formal debates, ministerial statements (oral and written), as well as ministerial answers to questions and a vital role for committee oversight in both the House of Lords and the House of Commons. The Committee is also authorising a programme of cross-cutting inquiry work, intended to inform the forthcoming negotiations. It identifies some 29 areas which may be relevant to negotiations, which gives a glimpse of the range of interests involved, including financial services, police and security cooperation, employment and non-discrimination law, agriculture, transport, energy security, UK-Irish relations and “Intra-UK relations”.

One obvious question is how such  public debate of a negotiating strategy can be conducted: as any lawyer who has conducted negotiations knows, you do not want to reveal your bottom line to the negotiating partner at the start and may well wish to be careful in revealing your priorities. On this, however, the Committee simply comments that it would be necessary to “strike an appropriate balance between transparency and confidentiality, while achieving the overarching objective of holding the Government effectively to account”.

The Committee’s comments on the shape of the negotiations are also worth noting. It rather dismisses the suggestion that negotiations on a future trading relationship could not start until the Article 50 process has ended, stating that  “The wording in Article 50(2) places a legal obligation on those negotiating the withdrawal agreement to take account of the framework of the new relationship. In other words, the withdrawal negotiations should take place in the knowledge, at the very least, of the likely shape of the UK’s future relationship with the EU”. It also comments that the negotiating parties could, if they wished negotiate a new relationship in considerable detail. If you’re interested in more detail on this, my colleague Peter Oliver has recently written on what may fall within the Article 50 negotiation process.

For the Committee’s full report please click here.

It is generally agreed that the UK’s departure from the EU will involve the conclusion of not one but of at least two agreements between the UK on the one hand and the EU alone or together with the Member States on the other. First, there is the Withdrawal Agreement based on Article 50(2) TEU (see here), which by definition will concern the conditions of the UK’s exit from the EU. Second, there will be the treaty or treaties relating to the future relations between the parties. For ease of reference, I will call this the Trade Agreement, even though it is unlikely to cover trade alone, and it may take the form of several agreements.

Considerable mystery surrounds the dividing line between the two.

What is clear is that the Withdrawal Agreement will contain transitional provisions relating inter alia to transactions and operations under way on the date of departure.   For instance, what will happen to unfinished infrastructure projects financed by the Structural Funds? What about budgetary contributions? And what about cases pending before the Court of Justice of the EU? In addition, the acquired rights of British nationals residents in other Member States and vice versa should be laid down in the Withdrawal Agreement (not just as regards rights of residence and employment, but also social security and health coverage and the recognition of diplomas), as should the conditions of departure of the senior British members of the EU institutions and bodies and the relocation of the EU bodies currently established in the UK.

What else might the Withdrawal Agreement lawfully contain? It will be tempting – at least for the UK – to squeeze some other matters into that agreement, because according to Article 50(2) it will be concluded by the Council acting by a qualified majority and it should enter into force well before the Trade Agreement.

In any case, it would make no sense to conclude the Withdrawal Agreement without having a clear idea of the content of the Trade Agreement, or at least its general outlines. That is why Article 50(2) specifically provides that the Withdrawal Agreement shall “take account of the framework” of the “future relationship” between the departing State and the EU.

In April of this year, the House of Lords Select Committee on the European Union published a report entitled “The Process of Withdrawing from the European Union”, which was based on expert evidence given by Sir David Edward, a former British judge of the Court of Justice of the EU, and Emeritus Professor Derrick Wyatt of Oxford University.

Sir David took the view that “the German language version of Article 50 made plain that ‘the structure of future relations will have already have been established at the point when withdrawal takes place’”. Professor Wyatt agreed, adding that the two agreements would have to be negotiated in parallel (see here).

Leaving aside the question as to whether there is a discrepancy between the German and English versions on this point (and not everyone would necessarily agree that there is one), it seems clear that the broad thrust (“structure”) of the Trade Agreement will have to be clear before the Withdrawal Agreement can be finalised. Key points will no doubt include such issues as whether the Trade Agreement will cover the free movement of persons and passporting of British financial services, and whether it will include flanking policies such as consumer and environmental protection.

Does that mean that the last details of the Trade Agreement will have to be worked out before the Withdrawal Agreement can even be signed? If so, it would almost certainly follow that the latter treaty would have to be delayed for some years, as the Trade Agreement would no doubt take longer to negotiate.

In any case, a radically different view was expressed by Commissioner Cecilia Malmström in a recent interview with the BBC. She claimed that the UK would first have to leave the UK before it could negotiate a Trade Agreement (see here).  On this interpretation of the Treaties, there would be no question of negotiating the two agreements simultaneously. The inevitable consequence would be that for several years trade in goods and services between the UK and the EU would not be covered by any treaty other than the WTO.

However, the legal basis for the Commissioner’s position is not clear, and it may be hard to square with the wording of Article 50(2). Her position appears to be derived from the statement made after the informal meeting of the 27 Heads of State and Government held on 29 June 2016 (see here).   According to paragraph 4 of that statement, the Trade Agreement “will be concluded with the UK as a third country”. In other words, the agreement cannot be concluded until the UK has left the EU – but that does not in itself preclude the parties from negotiating it, or at least commencing the negotiations, prior to the UK’s departure.

In any case, it seems very much as though there is likely to be a gap between the UK’s exit from the EU and the entry into force of the Trade Agreement.

The EEA Agreement, often described as the ‘Norwegian model’ extends the Single Market to Norway, Liechtenstein and Iceland. The EEA Agreement naturally includes competition, State aid and public procurement provisions. This Monckton Brexit Blog post introduces EEA competition law and considers what the EEA Agreement has achieved since its signature in 1992.

To view the blog post written by Michael-James Clifton please click here.

Monckton Chambers, as a leading set in the field, presented a seminar titled “Procurement Futures: what lies ahead for procurement law? What will be the effects on future plans and challenges?”, on the 13th July.

The speakers included Ewan West, Valentina Sloane, Ben Rayment, Michael Bowsher QC, George Peretz QC, Thomas Sebastian and Azeem Suterwalla.

To download the presentation slides please click here.

Written by Alistair Lindsay & Alison Berridge

In our second post on the implications of Brexit for merger control, we ask whether a new relationship with Europe might prompt amendment to merger control rules in the UK.

New jurisdictional thresholds?

As described in our earlier post , the most significant changes to the merger control landscape occur if the UK opts to leave not only the EU but also the EEA.  In that case the “one stop shop” principle giving the European Commission exclusive jurisdiction over larger transactions no longer applies.  This in turn is likely to lead to a significant increase in the CMA’s workload, to include many more large international deals.

This change may put pressure on certain distinctive features of the CMA’s jurisdictional rules.  Businesses planning large international acquisitions are used to dealing with multiple merger filings.  But they expect to know unequivocally whether a filing is needed.  The UK’s jurisdictional rules on the other hand are not designed with certainty in mind.  The share of supply test requires a level of analysis of overlapping supplies or purchases.  And applying the material influence test is an art all of its own, not uncommonly involving the examination of voting records or the potential for certain shareholders to wield special influence (as in BSkyB/ITV).

The UK may come under pressure to move to a more easily applicable turnover based test, consistent with the recommended practices of the International Competition Network, and or a clear “control” threshold.  This would reduce the burden on business but at the same time increase the risk of type two errors, i.e. failures to intervene in mergers that in fact harm consumers.  Examples of the kinds of cases that might fall outside such a regime include Ryanair/Aer Lingus (examined under the material influence rules) and Linergy/Ulster Farm (target having low turnover).

A mandatory regime?

There may also be questions over the current voluntary notification system.  A voluntary system relies on effective intelligence to identify problematic mergers that are not notified.  Only if parties feel there is a real risk of discovery will they voluntarily incur the costs and risks of filing.  The CMA has enhanced its intelligence function in recent years and the result is widely believed to be highly effective.

However if the CMA’s remit extended to a much larger number of international mergers, the burden on the intelligence unit would increase.  It may benefit from information received from countries operating a mandatory system, such as Germany, but would nevertheless need to carry out some investigation to assess the potential impact on the UK.  It is possible that these new burdens might start to tip the balance in favour of a mandatory system, with the corresponding costs to business.  An analysis of the costs and benefits of a mandatory regime (albeit absent any Brexit related change in case mix) can be found in the Government’s 2011 consultation on reforms to the merger regime .

Return to a public interest test?

Finally, the new Prime Minister has already signalled  a willingness to prevent takeovers of UK companies in important sectors, such as AstraZeneca in the pharmaceuticals industry, from foreign takeovers.

This is in part an opportunity created by Brexit and in part not.

On the one hand, leaving the EEA would make it easier to implement such a policy.  Currently, where the Commission has jurisdiction over the competition analysis, Member States may take their own action to protect national interests (such as public security), but the interests protected must be recognised as “legitimate”, either under existing EU legislation or by decision of the Commission.  Leaving the EEA would free the UK from these constraints.

On the other hand, it is not certain that the above regime would have prevented the UK from protecting AstraZeneca.  The deal collapsed before the Commission expressed a view.

Moreover, in cases falling outside the Commission’s jurisdiction, the UK currently has a free hand to protect whatever interests its chooses.  Yet its own rules also limit public interest interventions to a narrow category of cases, closely mirroring those found in European legislation (although the categories can be expanded).  Alex Chisholm, the then Chief Executive of the CMA, analysed the evolution of and reasons for this approach in his 2014 Fordham speech, available here .  Any new protectionism would therefore reverse decades of industrial policy, developed in parallel with – but independently of – Europe.

Whether and when any of these changes might be implemented is a matter for speculation.  Merger control will need to take its place in the lengthy queue of national laws requiring amendment following Brexit.  New trade deals agreed with Europe or elsewhere may limit the Government’s scope to make changes, particularly any attempt to restrict foreign takeovers.  We will post further updates as the position develops.

 

 

 

Once the UK withdraws from the EU, claimants will no longer have a direct cause of action based on Articles 101 and 102 TFEU nor will they be able to assert a breach of statutory duty under s.2(1) ECA 1972.  Similarly, it does not seem likely that ss. 47A(6)(c), 58A and 60 CA98, which refer to the binding nature of Commission infringement decisions, will survive.  Those provisions will, most likely, be repealed as a direct consequence of withdrawal.

The statutory cause of action based on the Chapter I and II prohibitions in the CA98 will continue to apply, under s.47A CA98, but only in respect of trade within the UK.  The scope of damages claims are likely to become more parochial, limited to national, regional or local commercial practices.

So how can competition damages claims for EU cartels continue to be brought in the UK?  Claimants would not be able to invoke Articles 101 and 102 TFEU directly in damages claims and would not have an automatic right to “follow-on” damages. It may be argued that infringement findings in a Commission decision should be regarded as ‘foreign’ law relating to public policy which the English courts should not readily apply or enforce. Even if an English Court were willing to have regard to such findings, they would only count as “foreign law” with the status of one piece of factual evidence that the court would have to weigh alongside other evidence.

That risk could be mitigated by statutory provisions to the contrary or if the UK entered into a trade agreement with the EU, which specifically provided for the application of EU competition rules in cases where common trade between the UK and the EU is affected.[1]

Alternatively, if the UK were to join the EEA, then a substitute enactment to s.2(1) ECA 1972 could incorporate the provisions of the EEA Agreement, including Articles 53 and 54 EEA, although they would not have direct effect in the same way as provisions of the EU Treaties.  The EFTA Court has recognised the public policy in encouraging private enforcement as a means of ensuring the effectiveness of competition law and has followed Courage,[2] Manfredi[3] and Donau Chemie[4] in its case law.[5]

The implications of these complexities on the jurisdiction of the English Courts is discussed in a recent article by Anneli Howard published by Jordans in the Brexit edition of the Competition Law Journal available here.

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[1]  See, for example, Article 35 of the EU/South Africa Trade, Development and Cooperation Agreement (1999) OJ L 311/03.

[2] Case C-453/99 Courage Ltd v Crehan [2001] E.C.R. I – 6297

[3] Case C-295/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA [2006] E.C.R. I – 6619

[4] Case C-536-11 Bundeswettbewerbsbehörde v Donau Chemie AG and others, EU:C:2013:366.

[5] Case E-14/11 DB Schenker v EFTA Surveillance Authority (‘DB Schenker I’) [2012] EFTA Ct. Rep. 1178, paras 132 and 189.