Please click here to see the analysis.
The case before the Supreme Court will not determine whether the UK should remain in or leave the EU, or the terms on which it should leave. It is not about the competing arguments about Brexit. It is a case about the Constitution of the United Kingdom. Much of it is unwritten, but it exists. It is the same whatever a person’s views are on Brexit. This is a case about the Rule of Law. It concerns principles of fundamental importance in a Constitutional Democracy.
The United Kingdom operates through Parliament, the Executive and the Courts. The advice on prorogation , and the Order in Council resulting from it, produced for a period, an empty Parliament. Parliament questions the Executive, holding it to account, considers whether to pass legislation and to approve statutory instruments. A driver needs time to react and stop. Parliament needs adequate time to consider and react to current events, and especially so when parliamentary time is not readily yielded by the Government.
Power corrupts and absolute power corrupts absolutely. The Rule of Law in a constitutional democracy requires a functioning Parliament. Where Parliament has no ability to perform its functions for a period the Government is unchecked. What happens during that period may be irreversible. If a Government is in fact the only body holding itself to account during that period, it has absolute power.
The case before the Supreme Court had three issues: (A) Could the court review judicially advice on prorogation by the Prime Minister and the Order in Council? Were there standards which could and would be applied by the Court in a judicial review? (B) What were the facts? (C) What remedy could and should be granted?
The Government argued that prorogation necessarily involved a “political decision” unsuitable for Judicial Review. The Court could not intrude into the political arena and examine matters to be determined by politicians. Gina Miller argued that where the motive behind prorogation, or its practical effect, was to prevent Parliament discharging its functions, there had to be justification for this. What was to stop the Government proroguing Parliament again after 17th October? The justification could not be that Parliament might disagree with the Executive and exercise its constitutional functions. It had to be a justification both of its timing and length.
The Government argued that it had left sufficient time to Parliament to react to Brexit developments after 17th October, the date of a meeting of EU leaders. This argued that prorogation would not cause irreversible consequences. A week is a long period in politics. Judging the risks resulting from an empty Chamber of irreparable consequences, does not answer whether Parliament could be prevented lawfully from discharging its functions for that period. If Parliament could sit and decide what it wishes to do as events unfolded, then matters are not left in the sole hands of the Executive. It is Parliament which holds to account the Executive, and not the Executive which has the right to control Parliament.
The words “political decision” might cover any decision taken for political reasons. Many decisions are affected by political considerations. But the fact that a decision is “political” does not immunise it from judicial review. The Government may wish to purchase houses under statutory compulsory purchase powers to build a hospital, so that its MP has a better chance of being re-elected. This would be a “political decision” ripe for judicial review as an improper use of statutory powers. By “political decision” the Government argued that a decision taken to bring about its political aims was not reviewable because those aims were themselves a matter of political judgment and could not be reviewed by the court. It had the power to prorogue to achieve its political aims. It argued that prorogation was to allow for the Party Conferences, and to prepare for a Queen’s speech to set out those aims.
The Queen’s role is not that of an arbiter between rival political views. It is not right for the Queen to be given the burden of involvement in politics, or deciding what is lawful. There are many judicial precedents at the highest levels for exercises of the Royal Perogative powers being reviewed by a court. The Government argued that Parliament would have to be recalled to approve funds for the standing army. This did not address the possible consequences in a Constitutional Democracy of allowing the Executive power to suspend Parliament without proper justification.
To allow the Executive the power to disable Parliament from exercising its functions for a limited period chosen by the Executive opens the door to the suspension of Constitutional Democracy. If the exercise of the power were not reviewable by a court, the Government could take for itself for a period of its own choosing, absolute power.
Facts are decided by evidence. The timing and length of prorogation had to be justified by the evidence considered as a whole including what is said and what is not said. In this case there was a partially redacted memorandum written by a Government assistant, and a short note from the Prime Minister approving it. It is expected practice on judicial review that the decision maker provides an affidavit setting out the reasons for the decision. No affidavit was made. The absence of an affidavit was itself evidence to be taken into account. The relevant facts include the context in which a decision is taken. That included the Bills going through Parliament which would be lost through prorogation, what was the position on statutory instruments being considered for the Brexit process, the imminence of a possible no deal Brexit and whether the stated aims of prorogation required the particular period for prorogation chosen by the Government.
Gina Miller argued that the remedy should be limited to a declaration that the advice had been unlawful, leaving events to unfold and a decision to be taken on the lawfulness of the Order in Council to be deferred. This limited submission was in the context that the courts do not interfere with proceedings in Parliament, for example what Parliament should debate, and what votes it should take. The contrary argument is that for the purpose of deciding the court’s power to intervene, the Order was a prelude to proceedings in Parliament and not proceedings themselves. That course would have involved adjourning the appeal brought by the Government from the order made by the Inner House of the Court of Session quashing the Order in Counsel.
The questions from the Supreme Court raised whether a definitive urgent answer was needed to provide certainty and avoid argument about what should be done.
It is said that what is sovereign is only “the Queen in Parliament”, and not the House of Commons on its own. This makes the point a Bill has to be passed by both Houses and receive Royal Assent, before it becomes law. The words understate the functions of the House of Commons.
The decision to declare unlawful and void both the advice and the Order in Council, will be read by students politicians and judges from all over the world for many years into the future, as a precedent on a fundamental Constitutional issue, to be afforded the respect due to an unanimous reserved decision of a Bench of 11 Supreme Court Justices, reached after arguments of the highest quality, on the Rule of Law.
One hour after Theresa May’s resignation on 24 May 2019, Former EFTA Court President Prof. Dr. Dr. h.c. Carl Baudenbacher from Monckton Chambers spoke on Brexit and the EEA at the meeting of the European Economic and Social Committee marking the 25th anniversary of the European Economic Area. Baudenbacher stressed that there was a new ball game. He called the EEA a valid option for the UK, especially as both Iceland and Norway had expressed a positive opinion about British membership. Prejudices such as the EEA/EFTA States are mere rule takers have little to do with reality. Baudenbacher concluded with the statement that there was an opportunity to establish a second structure in Europe, consisting of the UK, the current EEA/EFTA States Iceland, Liechtenstein and Norway and the fourth EFTA State Switzerland. The five states are banking on free trade and open markets and are fundamentally averse to mercantilist tendencies.
To view Professor Baudenbacher’s presentation slides please click here.
Towards the end of last year, the Cabinet Office published a draft statutory instrument, the Public Procurement (Amendment etc.) (EU Exit) Regulations 2019 (“the first SI”), which was then laid before Parliament pursuant to Schedule 7 of the European Union (Withdrawal) Act 2018 (“the Act”). On 11th February 2019, a second SI ((The Public Procurement (Amendment etc.) (EU Exit) (No. 2) Regulations 2019) (“the second SI”)) was laid before Parliament, which makes a number of corrections to the first SI.
Together, the SIs will modify various Procurement Regulations, including the Public Contracts Regulations 2015 (SI 2015/102), the Utilities Contracts Regulations 2016 (SI 2016/274) and the Concession Contracts Regulations 2016 (SI 2016/273), for the event of the UK’s departure from the EU.
The Cabinet Office has recently produced a helpful Procurement Policy Note (available here), which summarises succinctly the effects in both ‘deal’ and ‘no deal’ Brexit scenarios. There are, however, a number of questions arising out the draft SIs, which are not easy reads.
(1) Are there conflicts between the Act and the Regulations?
First, the definition of “the Retained Treaties” in Regulation 5(2)(g) of the first SI has the potential to create interesting knock-on consequences. That phrase, as defined in the first SI, is limited to those matters of retained EU law which are retained only by section 4 of the Act. That section, in turn, is confined to those matters which flowed into domestic law via section 2(1) of the European Communities Act 1972. The concept of “retained EU law”, however, is wider in the Act. Section 6(7) of the Act defines “retained EU law” as matters which forms part of domestic law under sections 2, 3, 4 and 6 of the Act. There is a risk, therefore, that the more limited expression in the SI (only referring to one section of the Act) leads to gaps.
This possible use of section 4 as a limiting-device is particularly evident in Regulation 5(57) of the first SI, which modifies Regulation 89 of the Public Contracts Regulations 2015. The first SI substitutes “enforceable EU obligation” in the PCR 2015 with “retained EU obligation that is enforceable by virtue of section 4 of [the Act]”. This appears to reduce the currently-enforceable obligations of EU law: presumably the drafters of the Act thought that section 4 alone was insufficient to copy all EU obligations and case law existing prior to exit day, hence the need for sections 2, 3 and 6 also. It is unclear whether reference to only section 4 is an intentional restriction by the drafters of the first SI in the procurement sphere, or whether the SI is compatible with the Act in this regard (e.g. the deficiency-correction purposes listed in section 8 of the Act, as to which see below).
(2) Do the regulations make other substantive changes – is that permissible?
Second, the first SI alters various substantive provisions, including those relating to abnormally low tenders and state aid. This is achieved by various instances to “omit “EU law”” and “to the extent that they are compatible with EU law”, and more express provisions such as Regulation 5(46) which removes certain references to state aid in the abnormally low tender provisions, e.g. Regulation 69 of the Public Contracts Regulations 2015. Another potential example (for which I am grateful to Albert Sanchez-Graells for discussing with me) is that found in Regulation 5(29) of the first SI, which omits Regulation 39 PCR 15 (procurement involving contracting authorities from other member states). It is arguable that this creates a legal lacuna, as transnational collaborative procurements would not be regulated. It is possible that this could have substantive effects in some areas, such as some cross-border collaborations of NHS commercial solutions through the European Health Public Procurement Association.
The second SI also extends rights of action to some economic operators beyond the scope of GPA coverage (Regulation 2(3)(c)), though how significant this will be in practice is unknown.
It is not, clear, however, whether these changes to the underlying substantive requirements are compatible with the deficiency-correcting power in section 8 of the Act. Sub-paragraphs (2) and (3) of that section list exhaustive instances where a deficiency arises. The policy intention behind the Act at least appeared to be a retention of the substance of EU law without alternation unless that substance was inherently linked to an (EU) internal market concept or EU institutions. The SI, however, appears capable of being read as altering content which could, conceptually at least, function on the domestic level. It is possible, therefore, that some aspects of the SI go beyond the scope of the deficiency-correcting power and could be susceptible to judicial review.
(3) Postponed amendments – are they ultra vires?
Third, Regulations 6, 8, 10 and 21 only come into force 18 months after the day on which exit day falls: Reg. 1(3) of the first SI, as amended by Reg. 2(2) of the second SI. These Regulations appear to provide economic operators from a party to the WTO’s Government Procurement Agreement (“the GPA”) continued rights and access for a period of 18 months at which point certain duties (such as those found in regulations 25, 68 and 90 in the PCR 2015) will end.
The deficiency-correcting powers in section 8(1) of the Act – under which the SI has been made – only exist where failures or deficiencies can be said to be “arising from the withdrawal of the United Kingdom from the EU”. It is, prima facie, difficult to understand how this competence to correct such deficiencies can occur only 18 months after exit day (as defined in the Act), such that it is only appropriate to use that purported power to trigger substantive changes at that point. Do such issues truly arise as a result from withdrawal if they only need altering 18 months later? If not, the Regulations are susceptible to judicial review on the grounds set out by Lord Neuberger in R (Public Law Project) v Lord Chancellor  UKSC 39.
Perhaps the key to understanding this lies in the UK’s imminent accession to the GPA in its own right and possible differences in the UK’s and EU’s GPA schedules. Assuming that accession does occur more or less as expected, and assuming that these Regulations ever enter into force at all, does the need to modify domestic law nevertheless still not result from that (re)-joining of the GPA, rather than the UK’s withdrawal from the EU? The logical place to find statutory power for the making of procurement regulations implementing the GPA or, indeed, procurement provisions under FTAs would be in trade legislation. But with the Trade Bill stuck in Parliament, it is not clear where that will be found. Perhaps the legislator hopes that a broader reading of the phrase “arising from” in section 8(1) of the Act will suffice, such that the ‘looser’ sense of Brexit resulting in the UK having (at its election) to re-join the GPA will suffice.
That all said, perhaps the queries surrounding these postponed amendments will never arise. Given that the GPA Parties have accepted the UK’s independent membership of the GPA for a post-Brexit world, it is possible that these Regulations will never enter into force.
The detail of this blog post may well become academic within the space of 72 hours if “no-deal” is taken off the table by Parliament. The issues which it raises about legislating by such statutory instruments, however, are nevertheless of longer-term constitutional interest. The byzantine structure of the SIs is not at all easy to navigate. Coupled with the fact that the legislative foundation of some of the proposed amendments is questionable, this is particularly problematic, not least for potential claimants or the poor parliamentary draftsman tasked with editing the underlying substantive Regulations. Whilst there may well be perfectly reasonable answers to some of the queries raised in this blog, the very complexity of the legislation is itself problematic.
The Court of Justice of the European Union has today in C-621/18 Wightman held that an Article 50 notice is unilaterally revocable, subject to specified conditions. (For a summary, see here .) It will be recalled that the Supreme Court in Miller  UKSC 5 assumed, on an invitation from the parties, that Article 50 was unilaterally irrevocable. Does that mean that Miller was wrongly decided?
In my view, the answer to this is an emphatic “no”. This follows for three reasons.
First, the Supreme Court did not decide that Article 50 was unilaterally irrevocable. It merely stated that it was “content to proceed on the basis” that Article 50 was not unilaterally revocable, but “without expressing any view of our own” on the point: see para. 26. It would therefore be wrong to claim that Miller is directly contradicted by the CJEU’s judgment in Wightman on the meaning of Article 50.
Second, the reasoning and result in Miller does not, in any event, depend upon the assumption which the Supreme Court (and, indeed, Divisional Court) made. That is, in my view, both the reasoning and result in Miller survive even if Article 50 were unilaterally revocable (as the CJEU has today found). Indeed, the Secretary of State in Miller himself accepted this: “it is the Secretary of State’s case that, even if this common ground [that Article 50 is irrevocable] is mistaken, it would make no difference to the outcome of these proceedings” (para. 26 of Miller).
Why is this the case?
The majority judgment in Miller reveals that challenges to the use of purported prerogative powers can take one of four forms (what I have elsewhere called the ‘the four E’s’): first, an examination of whether a prerogative power exists; second, assuming one does exist, the extent of that prerogative power (ie whether it is of a sufficient nature and scope to extend to the relevant circumstances and intended usage envisaged by the executive); third, an examination of whether any such prerogative power has been excluded by a statute or statutory provision (whether expressly or by necessary implication); and fourth, assuming that a sufficient prerogative exists and has not been excluded by primary legislation, an examination of the exercise of that prerogative on grounds of, for example, irrationality, procedural impropriety or disproportionality.
The important point for present purposes is the second category of control concerning a prerogative’s extent. In Miller, after establishing that a relevant prerogative power, the foreign relations treaty prerogative, existed, the Supreme Court moved on to examine the extent of that prerogative power. The Court explored the delimitations of prerogative powers generally, and the foreign relations treaty prerogative specifically, in determining that such executive powers cannot affect domestic law or, separately, domestic rights, and cannot frustrate the purpose of a statutory provision by effectively emptying it of content. The foreign relations treaty prerogative simply does not extend to such circumstances whereby there would be domestic effects. The clue is in the name.
The question therefore became whether the prospective use of a purported prerogative power – here to trigger the Article 50 process – could have any of these three effects, namely: (i) affecting domestic law; (ii) affecting domestic rights; or (iii) frustrating statutory intent. If the answer is “yes”, then the prerogative does not extend to such circumstances and cannot be used due to its inherent nature and scope.
The effect of the Article 50 scheme is that, if nothing else happens, a notifying member state loses that membership – and all entailing benefits – at the end of the two-year period. The Court found that triggering Article 50 has the default effect that domestic law and rights would be affected, if not lost, contrary to Parliament’s intention as expressed in Acts, such as the European Communities Act 1972. This blog is not the place to examine the factual and legal reasons for why the Court found that each of these three effects was made out (see here for further discussion). It is enough for present purposes to note that the default effect – not inevitable effect – of sending the Article 50 Notice would, without anything more, include at least one of the three consequences.
That default, rather than inevitable, effect is sufficient to prohibit the use of the prerogative for two reasons. First, as the foreign relations prerogative cannot by its nature have such effects, the logical possibility – indeed, default consequence – of such attempted usage means that it could not be employed in the first place. The Prime Minister simply did not have the competence to use the prerogative. Second, Parliament cannot be pre-empted or forced to act in order to save its statutes (the highest source of law domestically) on account of executive action. The triggering of Article 50 sets in motion a series of events which, without more, would result – without Parliamentary authorisation – in statutes being made defunct on the Supreme Court’s analysis. Again, the foreign relations treaty prerogative cannot be used to have this effect. With neither a prerogative power nor a pre-existing statutory power enabling it to act, the consequence was that the Government had to seek fresh statutory authorisation from the ‘constitutionally senior partner’, Parliament, before a Minister could notify the European Council of the UK’s intention to leave the EU pursuant to Article 50.
Third, the assumption was prudent as a matter of constitutional adjudication. A question of competence to trigger a process cannot be answered by the courts once it has already been actioned and/or had (irreversible) effects; the logical possibility, known in advance, is enough as a matter of law to prevent the prerogative’s use. In order to answer that competence question, the Court has to ground its analysis in how it is actually envisaged that the prerogative in question is to be used. Here, the Government’s position was (and is) that “as a matter of firm policy, once given a notification will not in fact be withdrawn” (counsel for the Secretary of State during the hearing before the Divisional Court at p.64 of the transcript, 17 October 2016). Accordingly, the Court was being told that if the Government could notify by virtue of a prerogative power, it would not revoke that notification. Effectively, the default effects would become the inevitable effects. That firm policy decision remains despite the outcome in Wightman.
In summary, therefore, Miller remains good law (with consequences beyond only the situation of Brexit, as I explain here ). Neither the result, nor the reasoning, is invalidated in any way. Whilst it obviously assisted the claimants in Miller that the Government conceded the Article 50 revocability question (because it brought to life the effects in domestic law), the core thread survives: the foreign relations treaty prerogative could not have been used to trigger the Article 50 process, regardless of the revocability of any notification, due to its default effects.
Jack Williams was junior counsel for one of the interested parties in R (Miller and Dos Santos) v Secretary of State for Exiting the European Union  UKSC 5 at both Divisional and Supreme court levels. He is co-editor (with Professors Mark Elliott and Alison Young) of the UK Constitution after Miller: Brexit and Beyond (Hart Publishing, 2018).
In his opinion today, the Advocate General at the CJEU has made clear that Brexit is not a one-way cul-de-sac with no prospect of turning back. Even at the point where the withdrawal agreement has been negotiated, the UK can take stock and reflect during a “cooling off period” that continues for the two year period in Article 50, right up to the point where the withdrawal agreement is concluded by mutual agreement on both sides.
The opinion is important since it breaks the “Sophie’s choice” between approving the deal and leaving the EU without a deal. Both options present insurmountable compromises for the UK in terms of economic disruption to its trade in goods and services and loss of individual rights for its citizens. As the AG indicates, if his opinion is followed, the eventual ruling from the CJEU and Court of Session will open up a “third way” for MPs in Westminster to take the initiative of unilaterally revoking the UK’s decision to withdraw from the European Union. Interestingly, he even goes so far to say that if there is a democratic change which reverses the decision to withdraw, deprives it of its effect or removes its constitutional basis, the State “can and must” notify that change to the Council.
Importantly, in interpreting the scope of Article 50 TEU in the light of the aims of the Treaties and international law, the AG has come down firmly in favour of unilateral revocation rather than subjecting the State’s change of mind to additional hurdles, such as obtaining the unanimous consent of all 27 Member States in the European Council. He regards unilateral revocation as key to respecting the sovereign will of a State to change its mind in line with its constitutional requirements, respecting democracy and preserving rather than destroying the fundamental rights of citizens in the UK and other Member States.
In his view, the right to revoke should be subject to a few simple formalities:
(i) a formal notice of revocation setting out the reasons for the change of heart;
(ii) exercised in accordance with the national constitutional requirements (be that another election, referendum or parliamentary meaningful vote as the case may be);
(iii) within the two year negotiating period in Article 50 – i.e. before 29 March 2019 or before a withdrawal agreement is concluded by both sides (whichever is the earliest); and
(iv) in good faith and in line with the State’s duty of sincere cooperation under the Treaty. That means that it cannot be misused for tactical negotiating advantage or abused for ulterior purposes.
Conversely, the AG rejected the Council and the Commission’s arguments that they should be allowed to impose a check on potential abuse by insisting on unanimous consent. In that scenario, a single Member State would effectively be allowed to veto the UK’s continued membership of the EU and it would empower the European Council to expel a Member State against its will.
In terms of the effects of revocation, the AG is clear that the departing State maintains all of its rights and privileges right up to the point of departure envisaged by Article 50. If a notice of revocation is served before that time limit expires, those rights continue and the status quo ante is restored. Although there may be “collateral damage” in the sense of financial repercussions for the EU institutions and other Member States resulting from the negotiation process and related practical steps, that should not be a bar to revocation. In any event the costs of proceeding with withdrawal would far exceed the minimal costs generated by the revocation.
The UK Government’s intention to maintain the EU State aid rules has been clear for some time. I briefly discussed the reasons why it has taken that view – and done so without significant opposition – in a piece I wrote here. The intention to hold onto the State aid rules was strong enough for the Government to commit to maintaining them even on a “no deal” Brexit. But we now have a deal, subject to the vagaries of UK politics (which I shall not attempt to predict). What has it got to say about State aid?
There are really three sets of issues here. The first is what might be called the planned withdrawal period – the transition period and the arrangements for handling cases that straddle the end of the transition period. The second is the management of State aid under the “backstop”, that is to say the Ireland/Northern Ireland Protocol which it is hoped will never be operational but which will come into force if no final agreement is reached before the end of transition. And the third is the political declaration that sets out the outline of the final relationship.
The transition regime is brutally simple: the UK remains a Member State for all purposes save those associated with having any say in legislation or decision-taking: Article 127(1) simply provides that all EU law continues to have effect in the UK. So there will be no change in the State aid rules at all during the transition period, save that the UK will lose its vote in any State aid legislation or decision-making by the Council.
The transition period, however, will have a definite end (though what that will be has not been decided). What happens to ongoing procedures at the end of transition? The answer is to be found in Article 92, which provides that the Commission will remain competent to resolve any State aid investigation that has been allocated a case number by the end of transition. The Commission will then proceed as normal either to raise no objections, find no aid, or start a formal investigation (Article 92(5)).
Further, Article 93 provides that the Commission will remain competent to initiate new State aid procedures for up to four years after transition end. These will presumably only relate to aid granted before the end of transition (aid granted after transition end not being a matter falling under EU rules, subject to the backstop), and hence will be investigations of unlawful aid or misuse of aid.
The Commission decisions that result from these investigations will be binding “on and in” the UK: so private parties as well as the UK itself will be bound: Article 95.
One issue not dealt with is how the Commission will approach an aid notified before the end of transition but which will cover a period extending to after the end of transition. To the extent that the measure is to be implemented after the end of transition, it will presumably fall outside the Commission’s jurisdiction. But a measure implemented before the end of transition might well have many of its effects on competition (and many of its benefits in terms of the aim of the measure) after the end of transition. It is not clear, at least to me, quite how the Commission is supposed to deal with such post-transition effects: but for what it is worth, it seems to me that the Commission could only properly take into account effects occurring before the end of transition (not least because the measure could be withdrawn and re-implemented the day after transition, at which point the Commission would have no jurisdiction over it.
The existence of strong State aid provisions in the backstop should come as no surprise. The backstop involves a customs union between the whole UK and the EU. In a customs union, the EU is deprived of its ability to apply countervailing measures to subsidised imports. So an inevitable quid pro quo of a customs union is bound to be cast iron guarantees that unacceptable subsidies will not be granted to UK businesses exporting to the EU.
There are two aspects to the backstop: rules that apply in Northern Ireland (more accurately, to measures affecting trade between Northern Ireland and the EU) and rules that apply to Great Britain (more accurately, to measures affecting trade between Great Britain and the EU).
As for Northern Ireland, Article 12 of the Protocol states that the State aid provisions set out in Annex 8 shall apply “to the United Kingdom … in respect of measures that affect that trade between the part of the territory of the United Kingdom to which [the Union Customs Code] applies by virtue of Article 6(2) of this Protocol and the EU which is subject to this Protocol.”
That less than luminously clear provision needs unpacking. “The territory of the United Kingdom to which [the Union Customs Code] applies by virtue of Article 6(2) of this Protocol” is Northern Ireland, excluding its territorial waters. And the “trade … which is subject to this Protocol” is goods trade, subject to the “holding provision” for fisheries products set out in Article 6(1), fifth paragraph. Annex 8 to the Protocol sets out (I think) all relevant State aid legislation.
The net effect is that the UK remains subject to the EU State aid rules (including enforcement by the Commission and the Court of Justice) in relation to measures that affect trade in goods as between Northern Ireland and the EU. That provision is evidently likely to cover many measures taken by the devolved administration in Northern Ireland. But it is also important to appreciate that that provision could well include any UK Government measure that extended to Northern Ireland such as, for example, a tax break. It even appears to bring in measures that do not extend as such to Northern Ireland, but (for example) benefited UK businesses that also produce goods in Northern Ireland.
Meanwhile, further State aid provisions apply to measures affecting trade in goods between Great Britain and the EU (technically, trade to which Article 1 of Annex 2 applies). Part Four of Annex 4 sets them out. The key point is that Annex 8 to the Protocol – which, as I have said, consists of all EU State aid law – applies to the United Kingdom: Article 7(1).
But two features of this “GB regime” stand out and distinguish it from the “Northern Ireland regime” described above.
First, there is a general carve out for all UK agricultural support up to a maximum to be set by EU/UK agreement through the Joint Committee – Articles 7(2) and 8. Failing agreement, however, the carve-out is to be suspended (Article 8, last paragraph), which would appear to put the UK in a less than powerful negotiating position.
Second, and of more general interest, the powers of the Commission are to be exercised by the UK independent authority set out in Article 9 – which will be the Competition and Markets Authority (CMA).
Article 9 of Annex 4 then sets out what powers the CMA is to have. It is to be operationally independent and to have guarantees of independence. More startlingly, it is to have “powers and functions equivalent to those of the [Commission] acting under [EU State aid law]”. And its decisions are to produce in the UK “the same legal effects as those which comparable decisions of the [Commission] acting under [EU] State aid law … produce within the [EU] and its Member States.”
This is strong stuff. The Commission has powers to declare Acts of Parliament that confer State aid to be unlawful: and where that happens, they are of no effect. The CMA is, it appears, to have equivalent powers with the same legal effects. That would appear to give the CMA, which performs its functions on behalf of the Crown, the power to declare an Act of Parliament to be unlawful as inconsistent with the State aid rules set out in Article 8. This is, to put it mildly, a considerable constitutional innovation: a critic might go so far as to say that the CMA is to have the power to declare Acts of Parliament to be of no effect that it took a revolution and a Dutch invasion to remove from the hands of the Stuart Kings. On the other hand, of course, the Commission has (since 1973) had these powers as part of the UK’s membership of the EU: and these provisions could be seen as simply “bringing home” those powers.
Article 11 requires the UK Courts to enforce the standstill provisions in Article 108(3) TFEU, to review the CMA’s decisions, to enforce those decisions and penalise non-compliance, and to award damages for breach of Article 108(3).
The CMA is, however, not left to “get on with it” subject to the scrutiny of the UK courts. Article 10 requires it to liaise closely with the Commission: and it is required to send the Commission drafts of all decisions, and then take “utmost account” of the Commission’s opinion (which is to be given three months to opine, which will have the effect of slowing down State aid approvals during the backstop period). Finally, under Articles 13 and 14, the EU is to have power to take “appropriate remedial measures” if it considers that the UK’s application of the GB State aid regime “threatens to seriously undermine the conditions of competition between [the UK and the EU]”. The Commission will therefore retain significant powers to step in if it feels that the CMA is being insufficiently robust in preventing unacceptable State aid.
The backstop provisions are in many ways startling: but of course it is hoped that they will never be needed because the final relationship will resolve the Irish border problem. So we should look at what the final relationship has to say about State aid.
Paragraph 79 of the political declaration says: –
The future relationship must ensure open and fair competition. Provisions to ensure this should cover state aid, competition, … and relevant tax matters, building on the level playing field arrangements provided for in the Withdrawal Agreement and commensurate with the overall economic relationship. The Parties should consider the precise nature of commitments in relevant areas, having regard to the scope and depth of the future relationship. These commitments should combine appropriate and relevant Union and international standards, adequate mechanisms to ensure effective implementation domestically, enforcement and dispute settlement as part of the future relationship.
This is not particularly enlightening. However, the reference to “building on the level playing field arrangements provided for in the Withdrawal Agreement” does seem to indicate that the backstop model may serve as a starting point for discussion of the State aid provisions of the future relationship, though plenty of room is left for a looser relationship (as would seem appropriate if the future relationship excludes a customs union and is a form of “Canada plus”).
At the time of writing, predicting the fate of the withdrawal agreement is similar to predicting the fate of a small sailing ship about to be hit by a hurricane: its survival looks open to serious doubt, but is by no means out of the question. Possible alternative outcomes appear to include a referendum including an option to remain in the EU, application to join EFTA/EEA, or “no deal”. What does, however, seems to be tolerably clear is that the State aid rules will, in one form or another, continue to apply to the UK.
The Government has this afternoon laid regulations before Parliament to reform the UK competition regime in the event of a ‘no deal’ Brexit. The Competition (Amendment etc.) (EU Exit) Regulations 2019 (“Competition SI”), are accompanied by an Explanatory Memorandum and various pieces of short guidance from the CMA on its post-Brexit role (consolidated here).
Before anyone gets too excited, bear in mind that many of these changes may never be implemented if the Government (as hoped) manages to negotiate a deal with the EU. If there is a deal, there will be a transition period during which everything will pretty much remain as it is now and the Government may commit to keeping the UK and EU antitrust regimes aligned over the longer term.
But given that a ‘no deal’ scenario now appears more likely than previously anticipated, the Government’s plans are of considerable interest.
The various documents were only published this afternoon and there is a lot of material. A more detailed analysis will only be possible in the coming days, but below are a handful of headline points based on a (very) quick review.
Section 60 CA98
The most striking point is perhaps that the Competition SI will repeal s.60 of the Competition Act 1998 (“CA98”) in its entirety. Section 60 currently requires the Chapter I and Chapter II prohibitions to be interpreted so far as possible consistently with the approach under Articles 101 and 102. A number of groups (including the Brexit Competition Law Working Group) had recommended that s.60 be maintained in an amended form, for example so that it only required the CMA and UK courts to ‘have regard to’ the equivalent approach under EU law. A major benefit of this would have been to make it more likely that UK and EU competition law would continue to develop broadly in parallel, minimising the dual regulatory burden imposed on UK firms.
Under the Competition SI, however, s.60 is repealed in its entirety and replaced with a new s.60A which relates exclusively to EU court judgments and Commission decisions that pre-date exit day. There will be no legislative obligation on UK courts and decision makers to have regard to EU judgments or decisions that post-date exit day. In practice UK courts and the CMA might nonetheless choose to have regard to how equivalent issues continue to be treated under EU law, but they will need to reach decisions about the extent to which that is desirable for themselves.
Where UK courts are obliged to follow EU judgments that pre-date exit day, but not those that post-date exit day, an obvious problem arises, namely how UK courts should proceed when EU law has developed since the date of Brexit. This is a general issue under the EU (Withdrawal) Act 2018 (“Withdrawal Act”) which is not limited to the competition law field. New s.60A(7) proposes a solution, as it provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria, one of which is a post-Brexit development in EU law.
The other criteria include differences between UK and EU markets, developments in economic activity, generally accepted principles of competition analysis or the particular circumstances under consideration. These criteria are both wide-ranging and broadly expressed, and their interpretation is likely to be the subject of considerable debate in court. The Explanatory Memorandum is perhaps somewhat optimistic in stating that this provision “will provide UK courts and competition regulators with clarity as to how Chapter I and II are to be interpreted after exit”.
Other significant points
Other key points include the following:
- EU Commission decisions making infringement findings will no longer be binding after exit day for the purpose of follow-on actions in the UK courts. An important exception is that the transitional provisions will provide that the binding effect of Commission decisions that pre-date Brexit will be maintained, even if any appeals against them are only concluded after Brexit.
- A specified list of current EU block exemption regulations will be retained (renamed as ‘Retained Block Exemption Regulations’) but new EU block exemptions introduced after Brexit will not automatically be incorporated into EU law. The CMA and Secretary of State could potentially choose to copy across any new EU block exemptions into UK law using their powers under s.6 CA98.
- The default position under the Withdrawal Act is that substantive EU law in force the day before exit day will continue in force. However, the Competition SI will immediately revoke, among other provisions, Articles 101 and 102 and the EU Merger Regulation (“EUMR”).
- One consequence of this is that the CMA will have merger jurisdiction (where the domestic merger thresholds are met) even where the European Commission is investigating a merger under the EUMR.
- As a result of this, and also the need for additional action by the CMA to enforce the antitrust and state aid rules, the CMA is anticipating that it will need to carry out a lot more work, in particular on more complex cases. It is working with the Government on secondary legislation that will facilitate this and is increasing its headcount.
- As you might expect, there is a mass of transitional provisions.
As noted above, detailed consideration of these and the many other reforms in the Competition SI will need to wait. One initial observation, though, is that the Government’s power to make legislative amendments to the CA98 derives from s.8 of the Withdrawal Act – which confers powers on Ministers to remedy situations where retained EU law will not operate effectively or will be otherwise deficient after Brexit.
Precisely what counts as a deficiency is elucidated in s.8(2) of the Withdrawal Act, and thought will need to be given as to whether all of the amendments set out in the Competition SI fall within the scope of that provision. Based on this particular statutory instrument, however, the Government appears to be interpreting the scope of s.8 quite broadly. The Government has previously justified its broad s.8 powers on the basis that they are required to address situations where legislative provisions would ‘fall down’ on exit day – such as where they attribute roles to EU institutions that will no longer be co-operating with the UK post Brexit.
Many of the amendments in the Competition SI are broader than that. It would have been technically possible, for example, to retain s.60 CA98 unamended. There is no technical reason why UK courts and decision-makers could not remain under an obligation to interpret UK competition law consistently with EU competition law. One can see that might not be considered appropriate from a political and policy perspective post-Brexit, but interventions based on considerations of appropriateness could extend far beyond those required to remedy obvious legislative deficiencies.
This is far from an academic point, as s.8 of the Withdrawal Act will provide the legal basis for hundreds of Brexit related statutory instruments that will be placed before Parliament over the coming weeks and months. So far legal challenges relating to Brexit have largely concerned issues of high constitutional principle. We are about to descend into detailed legal thickets in every area touched by EU law.
Julian Gregory is an EU and competition law practitioner who assisted the Brexit Competition Law Working Group (including Jon Turner QC) with its report on the implications of Brexit for competition law.
The Government has today published 28 new planning documents explaining what will happen in the event of a ‘no deal’ Brexit, including this one covering the merger and antitrust regimes.
Some of the key points are as follows:
- The Government says that the only changes to the competition regime will be those necessary to manage Brexit, and they will be made through SIs under the EU Withdrawal Act 2018.
- The CMA and UK courts will no longer be bound to follow future CJEU case law. The Government is here presumably contemplating amendments to s.60 CA98.
- EU block exemptions will be maintained as parallel exemptions (with any necessary modifications, e.g. converting figures in euros to sterling).
- Businesses will need to seek their own legal advice as to the implications of Brexit for current EU merger and antitrust cases covering UK activities.
- Commission decisions that pre-date Brexit will continue to be binding as to liability in follow-on actions.
- Commission decisions that post-date Brexit will not bind UK courts as to liability. As stated, it appears that this will be the case even insofar as post-Brexit Commission decisions cover pre-Brexit conduct and agreements.
- If a claimant wishes to bring an action for an alleged breach of EU competition law that took place after Brexit, they will need to bring a standalone claim for breach of a foreign tort.
- UK companies may find themselves being investigated by both the UK and EU competition authorities (both for mergers and antitrust violations).
The proposed change to s.60 CA98 arguably goes beyond what is strictly needed to cope with Brexit. One could have taken the view that domestic competition law should continue to develop in parallel with EU competition law in order to minimise the additional compliance costs that will result from the two regimes substantively diverging. But this was presumably considered politically unpalatable.
Overall, though, the Government’s approach is to minimize the number of changes, consistent with its general approach under the Withdrawal Act, disappointing those who had advocated for more fundamental reform. The reality is there is no legislative time for this at the moment; any wider reforms will need to wait until things have settled down after Brexit.
These ‘no deal’ proposals assume there will be no Withdrawal Agreement. If there is a deal (as hoped), there will be a transition period until 31 December 2020 during which everything will (more or less) remain as it is now.
If the Government and EU also manage to reach agreement over the terms of their future relationship, some of the proposals for a ‘no deal’ scenario will never be implemented. Any longer-term deal will almost certainly put in place co-operation arrangements, for example in respect of mergers.
Further, a response paper published by the Government in March stated that “the Government may choose to commit some areas of our regulations, including competition and State aid, to remain in step with the EU’s”. This raises the possibility that the UK might ultimately decide not to make any significant amendments to s.60 CA98 and the current regime governing follow-on damages claims.