Legal consequences of the transition to a third country (affecting key areas of business law)

POSITION | EUROPEAN POLICY | BREXIT

Legal consequences of the transition to a third country (affecting key areas of business law) Challenges caused by Brexit

28 February 2018

Core Recommendations

There should be no cherry-picking on the British side with regard to the shape of the withdrawal agreement, transitional and future rules. The British must state very clearly now how they imagine the transition phase and the future trade agreement.

On the other hand, German industry has a strong interest in the greatest possible continuity in the legal framework. As the envisaged transition phase of less than two years will hardly suffice to bridge the period until a trade agreement enters into force, an option of an extension to the transition phase until the future agreement enters into force should be considered very intensely, at least unofficially. Such an option must not be ruled out prematurely. A sufficiently long transition period is of crucial importance for all core sectors of business law.

In competition, antitrust and state aid law, the exclusive competence of the Commission regarding the approval of mergers with EU-wide dimension and the EU rules on state aid law will cease to be applicable with respect to the United Kingdom. Insofar alternative solutions need to be identified. The future agreement should be oriented on EU law to the greatest extent possible.

In EU procurement law, Brexit will lead to the loss of reliable market-opening rules for the important British public sector market. The proposed withdrawal agreement for ongoing award procedures is welcome but is not enough. The future agreement should be oriented on the content of the EU directives on public procurement. To the extent that this is not possible, the agreement could be oriented on the respective provisions of CETA.

In company and insolvency law, Brexit causes many uncertainties, especially regarding businesses active in the German market and incorporated in the UK (in particular Limited) with headquarters in Germany. It has to be examined how future rules or derogations should be structured in this regard.

In civil and civil procedural law, Brexit will cause the cessation of existing rules of international civil law and civil procedural law as well as numerous EU regulations with respect to the United Kingdom. Insofar alternative solutions will have to be achieved.

In the area of consumer policy, Brexit could have significant consequences for both sides. It is in the interest of German business that future rules on consumer protection are contained in a bilateral agreement with the United Kingdom which should be identical to the relevant provisions of EU law to the greatest extent possible.

Coordination: Dr. Peter Schäfer | Law, Competition and Consumer Policy | T: +49 30 2028-1412 | p.schaefer@bdi.eu | www.bdi.eu

Legal consequences of the transition to a third country (affecting key areas of business law)

BDI Task Force Brexit The BDI is committed to supporting the Brexit negotiation teams with in-depth expertise in a number of areas of economic policy. In summer 2017, the BDI set up a Brexit task force together with its member organisations, company representatives and partners including the Association of German Banks (BdB), the German Insurance Association (GDV), the Federation of German Wholesale, Foreign Trade and Services (BGA), the Confederation of German Employers’ Associations (BDA) and the Association of German Chambers of Commerce and Industry (DIHK).

The BDI Task Force Brexit has established ten project teams to address specific policy areas: (1) Trade in Goods, (2) Transportation and Logistics, (3) Data and ICT, (4) Taxation, (5) Legal consequences of Brexit in core areas of business law, (6) Energy and Climate Policy, (7) Market Access, (8) Workforce Mobility, (9) Banking, Finance and Insurance, (10) Negotiation Process (including Northern Ireland, Research and Development, Defence, Financial Commitments).

The objective of the project teams is to identify the potential risks posed by the exit of the UK from the EU and to propose constructive approaches to countering these risks. The project teams are looking at the regulatory issues in the individual policy areas on the European and the national level.

The BDI is also a member of a similar task force at Business Europe, the umbrella organisation for European business. The work of the BDI Task Force Brexit will progress in line with the official negotiations.

This position paper is based on the background information developed by the BDI Brexit Task Force.

The views expressed in this position paper are those of the BDI and do not necessarily reflect those of the other members of the Task Force.

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Legal consequences of the transition to a third country (affecting key areas of business law)

Contents Summary of most important findings ............................................................................................... 4 1.

Competition, antitrust and state aid law ................................................................................ 6

1.1.

Merger control............................................................................................................................. 6

1.2.

Antitrust law ................................................................................................................................ 6

1.3.

State aid law ............................................................................................................................... 7

Annex to thematic area 1.1.-1.3.: Need for an exit agreement/transition period (applies for all abovementioned areas)................................................................................................................................... 7 2.

European and international public contracts / procurement law ........................................ 8

2.1.

Rules on public Procurement ..................................................................................................... 8

2.2.

Regime for procurement law remedies ...................................................................................... 9

2.3.

On the United Kingdom’s continued membership of the WTO Government Procurement Agreement ................................................................................................................................. 10

3.

Company and insolvency law ............................................................................................... 10

3.1.

Company law – Cessation of freedom of establishment .......................................................... 10

3.2.

Company law – Cessation of secondary and tertiary law ........................................................ 11

3.3.

Insolvency law – Cessation of procedural law and conflicts of law rules: issues of competence and recognition of court rulings based on the United Kingdom’s third-country status .............. 12

3.4.

Company law consequences for insolvency law ...................................................................... 12

3.5.

Issues linked to conflicts on material insolvency law................................................................ 13

4.

Civil law and civil procedural law (including aspects of consumer law) .......................... 13

4.1.

International private law............................................................................................................ 13

4.2.

International civil procedural law .............................................................................................. 14

4.3.

Regulations accompanying European civil procedural law which may disappear ................... 14

4.4.

Interference with the basis of the transaction ........................................................................... 15

5.

Consumer policy .................................................................................................................... 15

Imprint ................................................................................................................................................ 17

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Legal consequences of the transition to a third country (affecting key areas of business law)

Summary of most important findings Under the title “Legal consequences of the transition to a third country”, the following five central core themes of business law including consumer policy are examined: (1) Competition, antitrust and state aid law (2) European and international public procurement law (3) Company and insolvency law (4) Civil law and civil procedural law (including consumer law aspects) (5) Consumer policy.

Disregarding all details, the following core concerns can be summarised as follows:

On the one hand, there should be no cherry-picking on the British side with regard to the shape of the withdrawal agreement, the transition phase and the envisaged future trade agreement. After much time has been lost, the British must now state clearly how they imagine the transition phase and the future trade agreement in concrete terms.

On the other hand, industry has a strong interest in the greatest possible continuity in the legal framework. The EU side should therefore bear in mind – unofficially at least – that a transition phase of less than two years will hardly suffice to bridge the period until a trade agreement enters into force. Inasmuch, serious thought should be given to the option of an extension to the transition phase until the future agreement enters into force and this option should not be ruled out prematurely.

In all the areas mentioned, Brexit throws up numerous difficult questions and causes considerable uncertainties for companies. By way of example, the following aspects are addressed:

In the area of competition, antitrust and state aid law, the exclusive competence of the Commission regarding the approval of mergers with an EU-wide dimension will disappear with respect to the United Kingdom following Brexit, at least if no transitional solution is found.

Similarly, EU state aid law will also cease to be applicable vis-à-vis the United Kingdom in the absence of agreements which stipulate otherwise. In view of these wide-ranging changes, alternative solutions need to be identified. In all areas of competition, antitrust and state aid law, it is necessary to have a sufficiently long transition phase with complete continued applicability of EU law until a future agreement with the United Kingdom enters into force. The future agreement should be clearly oriented on EU law to the greatest extent possible.

In the EU procurement law, important market-opening rules would disappear for the significant British market if no agreements are reached. EU law taken over in British law does not offer a predictable substitute, since it could be amended easily, and the fall-back WTO rules (GPA) are less concrete than EU law. The withdrawal agreement proposed by the Commission for award procedures in progress is welcome but is not enough. The aim should be that the envisaged transition phase during which the status quo is maintained, lasts until the future trade agreement enters into force. The future agreement should be oriented on the content of the EU directives

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Legal consequences of the transition to a third country (affecting key areas of business law)

on public procurement. As far as this will not be possible, the agreement could be oriented on the procurement rules of CETA.

In company and insolvency law, too, Brexit causes many uncertainties, which are relevant for practice. For example, questions arise as to what would be the consequences for businesses active in the German market and incorporated in the UK (in particular Limited) with headquarters in Germany on the disappearance of freedom of establishment, since they would no longer be treated as limited liability companies under the “the real seat theory� which prevails in Germany.

Inasmuch, it should be examined how any future rules or derogations should be structured.

Here, too, a sufficiently long transition phase seems necessary.

In civil and civil procedural law, in the absence of other agreements, Brexit would cause the cessation of existing rules of international civil law and civil procedural law with respect to the United Kingdom, and numerous EU regulations would no longer be applicable. This would result in considerable legal uncertainties for companies executing contracts in cross-border situations.

Therefore, BDI claims for a sufficiently long transition phase also in this regard.

Also in the area of consumer policy, withdrawal from the EU could have significant consequences for both sides. For instance, EU citizens could lose some of their travel rights if they fly from the United Kingdom with a British airline. Britons, too, would have to expect that their European sickness insurance card which gives them simple access to local health systems in continental Europe would no longer be valid. It is in the interest of German business that any future rules on consumer protection are contained in a bilateral agreement with the United Kingdom which is identical to the relevant provisions of EU law to the greatest extent possible.

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Legal consequences of the transition to a third country (affecting key areas of business law)

1. Competition, antitrust and state aid law 1.1. Merger control Assumptions Brexit will lead to expiry of the “one-stop shop” principle in the area of merger control. This means that the Commission will then no longer have exclusive competence for the approval of mergers with an EU-wide dimension vis-à-vis the United Kingdom. As a result, numerous additional notifications can be expected also in the United Kingdom, albeit on a voluntary basis. This situation will lead to additional costs and effort for companies and there will be a risk of divergent decisions by authorities, for instance in the case of differing remedies commitments.

Measures With a view to avoiding or reducing the above-mentioned negative consequences, thought could be given to creation of a bilateral framework for parallel examination of mergers, e.g. with harmonisation of forms and coordination of commitments.

1.2. Antitrust law Assumptions Following Brexit, the United Kingdom’s Competition and Markets Authority (CMA) will no longer be a member of the European Competition Network. CMA and the Commission could subsequently impose parallel sanctions for the same competition infringement.

In addition, the antitrust ban in article 101 TFEU will no longer take precedence over British law.

Similarly, CMA and British courts will no longer be bound by rulings of the European Court of Justice.

To be on the safe side, leniency applications would have to be filed also with also in the United Kingdom following Brexit.

Regarding claims for damages in antitrust cases, the attractiveness of UK courts for bringing private antitrust damages claims will probably weaken: thus, rulings handed down by authorities and courts in the EU will no longer have a binding effect. Plaintiffs would in future have to prove an antitrust infringement themselves. Inasmuch, the Brussels I regulation would no longer be applicable. It is unclear whether antitrust damages arising in the EU could also still be prosecuted in the United Kingdom following Brexit.

Measures It seems a good idea to work towards a cooperation agreement to deal efficiently with procedures running in parallel. In this regard, it would be desirable to orient British competition law on the essential provisions of EU competition law also in the case of future developments. This applies, for instance, with a view to amendments to the EU block exemption regulations.

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Legal consequences of the transition to a third country (affecting key areas of business law)

1.3. State aid law Assumptions Existing EU state aid law will no longer be applicable in relation to the United Kingdom following Brexit.

The country will subsequently be bound only by WTO’s subsidy rules, which are less stringent than EU law. An enforcement mechanism will also be lacking in future. The consequence could be more generous state aid in the United Kingdom, linked to competition disadvantages for European companies.

Measures With respect to any future trade agreement with the United Kingdom, it should be borne in mind that several bilateral trade or association agreements concluded between the EU and third countries now comprise subsidy rules which mirror EU state aid law. Nevertheless, it should be remembered in this regard that enforcement of these rules is always left to the relevant competent national authorities.

It would be more advantageous to have a common jurisdiction and cooperation system inspired by EU state aid law to police this area (example: EEA).

Annex to thematic area 1.1.-1.3.: Need for an exit agreement/transition period (applies for all above-mentioned areas) In the interest of clarity and legal certainty, an exit agreement or a sufficiently long transition period is indispensable for all the above-mentioned areas.

Even though it is still probable that the United Kingdom will withdraw from the EU in March 2019 and that there will be no extension of the withdrawal period within the meaning of article 50 TFEU, creation of a transitional phase during which EU law – including ECJ competence for case law – continues to apply in full with respect to the United Kingdom certainly seems to be advisable in order to avoid or at least reduce serious problems for companies in the period between the withdrawal and the entry into force of a future arrangement. Inasmuch, the Commission’s 7 February 2018 proposal regarding the creation of a transition period is broadly and expressly welcome. Nevertheless, on the basis of all past experience with the conclusion of trade agreements, the envisaged length of the transition phase until the end of 2020 is hardly likely to suffice to bridge the period until the envisaged trade agreement with the United Kingdom comes into force. Hence, the possibility of an extension of the transition period until a future arrangement comes into force should be built into the deliberations from the outset and not ruled out prematurely – at least unofficially.

Irrespective of the above reflections on the intended transitional arrangement with full continued application of EU law, the following applies for any future rules after Brexit or after the end of the said transitional arrangement:

In any event, it seems important that future competence for the British aspects of antitrust investigations should be aligned as much as possible on EU law.

In addition, it is important to establish a competence for the enforcement of British obligations that require a constant monitoring, e.g. regarding the supervision of the enforcement of remedies or commitments in merger cases that are still pending after Brexit.

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Legal consequences of the transition to a third country (affecting key areas of business law)

Lastly, a clarification of appeal routes for cases during the transition phase is needed. The same applies for rulings handed down before Brexit or which are pending.

2. European and international public contracts / procurement law 2.1. Rules on public Procurement Assumptions In the area of public procurement, insofar as no agreements are reached, Brexit will lead to the disappearance of important market opening rules for the significant British public procurement market.

There is no predictable substitute for the EU law transposed into British law, since the latter can easily be amended without the EU being able to exert any further influence following Brexit or the end of the transition period. The remaining rules in the Government Procurement Agreement (GPA) of the WTO, of which the United Kingdom will continue to be a member, are markedly less concrete than EU law.

For the area of public procurement, the Commission has proposed a withdrawal agreement whereby tender procedures started before Brexit respectively the end of the transition period but still not concluded at the point of the United Kingdom’s withdrawal from the EU respectively the end of the transition period, would be pursued under existing law.

Measures (1) on the envisaged withdrawal agreement: The withdrawal agreement proposed by the Commission for public procurement in relation to the continuing applicability of EU law for tender procedures ongoing at the time of withdrawal respectively the end of the transition phase is welcome but does not go far enough. Also necessary is a transition phase with general maintenance of the status quo until the future solution enters into force (see below).

(2) on the intended transition phase: The transition phase envisaged by the Commission during which the provisions of EU law would continue to apply with respect to the United Kingdom until the end of 2020 is welcome. Nevertheless, by way of precaution, an option should be built in – at least unofficially – and certainly not ruled out prematurely whereby this period can be extended; because the envisaged future arrangement – provisionally in the form of a trade agreement – will very probably still not be able to enter into force by the end of 2020, due to the necessary ratification procedure if for no other reason. Even if the end of the transition period has hitherto been set at the end of 2020 in order to maintain pressure for rapid negotiations on a future arrangement, an extension of the transition phase until the future trade agreement enters into force should be built in. There would otherwise be a return to an uncertain legal situation, despite the transition phase, from its termination until the envisaged future trade agreement enters into force and a predictable transition from current EU law to the future law would be frustrated.

(3) on the shape of future legal relations: In the interest of legal clarity and simplicity, the future agreement between the EU and the United Kingdom should ideally completely take over the content of the EU directives on public procurement (similar to the application of EU law for countries of the European Economic Area – EEA). At the very

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Legal consequences of the transition to a third country (affecting key areas of business law)

least, the future law should be oriented to the greatest extent possible on the content of the EU directives. It would also be desirable, if difficult to achieve, for the competence of the European Court of Justice to continue in this regard. Insofar as a complete or far-reaching acceptance of EU procurement law cannot be achieved, it would be helpful for the future rules to be oriented on the provisions of the chapter on public procurement in the free-trade and investment partnership (CETA) concluded between the EU and Canada.

Above all, it is very important that procurement rules apply not only for awards at the level of the central government or central state but at all levels (central state/regions/municipalities), as is also the case under the EU directives. In this regard, creation of appropriate provisions for transparency and effective legal protection for cases where procurement errors occur is essential. In any event, the rules should go further than GPA, which is formulated much less concretely than the EU regime.

Should all efforts to arrive at a withdrawal agreement or an arrangement on future relations fail in the immediate future, all that could be done is to exert political pressure on the United Kingdom to refrain from amending the EU procurement provisions transposed into national British law so that the legal systems on both sides do not diverge further from each other and the possibility of a future agreement is not made more difficult.

2.2. Regime for procurement law remedies Assumptions Following Brexit and insofar as no different agreements are made, the EU directives on procurement law remedies will no longer have any effect with regard to the United Kingdom. As a result, the EU remedies for public contracts which are very important and effective structurally for market opening will disappear in the United Kingdom. Just as much as or even more than for material procurement law is the fact that the EU law transposed into British law does not offer a predictable substitute for EU law, since it can be amended unilaterally by the British side after Brexit or the end of any transition period.

Specifically in the area of remedies, which is already structured comparatively restrictively in the United Kingdom – within the predictable framework of EU procurement law – further restrictions could be put in place in the United Kingdom after Brexit. The remaining rules of the WTO Government Procurement Agreement also require remedies but the rules are less concrete than the provisions of the EU remedies directives.

Measures Regarding procurement remedies, what has been said about the EU public procurement directives applies accordingly, both for the envisaged withdrawal agreement and the intended transition phase as well as for the shape of future legal relations. Inasmuch, it is also the case that the envisaged transition phase should if necessary be extended beyond the end of 2020 until the entry into force of the arrangement on future relations between the EU and the United Kingdom.

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Legal consequences of the transition to a third country (affecting key areas of business law)

2.3. On the United Kingdom’s continued membership of the WTO Government Procurement Agreement Assumptions With the United Kingdom’s withdrawal from the EU, the country’s relationship with the other members of the WTO Government Procurement Agreement (GPA) needs to be reviewed and, if necessary, readjusted. In light of the United Kingdom’s withdrawal, the scope of the EU’s obligations might also need to be reviewed.

Measures With regard to the above-mentioned aspects, the 11 October 2017 joint letter of the United Kingdom’s and the EU’s WTO ambassadors to representatives of WTO Member States calling for a clarification of these questions in agreement with the other signatory states is welcome. From BDI’s standpoint, it is important that the United Kingdom remains a member of GPA and does not reduce its commitments in this framework. The United Kingdom’s continued GPA membership must not fall below the country’s current GPA market opening status.

3. Company and insolvency law 3.1. Company law – Cessation of freedom of establishment Assumptions British incorporated companies (in particular Limited, PLC and LLP) with registered office in the United Kingdom and main economic activities and administrative seat in Germany will no longer be treated as limited liability companies after the United Kingdom’s exit from the EU and the associated cessation of freedom of establishment (articles 49 and 54 TFEU). The reason for this is the “real seat” theory which is broadly applicable in Germany (by contrast with the “incorporation” theory supported by ECJ).

According to the “real seat” theory, the above-mentioned forms of incorporation will henceforth be regarded as “third-country companies” with unlimited liability of directors/partners.

Among German groups, a need for action is emerging in particular for those which comprise units incorporated as companies such as Limited Company (Ltd.) and Public Limited Company (PLC) or partnerships such as Limited Liability Partnership (LLP). Due to the absence of an effective limitation of liability, these would generally be classified as GbR (Gesellschaft bürgerlichen Rechts) or oHG (offene Handelsgesellschaft) under German company law.

European undertakings incorporated as Societas Europaea (SE) with registered office in the United Kingdom would lose their status (although they might wish to continue as a British company limited by shares), it would be necessary for German subsidiaries to rectify their register entries.

Measures Given the wide-ranging consequences for businesses – which could require affected companies to change their legal form or transfer their registered office from the United Kingdom to another EU country (cross-border transfer of seat) – the legislator should support companies. This makes the following steps necessary:

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Legal consequences of the transition to a third country (affecting key areas of business law)

For all companies affected, at least a grandfather clause for companies in existence at the time of Brexit should be requested. Amending the articles of association should only take place on the basis of an ex-nunc effect.

Possible transition or exemption rules should concentrate first and foremost on companies already in existence and enable a conversion via a previous capital increase into GmbHs (for Limiteds) and partnerships (for LLPs and PLCs) so as to ensure an appropriate legal succession.

The European legislator should allow for sufficient long transition periods measured in years for the eventuality of a “hard” Brexit so that British companies have sufficient time to adapt to German law.

The legal situation of British companies with headquarters in the EU should be governed via an agreement between the United Kingdom and the EU. To prevent legal fragmentation or a “race to the bottom”, the relevant agreements should under no circumstances be reached through bilateral agreements with the United Kingdom. At the same time, conflicts between legal concepts (“real seat” theory) should not be settled via an amendment of German law prompted by Brexit. General application of the “incorporation” theory would place UK companies on an equal footing with EU companies.

Insofar as the United Kingdom’s participation in the European Economic Areas (EEA) continues to be ruled out (articles 31 and 34 of the EEA agreement set out comparable provisions for freedom of establishment [articles 49 et seq. TFEU]), comparable provisions should be included in a free-trade agreement between the EU and the United Kingdom.

3.2. Company law – Cessation of secondary and tertiary law Assumptions With Brexit, secondary company law will no longer be applicable with regard to the United Kingdom.

This applies inter alia for the SE-regulation, directive on divisions of public limited liability companies, branches directive, cross-border mergers directive, directive concerning mergers of public limited liability companies, directive 2009/101/EC, second company law directive 2012/30/EU, market abuse regulation and also for tertiary legislative acts.

Measures From industry’s standpoint, the following should have priority in negotiations between the EU and the United Kingdom: SE regulation and cross-border mergers as well as cross border conversions.

Conversely, the EU should also encourage the United Kingdom to do the same so that EU companies continue to have access to the British market (reciprocity).

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Legal consequences of the transition to a third country (affecting key areas of business law)

3.3. Insolvency law – Cessation of procedural law and conflicts of law rules: issues of competence and recognition of court rulings based on the United Kingdom’s thirdcountry status Assumptions According to article 3 of the regulation (EU) 2015/848 on insolvency proceedings, the competence of insolvency courts under EU law lies with the Member State on whose territory the debtor has its “centre of main interests” (COMI).

Regarding the competence of German courts for initiating insolvency procedures in relation to the United Kingdom, Brexit will probably change little, since the EU insolvency regulation also applies with respect to rights in third countries (e.g. British creditor rights) according to the ECJ ruling in the 16 January 2014 “Schmid” case (C-328/12).

Against this, ipso jure British procedures will no longer be recognised in the remaining 27 Member States (cf. articles 19 et seq. Regulation (EU) 2015/848). In Germany, recognition is based on the principle of section 343 German Insolvency Statute (“mirror image rule”). However, according to the procedures set out in the Regulation (EU) 2015/848 (annex A: administration procedure, company voluntary arrangement (CVA) and winding-up), the recognition competence of British courts can be assumed also in the future.

Where the Regulation (EU)2015/848 is not applicable, recognition of the scheme of arrangement (SoA) is oriented on the Brussels-Ia regulation as transposed in section 328 German Code of Civil Procedure.

According to section 328 it has to for each individual creditor affected by the SoA whether the competence of the British court is in fact given (under German rules) so that instances of nonrecognition are conceivable.

In the reverse situation, too, procedures from the remaining EU Member States will no longer be recognised automatically in the United Kingdom. There – with the exception of Northern Ireland – the 2006 cross-border insolvency regulations apply. Sec. 426 IA regulates cooperation between courts in insolvency cases.

Measures The EU side should work towards successor rules being adopted as rapidly as possible in order for the EU’s relationship to the United Kingdom on questions of competence and mutual recognition for insolvency rulings to be legally certain.

3.4. Company law consequences for insolvency law The loss of recognition of the "Limited" as legal form resulting from the Brexit and the treatment as an individual undertaking (where there is one partner/director) or oHG leads to disappearance of the obligation to file for insolvency under section 15a InsO. The partner/director will be liable without limitation – also for old debts.

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Legal consequences of the transition to a third country (affecting key areas of business law)

3.5. Issues linked to conflicts on material insolvency law Assumptions According to article 7 para 1 of Regulation (EU)2015/848, the law of the Member State where the procedure was initiated is applicable, as also stipulated in section 335 German Insolvency Statute.

In exceptional cases, Brexit can have an impact on material insolvency law if the application of national conflict of law provisions (such as sections 343 et seq. German Insolvency Statute) to individual assets located abroad within the meaning of COMI refers to a different law from that which is currently the Regulation (EU)2015/848.

Measures In negotiations on the future rules on conflicts of law, the EU should expressly work against a predictable legal fragmentation through the application of national rules in the Member States.

4. Civil law and civil procedural law (including aspects of consumer law) Assumptions The exit of the United Kingdom from the EU leads to the disappearance of European rules in the area of international private and civil procedural law in relations between the EU and UK and vice versa and numerous EU regulations will no longer be applicable. This leads to considerable legal uncertainties for companies executing contracts in cross-border situations.

Withdrawal agreements should therefore be reached in the regulatory areas set out below:

4.1. International private law Measures An agreement which approximates very closely to continued validity of the Rome I regulation (determination of the law applicable to cross-border contracts) must be reached in the area of international private law. Should such an agreement not be reached, the older and still existing International Rome 1980 convention (whose content is broadly comparable) would be applicable.

However, the signatory states to this convention can withdraw individually so that there is no legal certainty in the long term.

In addition, an agreement must be reached on the continued validity of the Rome II regulation (conflicts of law in relation to non-contractual obligations) to prevent uncertainties. Because this regulation will disappear without substitute in the absence of an international convention.

Alternatively, the United Kingdom could sign up to UN convention on contracts for the international sale of goods (CISG). However, continued validity of the European rules would be preferable.

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Legal consequences of the transition to a third country (affecting key areas of business law)

4.2. International civil procedural law Measures An agreement which approximates closely to continued validity of the Brussels I regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and of the Brussels Ia regulation should be reached in the area of international civil procedural law.

These regulations are also of great importance for business, since they have simplified recognition and enforcement of judgements, improved rules on lis pendens and abolished the exequatur procedure as compared with the 1968 international Brussels convention.

Should no agreement be reached, the outdated 1968 international convention becomes applicable for the 14 remaining “older” EU Member States (including Germany) and the United Kingdom’s autonomous international civil procedural law for the other 13 “newer” Member States. This should be avoided for reasons of legal certainty. Accordingly, new rules must also be created here, since it would be better not to use the transitional provisions which exist for the regulation to enter into force analogously for the exit from force in the wake of Brexit.

Alternatively, the United Kingdom could accede to the 2005 Hague convention on choice of courts agreements. The disadvantage of this is that it applies only for choice-of-court agreements between companies.

In this regard, business would not endorse the United Kingdom becoming a member of EFTA and acceding to the 2007 Lugano convention. Because the disadvantage of the Lugano convention would be that the latter still comprises the exequatur procedure and the United Kingdom would not have the improved defence possibilities against the so called “Italian torpedo” - a tactical jurisdiction move which result from the Brussels Ia regulation. If it so wished, the EU could block the United Kingdom’s accession to the Lugano convention or stipulate that such an accession could not require the EU to allow an accession to the Brussels Ia regulation.

4.3. Regulations accompanying European civil procedural law which may disappear Measures A Brexit agreement should be reached which brings about a continued validity of the regulations accompanying European civil procedural law. In this regard, the following regulations on cross-border trade in particular are important for businesses:

Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters;

Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents), and repealing Council Regulation (EC) No 1348/2000;

Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims

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Legal consequences of the transition to a third country (affecting key areas of business law)

Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure;

Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure.

Alternatively, the United Kingdom could accede to international conventions which have hitherto been ratified by the EU on behalf of its Member States. For instance, the United Kingdom could ratify the Hague convention on the taking of evidence abroad in civil or commercial matters. The disadvantage is that this convention only applies in relation to 23 Member States of the European Union (including Germany). Furthermore, the United Kingdom could ratify the Hague convention on the service abroad of judicial and extrajudicial documents in civil or commercial matters; but this convention has not been ratified by Austria. Moreover, attention should be paid in this regard to the fact that the regulation on enforcement orders as well as the possibilities of the European payment and small claims procedures will disappear with respect to debtors in the United Kingdom.

4.4. Interference with the basis of the transaction Measures Business believes that an agreement should be reached in order to avoid the termination of framework contracts and long-term contracts within the rules due to interference with the basis of the transaction.

Such a legal consequence might occur, since Brexit could be interpreted as a far-reaching change of circumstances of the contract which the parties would not have entered into or would have entered into it with different contents if they had foreseen this change.

5. Consumer policy Assumptions The United Kingdom’s withdrawal from the EU could have serious consequences for both sides. Some examples: consumers in the United Kingdom could be hit by high roaming charges if they travel and telephone in the EU. Similarly, EU citizens could also see their travel rights restricted if they fly from the United Kingdom with a British airline. Britons, too, would have to expect that their European sickness insurance card which gives them simple access to local health systems in continental Europe would no longer be valid.

Measures (1) on a withdrawal agreement: Should the United Kingdom accede to the European Economic Area (EEA) following its withdrawal (which seems improbable on the basis of statements made by the British side), it would maintain full access to the single market: in return, it would have to continue to recognise and comply with all EU single market rules. Most consumer rights – e.g. guarantee periods or air passenger rights – would

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Legal consequences of the transition to a third country (affecting key areas of business law)

therefore be maintained after Brexit and there would be continuity for application of the relevant law. If continuity were to be maintained also without such further British inclusion in the single market, this can be achieved through a withdrawal agreement and/or an agreement on a transition phase – as now also intended by the EU side.

(2) on the intended transition phase: Negative consequences of a disorderly disappearance of consumer rights currently applicable in the EU with respect to the EU would be avoided through a transition period during which EU law continues to apply in full. Inasmuch, the Commission’s intention of having a transition phase with complete applicability of EU law in the United Kingdom until the end of 2020 is broadly welcome.

Nevertheless, given the probability of a longer negotiating period and ratification obligations, it should be built into the calculations that the prospective period until the end of 2020 might not be enough and, if necessary, should be extended until the future arrangement (trade agreement) enters into force.

(3) the shape of future legal relations: With a view to legal clarity and certainty, it is in the interest of German business that any future rules on consumer protection are contained in a bilateral agreement with the United Kingdom which is identical to the relevant provisions of EU law to the greatest extent possible.

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Legal consequences of the transition to a third country (affecting key areas of business law)

Imprint BDI – Federation of German Industries Breite Straße 29, 10178 Berlin Germany www.bdi.eu T: +49 30 2028-0 Editor Dr. Peter Schäfer T: +49 30 2028-1412 p.schaefer@bdi.eu

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