We still don’t really know where we’re going or when we’re going to get there, but with 29 March rapidly approaching it’s time to think about how contractual references to EU legislation will apply in the UK after exit day (whenever that may be).
Does it have direct effect?
Some EU laws have direct effect in member states without any implementing domestic law – for example, EU regulations such as the Market Abuse Regulation. Others do not have direct effect and only apply in member states as a result of domestic laws implementing the relevant EU law – for example, EU directives such as the Shareholder Rights Directive which is implemented in the UK via the Companies (Shareholder Rights) Regulations.
The EU Withdrawal Act confirms that EU law as in force on EU exit day will effectively be ‘frozen’ and ‘on-shored’ at that date. So a reference in UK law to:
- an EU Directive will be interpreted as a reference to that Directive as in force on exit day (ignoring any changes made to the Directive at EU level after that date); and
- an EU Regulation will be interpreted a reference to that Regulation as in force on exit day and as subsequently amended by UK domestic law.
So, it’s all sorted and you don’t need to do anything with your documents, right? Not exactly…
Dealing with private contracts
Recent guidance confirms that the on-shoring provisions of the EU Withdrawal Act apply to references to EU law in UK legislation but not to similar references in private contracts.
Why does this matter? Many contracts contain a standard interpretation provision stating that a reference to a law is to that law as amended or replaced from to time to time. If your contract contains this type of clause then any reference in that contract to EU law will be to that law as amended by the EU from time to time, even if those changes are not implemented in the UK.
So if, for example, a contracting party agrees to comply with the EU Market Abuse Regulation it may have to comply with changes made to that law at EU level even if those changes don’t actually apply to it because they are not implemented in the UK post-Brexit.
What should you do?
- Review your documents and contracts to see if they contain a reference to directly effective EU law.
- If so, amend the document to confirm that a reference to directly effective EU law is to that law as in force on EU exit day and as subsequently amended in the UK after that date.
Contracts are more likely to refer to EU law where they have a cross-border element: for example, a company supplying products to customers in multiple member states; or a bank lending money to a company with subsidiaries incorporated in several European jurisdictions.
But even purely ‘domestic’ documents may refer to EU legislation. For example, most company share dealing schemes will refer to the EU Market Abuse Regulation. So all documents should be checked for relevant references and updated where necessary.
In some exceptional situations the parties may actually want a reference to a particular piece of directly effective EU law to be to that law as amended by the EU after EU exit. For example, if a bank is funding a developer building housing in Greece, the bank may want the developer to continue to comply with EU environmental law in force in Greece after EU exit – that is, that law as updated or replaced by the EU from time to time.
In that case, the parties would need to ensure that the contract contains an appropriate interpretation provision so that a reference to that continuing EU law (but only that continuing EU law) includes any changes made to it after EU exit.