Brexit – the view from abroad
16th August 2016
How do professionals in other countries view the UK's decision to withdraw from membership of the EU and the potential consequences for business across the world?
We canvassed the opinions of professional advisers from across the world who, like Ward Hadaway, are members of Geneva Group International (GGi), the world’s leading multi-disciplinary alliance of professional services firms.
Here we present their thoughts on what Brexit could mean in the UK and around the world. For our Brexit guide, please click here.
To jump to a particular country, please click on the links below:
Switzerland – Brexit: no panic please
By Prof Teodoro D. Cocca, member of the Board of Directors at GGI
The economic consequences of Brexit for the population of the UK have so far been rather overestimated, while the political ramifications for the EU have arguably been underestimated.
Economic horror stories for the UK – of which there are quite a few at the moment – are circulating, although on closer inspection they are not wholly justified.
Following a shock event, unease on the markets can persist for a while, although calm will be restored once clarity is given as to how the process will now move forward. In particular, the contractual framework regulating ongoing relations between the UK and the EU will need to be clarified.
Given that both sides have an interest in finding a mutually beneficial solution, a scenario whereby the UK is isolated from European trade, a unilateral cutting of the cord as it were, is not conceivable.
Obviously, it may well be the case that some company withdraws operations from the UK, transferring jobs to continental Europe, but switching headquarters in this style is tied to a whole host of factors.
Moreover, when looking at the details, one will quickly note that, in terms of key location factors, Paris, Amsterdam and Vienna lack that certain
something offered by London, regardless of the fact that the newspapers are currently attempting to outdo each by spreading this notion. In a relative comparison, the few location factors in favour of continental European cities could well be eliminated by the weak pound.
Something which has been completely overlooked in the multitude of forecasts and predictions is, firstly, the reaction of the British government to this new exit scenario and, secondly, the reaction from the EU.
Let’s deal with the UK to begin with: given that the EU has always been somewhat of a sore subject for the British people, with implementation of
EU directives akin to being trapped in a corset, the polar opposite of British political tradition, Brexit represents something of a bid for freedom.
It will now be very exciting to observe the measures taken by the Government to support the role of London as a financial centre (a reduction in corporation tax has already been announced – ouch, London is already targeting the EU’s Achilles’ heel).
In doing so, the UK will benefit from its traditionally very liberal economic structure, which it can now implement without having to consider other EU member states.
London has now been afforded leeway: independent decisions regarding banking supervision can be taken, while there will also be greater autonomy in
fiscal and economic policy.
It is possible that London will choose to intensify economic relations with the USA, Asia and the Middle East.
Perhaps a completely different European model will successfully prevail over the next decade in northern Europe. That would not come as a complete surprise when one takes an objective view of the current state of the European Union.
Instead of wracking one’s brains considering the ramifications of Brexit for the UK, it seems to me that the potential consequences for the EU are far more alarming.
The EU now risks becoming less diverse (the UK certainly holds opposing opinions on certain European matters from time to time, serving only to enrich political discourse), less liberal (the remaining Italo-Franco-German axis guarantees a very state-orientated approach), less economy-orientated (in continental Europe this equates to a swear word), less influential (the UK is stronger militarily than the remaining EU member states), less affluent (the UK makes a not-insignificant financial contribution to the EU) and arguably less democratic (which government will now afford the electorate, who are oh-soeasily-manipulated with populist moves of course, increased opportunities to engage in democratic discourse?).
Some Europeans will now be watching carefully to see how well or, as the case may be, badly the UK fares outside of the EU.
It would be bad for the EU if the effects on the UK were not as negative as anticipated. From the perspective of the many EU sceptics – albeit not anti-European – within Europe, an even worse scenario would be if Brexit were not, finally, the catalyst for fundamental discussions within EU institutions.
This is my biggest fear.
Too much time has been devoted to offended politicians making scathing remarks about the UK.
In my opinion, it would be far better to take Brexit as a clear signal that this period should be used for critical self-reflection and consider a fundamental change of course with regard to EU policy.
The coming weeks are sure to bring increased clarity with regard to the political effects Brexit will have for the EU.
The key question for the capital markets is, in my opinion, whether or not Brexit will devastate the political landscape across Europe.
Without doubt, the European capital market is in a delicate state following the outcome of the referendum in the UK. Unpredictable aftershocks tend to
typically play a part in the formation of genuine crises, and as such the European markets would currently be particularly susceptible to such events.
In this regard, threatening storm clouds are arriving from the south. It is my opinion that investors should give more thought to the situation regarding Italian banks than to Brexit.
The “bad loans” of Italian banks are a powder keg. The fuse is smouldering. Should the unease on the capital market drift over to Italy, the fuse
could ignite, and we will look nostalgically back on the comparatively peaceful Brexit days of yore.
Prof Teodora D. Cocca is Professor of Asset Management and member of the Research Institute for Banking and Finance at Johannes Kepler University Linz and a member of the Board of Directors at GGI.
Australia – Brexit implications Down Under
By Steven Humphries and Danton Stoloff, McCabes Lawyers Pty Limited
Despite being 15,195 kilometres apart, Britain’s decision to leave Europe has been described by some as a ‘king hit’ to Australia.
Whilst Australia is unlikely to suffer any permanent scars from this blow, Australia will be forced to manage some pain and confusion over the foreseeable future.
Others are more upbeat. Brexit initially resulted in the pound depreciating to a 31-year low against the Australian Dollar (AUD) potentially making Australia a more attractive destination for skilled UK workers.
If sustained, it also makes imports comparatively cheap. Others refer to the opportunity for Australia to drive a hard bargain with the UK in upcoming bilateral trade negotiations and possibly return the trade relationship to its pre-1973 state.
Impact on Australia
The uncertainty surrounding Brexit has primarily impacted Australian financial markets where listed companies with UK exposure such as BT Investment Management lost up to 25% in value within one month of the Brexit announcement.
Politically, Brexit has come at a sensitive time. Australia will lose its mouthpiece inside the EU just as it commences the early stages of renegotiating a trade agreement with the EU.
Brexit also impacts the 1.5 million or so Australian’s with dual Australian/UK citizenship.
Many young Australians have been motivated to obtain British citizenship based on ancestry with one eye on access to the broader EU work market.
It has also impacted a large number of Australian businesses that use the UK as their regional headquarters, some of which may be motivated to relocate to mainland Europe.
Legal implications for Australian Practitioners
Currently, EU-wide IP protection is afforded to Australians through EUIPO registration. It is unclear what will happen to existing EU registrations after Brexit.
On one view, Australian IP owners currently registered under EUIPO may be required to refile their applications in the UK to maintain UK protection resulting in increased registration costs.
Validity questions may also arise over EU registered marks whose geographical use is specific to the UK.
Australian applicants seeking pan-European injunctive relief for IP infringement may now be required to initiate proceedings in the UK and EU separately which will increase enforcement costs.
Australian contracts that describe an underlying territory to be the “member states of the European Union” will need to be reviewed as the contract’s coverage may no longer include the UK despite initial intentions to do so.
At the time of writing, the implications of Brexit for Australia are only starting to emerge. Time will tell the extent to which it will be seen as a nuisance or an opportunity for the Australian economy.
Steven Humphries and Danton Stoloff are lawyers at McCabes Lawyers Pty Limited in Sydney.
India – Brexit opportunities for India
By Vijesh Zinzuwadia, Zinzuwadia & Co Chartered Accountants
We deal with many clients having trade relations between India and the UK and we believe that Brexit will have a favourable impact on the trade relations between the two countries.
Firstly, this is because UK has become independent for trade treaties from other EU countries. India and the UK can now agree on more favourable trade and tax treaties, considering India’s position as one of the countries with the most potential across Asia.
India and the UK also have very old and strong business relationships in many industrial sectors and lots of work has already been put into establishing and growing that relationship.
On top of this, Brexit would work as critical added value which may give strong momentum to the trade deals between India and the UK, provided the UK government succeeds in formulating favourable trade and tax treaties with India.
The Indian outsourcing industry will also flourish by having more opportunity to work with UK-based companies if Brexit results in fewer migrant workers from the EU coming to work in the UK, with outsourcing in India cost-competitive in comparison to outsourcing in other EU countries.
One of the key challenges which the UK needs to address post-Brexit is that currently lots of products are exported to UK for home consumption from India and then for further distribution to other EU countries, where in common trade treaties between UK and other EU countries were playing important role.
The UK needs to secure favourable common ground trade treaties with other EU countries to support such distribution or else the UK may lose certain business.
As the international financial hub for many countries, the UK plays a vital role to support trade deals between many countries. Again the key challenge for the UK post-Brexit would be to maintain the same status as an international financial hub so as to attract more and more trade deals between India and the UK.
Finally the interdependence of UK and other EU countries had been restricting the inherent growth of the respective countries and Brexit could now allow UK to grow by itself.
Hence, the investments inward and outward between India and UK would give more positive and organic results than the situation pre-Brexit.
The impact of Brexit from an Indian perspective
By Ashish Bairagra, Partner, ML Bhuwania & Co.
Just like every news and event brings its positives and negatives, Brexit has brought its own share of threats and opportunities.
The knee-jerk reaction of Indian businesses was initially very negative but the same businesses are now trying to dig out, with a microscope if I can say that, the opportunities that Brexit has brought from an Indian perspective.
Indian markets mimed the global market reactions and the pound fell by almost 11% in opening trades on June 23 but recovered almost 4% of it by the end of the day. Indian exporters who had unhedged pound exposure were staring at substantial reductions in their recoveries wiping out profit margins for many.
UK businesses that are invested in India were happy; a live example is a UK company who waited to repatriate their Indian profits and struck the exchange rate the day the pound fell, and it got them more pounds for every rupee.
Importers in UK will face increased prices for the same goods / services but the most significant impact will be felt by UK businesses, which served as the gateway into EU for Indian companies, especially in the wholesale and retail business segments, because Indian businesses will now have to split their business models into UK and EU which may impact employment, banking requirements and even tax collections for the UK.
UK businesses which are trading partners with Indian businesses will have to set up a business model which allows the Indian businesses to deal with one entity offering the seamless EU business model which existed before Brexit.
Given the fact that uncertainty will prevail, UK businesses may feel the need to hedge any open foreign currency exposures with India whether on the buy or sell side.
As wise men say, it is time to reap the profits and mitigate the losses!
Ashish Bairagra is a Partner at ML Bhuwania & Co Chartered Accountants in Mumbai, India
China – How Brexit could influence China
By Tony Shao, Horizon Group
The result of the referendum for the UK to leave the EU was a surprise to China.
Chinese enterprises may now face challenges in using Britain’s position as a gateway to expand their businesses in other European countries after Brexit as many of them use UK headquarters to cover their business in other EU countries.
British goods will also come into the Chinese market at cheaper prices after the Brexit – British products will be more competitive for those enterprises who would like to sell more UK products to China.
Sooner or later, the United Kingdom, if it wants to remain competitive, will follow in Switzerland and Norway’s footsteps to enter into free trade agreement talks with China after withdrawing from the European Union.
On a wider scale, the Brexit vote may point to the world lurching from an internationalist outlook towards more of a closed, fearful perspective.
It seemed like we were all taking down barriers and a bleak reading of the scenario is that it appears to be that the walls are going up again.
Brexit will influence China’s “Belt and Road” infrastructure initiative, which aims to develop economic corridors from China through Central Asia to Europe, and overseas investment, especially for those companies with a strategy of using UK as a gateway for doing business in the EU.
China’s number two, Premier Li Keqiang, who is seen as the economic brains in the Chinese Politburo Standing Committee, said that the prospect of Brexit was “adding to uncertainty in the world economy”.
Tony Shao is a Partner at Horizon Group
Austria – Brexit: an Austrian perspective
By Dr Andreas Weinzierl, Tramposch & Partner
The Austrian reactions immediately after the UK’s vote varied between calls to start our own ÖXIT (short for “Österreich-Exit”) campaign to speculations that Britain’s politicians will turn a blind eye on the non-binding referendum.
Austria is looking forward continuing its political and economical relationship with the UK, its 8th largest trading partner. For historic reasons, Austria is very well prepared to do business with non EU-member countries, as many neighbouring countries have become an EU member only recently (like Croatia), or will not join the EU in the near future (like Switzerland).
At the time Brexit enters into force, it will certainly have a huge impact on legal issues in cross border trade.
For example, the European single market will no longer cover the UK unless the UK joins the European Economic Area. Thus, British companies may consider setting up a foreign entity in Austria.
Basically speaking, the ‘real seat’ theory is applicable in Austria (unless suppressed by the EU law’s incorporation theory), meaning that the law of the country where the company has its ‘real’ seat (i.e. its management and control centre) is the law applicable to formation requirements and company relationships (Austrian Supreme Court’s decision 4 Ob 119/11w).
Consequences on taxes and dividends are very difficult to predict. Negotiations between the UK and the EU are to be awaited. Cross-border dividends and restructuring may be subject to debased conditions.
Tolls might lead to an increase on prices of imported goods and affect new contracts as well as existing ones. If tolls and maybe taxes increase prices on traded goods, this will raise the question of a right of early termination.
If Austrian law is applicable, every continuing obligation may be cancelled in case prolonging the contract is unacceptable. This right of early termination is granted even if the parties agreed on an irredeemable contract, but then only under rigorous criteria.
Under certain conditions, contracts may be adopted or even be void by mutual mistake or by fundamental change of circumstances. Even so, the right to challenge a contract by mutual mistake in case of non-foreseen tolls or taxes is only granted if the price calculation was part of the contractual negotiations (Austrian Supreme Court’s decision 9 Ob 194/98i).
Under certain conditions it may be wise to renegotiate long-term contracts to clarify these issues for both parties. Choice of law and forum will become more important and should be adopted in every new contract being closed. Austrian consumer protection law will have to be respected in B2C business.
In civil proceedings, British parties may be prompted to name an Austrian authorised recipient otherwise legal post may be serviced by deposition at court. Garnishment procedures are expected to become more complicated and time-consuming.
Another challenge for mutual future trade will emerge from data protection issues. Yet it has to be awaited if the European Commission classifies the UK as a secure or unsecure non-member state, the first being far more likely.
If the latter should apply, transfer of data will have to be approved by the Austrian data protection authority, which is usually granted under a list of standard terms and conditions.
The above mentioned issues are only a selection of possible legal challenges and more is yet to come. The negotiations between the UK and the EU might lead to changes in the given perspective. New issues may arise as well.
In any case we will be glad to guide people through the legal consequences in the best possible way so that despite Brexit, business with Austria will remain business as usual.
Dr Andreas Weinzierl is a Rechtsanwalte at law firm Tramposch & Partner in Vienna, Austria
Belgium – Brexit: the impact on courts in the EU
By Heleen De Brabandere and Denis Philippe, Philippe & Partners
One of the key questions when determining the impact of Brexit will be what happens to the legal framework which governs activities between the UK and the EU.
At the moment, judgements on civil and commercial matters are regulated by the ‘Brussels I Regulation’.
This provides that, besides some limited exceptions, “a judgement given in a Member State shall be recognised in the other Member States without any special procedure being required”. This makes enforcing cross-border judgments across the UK simple and relatively straightforward.
However, this will not apply to the UK any more once the country officially leaves the EU. The consequences of this will depend on the relationship the UK maintains with the EU once it has left.
If the UK joins the EFTA: Lugano Convention
The UK can negotiate to join the European Free Trade Association (EFTA), composed by the member states of the EU plus Norway, Iceland and Switzerland.
In that case, it can sign the Lugano Convention of 2007, which will treat the questions of determination of jurisdiction and enforcement of judgements in civil and commercial matters. This is the extension of the Brussels I Regulation to the EFTA states.
At first sight, the consequences of Brexit on these two aspects of private international law will be very limited if the UK signs the Lugano Convention.
However, this Convention is not affected by the Brussels I Regulation. Therefore, besides some other small differences, the ability to enforce foreign judgements has not been abolished for those states yet which is an important nuance we will have to keep in mind.
If the UK does not join the EFTA
If the UK does not join the EFTA, the impact on free movement of judgements will be considerably more important.
To ensure the enforcement of UK judgements in the EU or EU judgements in the UK, treaties will have to be negotiated between them.
However, it is not certain if negotiating about free movement of judgements is currently one of the EU’s priorities, considering the other important issues that are still uncertain at the moment (free movement of persons, free movement of goods, etc.)
In the absence of such treaties, the UK will either have to implement the same rules in its national law, or fall back on the rules applicable before it became part of the EU. Therefore, judgements will have to be enforced in each country separately on the basis of its national rules.
The application of different national rules and the complexity resulting from this plurality could have a negative impact on the international attractiveness of the UK courts and may prove to be a benefit to the other EU member state courts.
Other Regulations on the enforcement of judgements
A few other EU Regulations need to be mentioned if we talk about the judicial consequences of Brexit.
The Regulations on the European Enforcement Order of 2004 and on the Order of Payment of 2006 are also very important, since there currently does not exist any non-EU equivalent on those matters.
Both these instruments provide a simplified procedure for cross-border (monetary) claims which are uncontested by the defendant, based on standard forms.
If they cease to apply once the UK is not part of the EU, the UK can decide to either implement those rules in its national law (which is rather unlikely), or its own rules and negotiate bilateral treaties with other countries.
This will increase the complexity of the procedure of enforcing judgements between countries.
Also the “Evidence Regulation” of 2001, which helps EU member state courts cooperate on obtaining evidence, will have an impact on the judicial procedure of enforcement of judgements.
If this Regulation ceases to apply to the UK, it can fall back on the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters of 1970 in its relationship with the contracting states of this Convention.
This instrument facilitates the exchange of evidence by means of letters of request and by diplomatic or consular agents and commissioners.
In its relationship with non-contracting states, the UK can create similar or different rules in its national law, or negotiate cooperation agreements with those countries.
Analysing the future impact of Brexit is a difficult exercise in this early stage.
A lot of questions are not answered yet and all will depend on the agreements that will be negotiated between the EU and the UK.
Those negotiations will not be easy. Chancellor Angela Merkel has already announced that the UK cannot get the same privileges as before without accepting the principles and obligations.
What does all this mean for things like commercial contracts? Considering what is said above, it is important to note that caution is advised concerning contractual relationships.
A good thing would be to reconsider and renegotiate some contractual clauses that are UK-related, such as choice of law or jurisdiction provisions and clauses relative to territorial application of the contract.
Heleen De Brabandere and Denis Philippe are from Philippe & Partners law firm, which has offices in Belgium, Luxembourg and France.
United States: Watch and Wait
By Holly A. Dyer, Foulston Siefkin LLP
Here in the United States, we are watching and waiting. As of writing, the Brexit referendum is over, but there has been no actual exit from the EU. When it will happen is simply not known and could take months or years.
But that doesn’t mean that US lawyers and their clients are not trying to prepare for Brexit. It obviously could have far-ranging consequences, touching many areas of the law and international business relationships, including, but by no means limited to, basic contracts, trade, data privacy, intellectual property, pharmaceuticals, financial services, tax planning, insurance, even the gaming industry.
The potential financial impact of Brexit to both countries cannot be overstated. According to the US Bureau of Economic Analysis, majority-owned US multi-national enterprises (or “MNEs”) based in the UK had sales of $643 billion in 2013.
Some of these businesses are anticipating negative fallout from Brexit. Ford Motor Company recently estimated that Brexit could negatively impact its business by $400 to $500 million each year.
Concerns include the potential for new cross-border tariffs and whether companies can continue to use the UK as their gateway to the EU, impacting both location and the jobs of thousands of employees.
In other respects, the impact of Brexit on US business will depend on how much the UK ultimately diverges from EU laws and treaties. For example, even if the UK exits the EU, it might nevertheless join the European Economic Area. As such, it could remain subject to certain EU legislation.
US companies and their lawyers will be looking at all aspects of their business that could be affected by Brexit.
Questions that companies may ask themselves include:
- What new regulations will I have to follow?
- Will I still have to comply with the GDPR or other privacy regulations?
- How will Brexit influence employment at my UK facilities?
- Can I keep my European base in London or will I have to set up shop elsewhere in Europe?
- Will my EU Trademark be valid in the UK?
- How will Brexit impact my supply chain?
- Do I need to update my supplier terms and conditions or other contracts?
These are questions that cannot yet be answered definitively (although a company would do well now to review all existing agreements to determine Brexit’s possible effect).
In sum, it is difficult to estimate or fully appreciate the impact that Brexit will have on US businesses and lawyers.
Perhaps the biggest challenge right now is navigating the limbo that exists, and will continue to exist, until Brexit becomes a reality.
This climate of uncertainty makes planning for the near future extremely difficult. We plan to watch, wait, and be flexible as developments unfold.
Holly A. Dyer is a Partner at law firm Foulston Siefkin LLP in Wichita, Kansas, USA
Germany: Brexit – some thoughts from the German perspective
By Dr Karl Friedrich Dumoulin, FPS Law
The vote of UK citizens in the referendum to leave the European Union will have considerable not only political and economic but also legal impact on businesses in the EU member states as well as in the UK.
This article (far away from claiming to cover all or only all material issues in this context) will pick out some aspects which should gain importance to companies doing cross-border business from the UK into the EU and vice versa.
In the field of distribution law, Brexit may in future allow companies to exclude post-contractual compensation claims of an agent, minimum periods for cancellation or the claim for an extract of the accounts.
EU law contains a harmonised minimum level of protection of agents. In the area of product compliance, it is a totally open question whether permits in the UK for distribution of certain products (e.g. in the area of pharmaceutical, medical products, automotive, etc.) will be recognised within the EU or whether new, lengthy and costly application procedures in order to obtain such permits within the EU will have to be initiated.
Vice versa this applies also to companies from EU member states exporting their products into the UK and having done so previously on the basis of a permit from another EU member state.
Supply contracts could be affected if customs are reintroduced between Germany and the UK in future. Depending on the adverse consequences on a contractual party, this might even result in a right to amend or even terminate a supply contract, although this according to general principles is restricted to extreme situations.
With respect to labour law it will be highly interesting to see what the outcome of the negotiations concerning the freedom of services will be.
In light of company law, one main issue will be that the freedom of establishment will no longer be applicable between the UK and the EU.
The incorporation of a UK Ltd company with a business seat in another EU member state in future will only be possible if the negotiations will bring about an agreement whereby in relation to the UK the so-called incorporation theory will be acknowledged.
As regards M&A it should be noted that with Brexit, the so-called Rome I Regulation on the law applicable to contractual obligations will no longer be applicable.
On the other hand, this regulation mainly codifies current practice so that there should not be very significant changes in this field of law.
An interesting question, which still has to be discussed, is whether the outcome of the referendum qualifies as a material adverse change (MAC). This will have to be considered on a case-by-case basis.
In civil litigation the so-called Brussels I Regulation will no longer be applicable. This regulation governs the international competence of courts of the member states of the EU, the mutual recognition of court decisions as well as their enforcement.
It remains to be seen what the content of an agreement will be that is likely to be negotiated between the UK and the EU in that field of law.
In the absence of any agreement, national law of each member state would govern these issues, to be considered separately for any links with the UK to that member state of the European Union.
In the finance sector, credit institutions and other financial institutions will no longer benefit from the so-called “Euro Pass” allowing those entities based on their permit in the UK to provide services into other EU member states merely on the basis of a notification of the intention to do so to the supervisory authorities of that member state.
Vice versa this applies also to credit institutions and financial institutions doing cross-border business from the EU into the UK.
Against this background, UK businesses in this field should consider setting up a subsidiary in an EU member state in order to benefit in future from the so-called “single license principle”.
In the field of IP law, Union Marks will no longer take effect in the UK, unless stipulated otherwise in a treaty between the EU and the UK. Therefore, the legal effect on registered Union Marks is uncertain.
The same applies for the issue of priority. The questions are similar for Union Designs. In consequence of this, the question will also arise whether under license agreements for the “territory of the EU” Brexit possibly triggers a special termination right or at least a claim for renegotiation of license fees.
Data protection law will also be affected by Brexit. Once the UK is no longer a member state of the EU it might possibly be considered as an “unsafe harbor”.
Companies with a seat in the EU transferring data to the UK will have to review and possibly amend the data protection agreements with UK counterparts.
If the target state (= UK) does not guarantee an adequate level of data protection, companies in the EU could face sanctions from the data protection authorities in their country.
In summary, Brexit will raise a number of legal questions. However, I am convinced that – contrary to what is sometimes published in the media – at the end prudence will prevail and most of these questions will be dealt with in a fair and adequate manner in the “Brexit treaty” between the UK and the EU.
The remaining questions will then hopefully prove to be containable and resolvable according to the general principles of law developed for comparable fundamental changes of business basis in history.
Companies will be well advised to contact pro-actively their legal advisors in order to minimize costs in this context.
Dr Karl Friedrich Dumoulin is Rechtsanwalt at FPS Law, which has offices in Berlin, Dusseldorf, Frankfurt am Main and Hamburg.
Italy: A Challenging Uncertainty
By Parma Paloa, PALMER Studio Legale
The outcome of the Brexit referendum in Italy has been largely perceived as unexpected, though, clearly, everybody knew that it was a possible outcome.
So, the first widespread reaction has been surprise followed by a bit of worry caused by the first negative reaction of the capital markets; then, Italians have settled on the feeling and understanding that nothing will change forthwith and that most will depend on which legal framework will be applied to the relations between the UK and the EU member states, including Italy – which it is still difficult to predict.
Uncertainty is currently the password to thinking about Brexit, but an uncertainty which means also challenges and chances.
The main challenge for the European Union is to be able to positively cope with the criticism which the UK Brexit vote implies and triggers, becoming a more flexible and efficient institution able to highlight and improve the enormous positive potential of the single market, free movement of workers, goods and services.
This is not seen in Italy as being against the UK but rather as potentially leading to maintaining a close relation with the UK (i.e. something closer to the EEA model , or the EFTA model, than other approaches).
In any case, the Italian business community is eager to preserve, protect and improve its economic relations with the UK, both in-bound and out-bound ; Milano and the Italian North –West area, certainly the most advanced business location in Italy in terms of industrial, commercial and financial development, infrastructures (transportation etc), educational environment ( Universities and research centers of excellence etc) and, last but not least, Italian lifestyle, is in pole position for exploiting the opportunity of offering to UK enterprises and institutions a EU home for some of their activities.
I am thinking, for instance, of the Milano offer as the seat for EBA and EMA, the possibility that the EXPO area becomes a tax-free zone for investments especially in the research and technology sector, the tax incentives already enacted in Italy for R&D activities, the simplified process of incorporation of business in Italy , the opportunities provided by the real estate market in Milano both in the new archi-star developments and in the older fascinating buildings of downtown Milano ( for residential and business purposes) as well as in the surroundings for industrial purposes.
I would suggest UK entrepreneurs wishing to prepare for a scenario where they could not avail themselves anymore of the legal/financial passporting to the EU member states to actually consider Italy and especially the Milano area as a destination for relocating part of their activities as well as the joining of Italian business partners based in Italy.
I would also recommend to UK entrepreneurs having in place long terms contractual relations with Italian parties to check said contracts from the point of view of the possible impact that the exit of the UK from the EU may have on same (I am thinking of force majeure/hardship/frustration clauses and circumstances) and to be ready to a fit renegotation.
To those on the edge of entering into agreements with an Italian party I would recommend to consider that once the UK will be out of the EU a UK party might not have available the easy path of mutual recognition and direct enforcement of judgements throughout the EU, in case of litigation.
This should lead to appreciate also the Italian jurisdiction as a selected forum; in fact, notwithstanding the unfortunate, quite common, view that Italy is not a good place to litigate, the Milan Courts, including a highly specialized Enterprise Tribunal (competent for corporate/ business/financial matters), are very skilled and efficient.
This should also lead to consider Milano as the seat of arbitration, taking into account that the arbitral award shall be enforceable pursuant to the New York Convention and that, according to Italian law, once decided by the arbitrators, a cross-board litigation shall not be examined in the merit by the Italian Courts not even when the award is challenged in Italy (annulment claims and the like).
Parma Paolo is a partner at PALMER Studio Legale, which has offices in Milan, Bologna, Venice and Geneva
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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