28.01.2021

The future after Brexit - a legal analysis of the Trade and Cooperation Agreement

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In our "Brexit section" we inform you about the latest developments regarding the withdrawal of the United Kingdom from the European Union and offer you constantly updated information on the areas of law concerned.

Introduction

A long road

In the referendum held on 23 June 2016, the people of the United Kingdom of Great Britain and Northern Ireland voted by a majority of 51.89% to withdraw from the European Union. Now, more than four years later, the final separation has taken place. However, when looking at the present Trade and Cooperation Agreement it becomes clear that many aspects still remain unresolved or insufficiently regulated.

It took until 31 January 2020 for the United Kingdom to leave the European Union. The close economic ties lasted even longer: until 31 December 2020, the United Kingdom remained bound by the rules of the European Union as part of a transitional phase to ensure cross-border trade during the negotiations for a free trade agreement.

"We finally have a Brexit deal"

The news that agreement had been reached on the Trade and Cooperation Agreement between the European Union and the United Kingdom at the last minute on Christmas Eve 2020 was preceded by years of diplomatic negotiations. The eleven-month transition period was used until almost the last day, and there were numerous occasions where it seemed as if the UK would leave the EU without any deal, leading to a so-called "no-deal Brexit" without an orderly transition. In particular, the arrangements concerning fair competition, fishing in UK waters and the creation of a dispute resolution mechanism were highly controversial in political terms. Looking at the outcome of the negotiations, it is clear that the UK has accepted cuts to its own economy in its quest for sovereignty.

Despite its 1,449 pages (in the English version), the Trade and Cooperation Agreement lacks regulations for a number of essential aspects of economic cooperation. The regulations in the field of services are very basic. This is particularly evident in financial services, which are of particular relevance to the UK economy. Cooperation in this area is to be regulated in detail in another agreement in the future. The same applies to aspects of cross-border data transfers with further transitional rules.

The core of the Trade and Cooperation Agreement is the avoidance of customs duties and import taxes as well as quantitative restrictions on cross-border trade. However, this should not obscure the fact that there will nevertheless be increased bureaucracy in the handling of cross-border trade, as there will be new declaration rules and requirements.

These examples alone show that it is worth taking a close look at the new and future conditions for economic relations between the European Union and the United Kingdom.

Our advisory services

Our teams of Luther experts have extensively studied the Trade and Cooperation Agreement between the European Union and the United Kingdom and have compiled their findings in our Brexit brochure. Detailed assessments of each area of law can be found in the menu bar below. In addition, our expert teams will be happy to advise you individually on the consequences of Brexit for your company.


Your central contact person: York-Alexander von Massenbach

Latest information and downloads
Antitrust law

As a result of Brexit, EU antitrust law and UK antitrust law now stand side by side without any connection. This applies not only to the substantive rules (even if they are, still, likely to be largely the same), but also to their enforcement by authorities and courts. The Trade and Cooperation Agreement between the EU and the United Kingdom does little to change this; it simply states that each party will maintain a competition law which effectively addresses anticompetitive business practices. It contains only very few regulations on antitrust law and these are rather declarations of intent and are irrelevant for companies as long as no provisions for their actual transposition are in place.

Merger investigation procedures will run independently. They follow different rules and may lead to different results. Approval of mergers by the European Commission no longer has any effect in the United Kingdom. The Trade and Cooperation Agreement deliberately does not contain any provisions in this respect.

Enforcement of cartel damages claims has been made more difficult by Brexit because UK courts are no longer bound, for the purposes of proving the cartel infringement, by the EU Commission's (or another cartel authority's or EU Member State court's) decision on a fine. On the other hand, the courts in the EU are no longer bound by a corresponding UK decision. As regards the jurisdiction of the courts and the recognition and enforcement of judgments in relations between the EU and the United Kingdom, reference is made to the section on "Legal disputes - Ordinary courts and substantive civil law". In summary, the courts of the remaining Member States (continue to) apply Regulation (EU) no 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels I Regulation (recast)”) in this context, whereas the courts of the United Kingdom apply their national law.

In antitrust proceedings relating to fines, the EU and the United Kingdom have in the past acted in concert with each other. This is now becoming more difficult. In particular, the UK will no longer be required to allow a summary application in the case of cross-border antitrust infringements, as provided for in the Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market (“ECN+ Directive).

Moreover, the implications for the future antitrust assessment of distribution agreements restricting trade between the EU and the UK are as yet unclear. In particular, it will be necessary to clarify whether the United Kingdom's withdrawal from the internal market increases the scope for such agreements. Irrespective of whether they wish to change their distribution policy in this respect, companies should check whether the existing wording in the contracts, which so far often refers to the EEA (which no longer includes the United Kingdom), still accurately describes the distribution territories.

The UK Competition and Markets Authority (CMA) has increased its staff. Especially in recent times, it has underlined its commitment to maintain a high level of competition protection with its activities in enforcing competition law and its press communication. Companies may therefore not expect undreamt-of new possibilities under antitrust law simply because the EU Commission no longer has (shared) responsibility for enforcing antitrust law.


Contact: Anne Wegner, Helmut Janssen

Banking and capital markets

Financial market regulation

Under the EU Markets in financial instruments directives, certain credit institutions and financial services firms, as well as payment institutions, benefit from a "European Passport"; i.e. these institutions can also use their authorisation in one Member State, after notification, to provide services in other Member States (either by way of cross-border provision of services or through a branch).

Following the United Kingdom's withdrawal from the EU and the expiry of the transition period on 31 December 2020, the United Kingdom will be treated as a third country for financial market regulation purposes. As a result, from 1 January 2021, institutions established in the UK will no longer be allowed to operate in the European Economic Area on the basis of the European Passport. The provisions of the Trade and Cooperation Agreement negotiated between the EU and the United Kingdom in December, which has been provisionally in force since 1 January 2021, are of limited relevance. In future, the rules under EU supervisory law or the provisions of the United Kingdom will apply where no equivalence decision has been taken, such as in the case of central counterparties ("CCPs"). The UK could use Brexit to introduce less stringent regulations in its own market and thus attract more business to the country. In relation to the remaining EU Member States, however, such a strategy is unlikely to be successful. This is because, with regard to third countries in the area of financial market regulation, the EU has so far always been strict in allowing facilitated access to the EU financial market only if the third country's level of supervision is equivalent to that of the EU. Even if the third country's level of supervision can easily be classified as high, the regulatory treatment of financial market transactions or projects with such third countries up to now remains difficult. Financial firms from these third countries (especially the USA, but also Australia) have so far attempted to overcome the problem through EU-licensed subsidiaries based in London.

Currently, financial firms wishing to continue operating in the European Economic Area have no choice but to relocate the company to a Member State of the European Economic Area (e.g. Germany, with a registered office in Frankfurt, which is one of the leading financial centres in continental Europe) or to establish a subsidiary in the European Economic Area in order to subsequently apply for an independent licence for the company or the subsidiary. This could then be used throughout the EU again.

Contact: Ingo Wegerich, Dr Rolf Kobabe

 

Capital markets law

Prospectus law has so far been largely uniform throughout the EU on the basis of a regulation and directive. In addition, since 21 July 2019, the new Prospectus Regulation (Regulation (EU) 2017/1129), which replaces the Prospectus Directive, has been directly applicable in the EU and thereby further harmonises prospectus law across the EU. Among other things, this introduces a new simplified prospectus format for small and medium-sized enterprises (SMEs), the so-called ‘EU Growth’ prospectus, implementing the Capital Markets Union, and provides in particular for significant changes in the summary and presentation of risk factors. In the case of an issue, there was the option of also using a prospectus in the UK by means of a notification (EU passport). This option will cease to exist upon withdrawal and so in future the listing on the regulated market and the public offering of securities by an issuer in the United Kingdom will require independent prospectus approval by the UK securities regulator. The format of the prospectus and the content of the prospectus may also be different in the United Kingdom in the future - depending on what the United Kingdom will provide in the future. The privileged treatment of employee stock option plans under prospectus law will also no longer apply without further ado to eligible employees in the United Kingdom and so additional auditing work will be required here in any case.

The same applies to the fund industry with regard to the distribution of fund units, the safekeeping of fund assets by national depositories and the management by capital management companies.

Contact: Dr Jörgen Tielmann, Ingo Wegerich

Corporate law

The Trade and Cooperation Agreement between the European Union and the United Kingdom provides that investments (in particular, shareholdings) in companies belonging to the respective other jurisdiction (i.e. the UK or the EU) shall be permitted and that protectionist barriers in this respect shall not be allowed.

However, the Trade and Cooperation Agreement does not address key legal issues of corporate law, first and foremost the expiry of the freedom of establishment. Only if a bilateral agreement is concluded with the UK could the freedom of establishment for UK companies, which they were entitled to when the UK was a member of the EU, be revived.

In the absence of such arrangements to fill this gap, cross-border mergers, changes of legal form and spin-offs involving British companies are, for the time being, no longer possible, or only possible to a very limited extent.

Due to Brexit and the previous regulations, European Companies, also known as SE, with their registered office in the United Kingdom lose their legal basis. They now have the legal form of a so-called UK Societas, whose regime largely corresponds to that of an SE (e.g. minimum capital of the equivalent of EUR 120,000.00; admissibility of the both the one-tier and two-tier management system, etc.). Under UK law these companies may also change their legal form to a Private Limited Company.

From now on, the formation of a UK Ltd., which has been very popular until very recently, with its administrative seat in another EU Member State will only be possible if new - currently non-existent - regulations were to follow up on the old rules and provide for recognition of the so-called formation theory.

For the time being, despite the Trade Agreement of 24 December 2020, the above-mentioned regulations are missing now. As a result, British legal forms are no longer recognised in Germany due to the fact that freedom of establishment in the European Economic Area no longer applies to the UK. This has the consequence that a British Private Company Limited by Shares (Ltd.) would have to be treated in Germany - depending on the number of its shareholders and its entry in the German commercial register - as a sole trader, civil law partnership (Gesellschaft bürgerlichen Rechts, GbR) or general partnership (Offene Handelsgesellschaft, OHG) according to the domicile theory, which results in unlimited personal liability of the shareholder(s) or partner(s). As of January 2020, this affects around 6,000 Ltd. Companies and numerous companies in the mixed legal form of Ltd. & Co. KG in Germany.

In order to be a limited liability company under current law, the Ltd. company under UK law would therefore have to be converted to a legal form with limited liability under German law.

In order to achieve this goal, various options for action can be considered: an asset deal, a so-called accretion and - to a limited extent (i.e. provided that the merger plan was notarised before 31 December 2020, section 122m of the German Transformation Act (Umwandlungsgesetz, UmwG) - a cross-border merger (for more details see the following blog post).

It is not certain yet whether the transfer of a registered office from the United Kingdom to Germany is possible while at the same time changing the legal form to a German company. What is certain however, is that an entrepreneurial company with limited liability (UG (haftungsbeschränkt) under German law is not a permissible legal form of target company in this context. There are no statutory regulations on such a cross-border change of legal form. German case-law has so far recognised such a possibility only for intra-EU cases. It seems that the prevailing opinion in the legal literature therefore rejects this possibility for cases involving non-EU Member States a company wishes to move to or wishes to leave.

Considering re-establishing the company as a Ltd. company in another country, such as Ireland, Malta or Cyprus, is also an option. Liquidation of the Ltd. and the subsequent new formation of a German company would also be possible.

The final choice of one of these courses of action must be made in the light of all the circumstances of the individual case. Relevant factors for the decision include: the respective minimum capital required, tax burdens to be incurred, and fundamental questions of cost and effort involved in the respective form of transfer.

 

Contact: Dr Stefan Galla, Dr Philipp Honisch

Data protection law

Protection of personal data and privacy

In the "EU-UK Trade and Cooperation Agreement", the EU and the United Kingdom stipulate that cross-border data transfers between the United Kingdom and the EU will be subject to a transitional period during which the United Kingdom will not be treated as a third country for data protection purposes for the time being, but will continue to be treated as an EU Member State. This shall apply until the date on which the European Commission has issued an adequacy decision for the United Kingdom or a period of four months has expired, this period being automatically extended by a further two months if none of the contracting parties objects to the automatic extension of the period.

Transitional period of a maximum of six months

For the period of this transitional solution, companies do not have to make special arrangements in order to be able to transfer data between the EU and the UK in compliance with the law. If the European Commission adopts an adequacy decision for the United Kingdom during the transitional period, this will not change even once the period has expired. The Trade and Cooperation Agreement states that the level of data protection law in the UK at the time of the conclusion of the agreement is equivalent to the level of the EU GDPR, and therefore transfers of personal data will continue to be permitted for the time being.

Adequacy decision foreseeable?

In the run-up to the negotiations, it was questionable for a long time whether the European Commission would issue an adequacy decision in favour of the UK after Brexit. In the light of the UK's Investigatory Powers Act of 2016 and the associated comprehensive data retention option as well as the fact that the EU-US Privacy Shield framework does not apply to data transfers in the relationship between the UK and the US, there are significant risks to personal data that have not existed in this form in the EU before. In the meantime, the fact that the United Kingdom has already begun to incorporate the provisions of the EU GDPR into national law as far as possible in the run-up to its exit from the EU in order to be able to adapt its level of protection under data protection law to that of the EU speaks in favour of an adequacy decision. As a result of the Agreement, the adoption of an adequacy decision now seems likely. In any case, the EU makes it clear that it recognises the implementation of the provisions of the EU GDPR in national British law as sufficient in principle to ensure adequate protection of data subjects' data in the context of cross-border data transfers. However, the Agreement also states that this is only the case as long as the United Kingdom does not deviate from the EU rules when implemented in national law.  In such a case, the United Kingdom should be treated as a third country.

In the absence of an adequacy decision

If the European Commission does not issue an adequacy decision by the end of the transitional period, companies will have to resort to other solutions. In such a case, the option would remain for companies to demonstrate "appropriate safeguards" within the meaning of Article 46 EU GDPR. These include, for example, standard data protection clauses, binding corporate rules ("BCR") or certifications. However, all these measures have one thing in common: They require a proactive approach on the part of the data-processing companies. Existing commissioned data processing contracts would have to be examined and, if necessary, supplemented by standard contractual clauses in renegotiations. These are already the means of choice for cross-border data traffic outside the EU/EEA. In companies, BCRs must be newly introduced or (if already in place) existing BCRs must be revised. For certifications, it must also be possible to demonstrate that the processing of personal data in the UK complies with the level of data protection in the EU on the basis of catalogues of criteria from the supervisory authorities and the audit requirements of the certifying body. Finally, according to Article 49 of the EU GDPR, companies would also have the option, among other things, of obtaining the consent of the data subjects in order to be able to transfer the data permissibly across borders. However, this Article of the EU GDPR must be seen as an exception to the rule and could only be applied restrictively and at great corporate expense and effort.

 

Contact: Dr Michael Rath, Dr Wulff-Axel Schmidt, Dr Stefanie Hellmich, Silvia C. Bauer, Christian Kuss

Employment law

A central issue, which also was one of the triggers for Brexit, is the free movement of workers. This has now come to an end between the UK and the EU. In principle, it is no longer possible for EU citizens to live and work in the UK or for UK citizens to live and work in the EU without a visa. However, grandfathering rules have been created for people who have already been living in the UK as EU citizens or in the EU as UK citizens before Brexit. For all others the following applies: they must apply for a visa at the respective competent foreign mission.

With Brexit, the freedom to provide services has also expired. The provision of services by EU citizens in the UK and UK citizens in the EU is now in principle only possible with authorisation. The agreement between the EU and the UK of 24 December 2020 provides for some exceptions to this. One exception is the stay of so-called "contractual service suppliers" for a maximum of twelve months in total. “Contractual service suppliers" are natural persons who are employed by a legal entity from the United Kingdom or the EU which is not established in the territory of the other respective party to the Agreement and which has concluded a service contract for a period not exceeding twelve months, the performance of which requires the temporary presence of employees in the territory. The Agreement imposes strict requirements on the duration of service and qualifications of employees. Another exception to the authorisation requirement for services is "short-term business visitors" that visit the country for certain economic activities (e.g. participation in meetings, contract negotiations for services/goods, sales-related services). A third exception is "business visitors for investment purposes". This refers to natural persons working in a senior position within a legal entity who visit the country in order to set up an enterprise. "Short-term business visitors" and "business visitors for establishment purposes" may enter and stay for up to 90 days in a six-month period.  One final exception exists for managers, specialists or trainees transferred within a group. Provided they meet certain personal requirements, managers and specialists are allowed to stay for up to three years, and trainees for up to one year.

With Brexit, European law on the coordination of social security has also ceased to apply in the relationship between the EU and the United Kingdom. In the Protocol on Social Security Coordination that is part of the Agreement, however, the parties to the Agreement have agreed to adopt the provisions almost identically. Above all, the social security obligation continues to be based in principle on the usual place of employment. This still applies if an employee usually works in the UK or the EU, their employer posts them to the other territory for no more than 24 months to perform work on their behalf and the employee does not replace another employee. If work is performed permanently in more than one country, the social security legislation of the country in which the employee is resident applies as long as the employee performs a substantial part of the employment there. Otherwise, the law of the country in which the employer has its registered office applies.

Members of a European Works Council or SE Works Council that come from the United Kingdom have lost their right to serve on these bodies with Brexit. The other members shall no longer be entitled to information and consultation from the group management of a United Kingdom parent undertaking.

Companies based in the United Kingdom can no longer assign workers to Germany. Only temporary employment agencies based in an EU Member State can obtain a temporary employment permit. Existing temporary employment relationships end upon the expiry of the agreed contractual term.

The UK is no longer bound by EU law to maintain the rules on transfer of business in national law. However, we assume that there will continue to be provisions according to which all employees belonging to the business are transferred to the acquirer in the event of a transfer of business.

There is no longer automatic recognition of professional qualifications under the Professional Qualifications Directive (Directive 2005/36/EC). However, the Agreement provides that professional organisations of the Parties may propose facilitated recognition arrangements for specific professions where this is in their mutual economic interest. Existing recognitions remain valid.

With regard to all employment law issues, it should be noted that special rules may apply to the relationship between Northern Ireland and the EU on the basis of the Northern Ireland Protocol.

Contact: Prof. Dr Robert von Steinau-Steinrück

Energy sector

The broad outlines of the impact of Brexit on the energy sector are clear following the provisional conclusion of the Trade and Cooperation Agreement between the EU and the UK:

Energy markets in both the EU and the UK will continue to be guided by the same principles: the electricity and gas markets remain organised on a competitive basis and non-discriminatory network access is reciprocally guaranteed. For example, market integrity and climate protection remain important regulatory objectives. Duty-free trade in goods, and therefore trade in electricity and gas, between the EU and the UK will continue, which is particularly important for supplies on the island of Ireland.

Accordingly, Brexit will only have limited direct impact on German energy suppliers. The export and import of energy remains guaranteed, as does the possibility of engaging in energy trading and supply, either directly or through subsidiaries. In January 2021, however, there was an interesting parallel rise in the market prices of electricity for Germany and the UK, for which, at least on the UK side, the "market decoupling" associated with Brexit is blamed in addition to the cold weather. This additional expense for electricity trading is to be reduced again in the next 15 months by a "multi-region loose volume coupling model", which would make explicit auctions of transmission capacities in the electricity sector superfluous. In the case of gas trading, explicit auctions of transmission capacity between the EU and the UK have also been envisaged to date.

Another problem may arise from the different treatment of the energy market and the capital market with regard to trading in energy derivatives. While the internal market for goods and energy is largely addressed by the Agreement, rules on the capital market are still completely lacking, with the exception of a few principles. In particular, the European Commission has not taken an equivalence decision concerning the UK financial supervision system yet - even if this is the case in the other direction. This means that FCA-licensed energy traders can no longer base their activities in the EU on the EU passport. However, there is still the option of using the MiFID exemptions and those at national level, which means that the majority of traders can continue their business. Carbon emissions trading will also be made more difficult as the UK now operates its own emissions trading scheme and the question of interaction with the ETS remains unanswered. The UK ETS auction will take place at ICE Europe in London, with the first auction scheduled for the second quarter of 2021. Secondary exchange trading will also take place there.

On the other hand, as network access continues to be non-discriminatory, there is no legal reason for a decline in the diversity of players. There are no direct barriers to investment and the necessary permits under energy law must also be granted on a non-discriminatory basis. Nevertheless, it cannot be ruled out that investments in the EU by the UK and vice versa will decline, because with investment periods of 20 years and more the stability of the regulatory framework plays a decisive role and there is now less scope for mutual influence and co-operation.

In the area of energy regulation, energy policy ideas on both sides of the Channel are largely in agreement, and liberalisation and a focus on competition are also supported in the United Kingdom. However, the UK has left regulatory-related institutions in the EU such as ACER and ENTSO-E or ENTSOG and will no longer be able to influence the further development of regulatory law. Regulatory regimes may therefore gradually diverge, making mutual market access more difficult. To counteract this effect, cooperation is planned both between the UK and EU regulators as well as between the UK transmission system operators and ENTSO-E and ENTSOG respectively. However, this cooperation still needs to be defined at the working level. A special forum for technical discussions is planned for cooperation in the development of offshore wind farms, in which offshore companies and stakeholders in the broader sense will also participate. The provisions of the Agreement relating to the energy sector will apply until 30 June 2026, with the possibility of renewal on 31 March of the respective following year.

Contact: Dr Holger Stappert

Environmental and climate protection law

Leaving the European Union could lead to increased administrative requirements in the environmental sector for the UK as different systems of environmental rules and regulation and planning will need to be reconciled in the future. Much of the legislative power for this will also lie with the regional parliaments in Scotland, Wales and Northern Ireland, which may in some circumstances result in regionally specific standards. Differences between the environmental law in the EU and the UK, on the one hand, and between the regions in the UK, on the other, not only place a burden on current investments and their legal certainty, but also raise the threshold for future investment. There is a risk of unequal conditions of competition which in turn may place a strain on both sides of the Channel.  It is an objective of the EU to prevent this as far as possible and to ensure that there is a level playing field.

In this context, the Trade and Cooperation Agreement between the EU and the United Kingdom provides for commitments by both parties to create equal conditions of competition through a high level of protection of the environment and climate change legislation and effective enforcement. This is accompanied by a binding dispute settlement mechanism and the option of imposing sanctions in the event of an infringement by the other contracting party.

It remains to be seen, however, whether the United Kingdom will not use its separation from the European Union to create a more industry-friendly regulatory environment with less "red tape", in contrast to the sometimes excessive requirements under EU environmental law imposed by Brussels. The British government has so far not specifically held out the prospect of lowering environmental standards; however, despite all the potential for protest, for example by NGOs, lowering these standards remains an interesting way of promoting investment, especially in the industrial sector. It will be exciting to see whether the idea of a level playing field opens up room for manoeuvre here and whether there are different reactions to future environmental developments.

In the field of climate protection, the UK government has announced that it will continue to pursue ambitious targets for reducing greenhouse gas emissions. This applies notwithstanding the departure from the EU Emissions Trading System (EU ETS) associated with the withdrawal from the EU.  The EU ETS is the world's most important carbon market to date, as well as being the largest. By leaving the EU, UK companies will lose access to this particular common market and will also no longer be able to claim any more emission allowances free of charge.

Last but not least, the UK will be excluded from the huge subsidies granted by the EU to companies that stand for environmentally friendly and energy efficient products and services. It is very likely that EU companies will benefit from this.


Contact: Dr Stefan Altenschmidt

Industrial property rights

The end of the Brexit transition period also brought about some changes in the area of intellectual property.

EU trade marks as well as international trade marks with protection in the EU

Registered EU and/or international trade marks with protection in the EU were automatically 'duplicated' at no cost on 1 January 2021 and a UK national trade mark with the same priority and identical (national) scope of protection was granted.

For EU trade marks and/or international trade marks with protection in the EU which were applied for and not yet registered at the time of withdrawal, there is a nine-month period within which a corresponding national application can be filed in the United Kingdom ("UK") without loss of priority. In order to claim priority, the EU/international trade mark and the UK national trade mark must be identical and the goods and/or services for which the trade marks claim protection must be identical. Fees for the trade mark application are payable to the UK office. Moreover, the application is examined by the UK office and not by the European Union Intellectual Property Office EUIPO.

If, at the end of the transition period, opposition proceedings are pending against a trade mark and the trade mark is cancelled, the comparable UK trade mark will also be cancelled. The comparable UK trade mark will survive only in exceptional cases; for example, if the owner of the opposition trade mark is not seeking protection in the UK.

There have also been changes with regard to right-preserving use: In principle, a national trade mark which has not been used for an uninterrupted period of five years is ready for cancellation. Applying this principle to comparable UK trade marks would lead to inequitable results, as not every EU trade mark has also been used in the UK. Therefore, any use of the trade mark in the EU before 1 January 2021 will also be deemed to be use of the comparable UK trade mark.

Community designs and international designs with protection in the EU

In parallel with the comparable UK trade mark, holders of registered Community designs and/or international designs with protection in the EU will automatically have a UK design with identical scope of protection from 1 January 2021. This design keeps the original filing date and/or priority date.

If the application for a Community design/international design with protection in the EU was still pending on 1 January 2021, it will be possible within nine months to apply for a UK design while retaining the earlier filing date/priority date and paying the official fees. To claim priority, the UK application must relate to the same design as the pending Community design/international design.

From 1 January 2021, unregistered Community designs will no longer have protection in the UK. However, they will continue to be protected as a continuing unregistered design ("CUD") in the UK.

Since the end of the transition period, an equivalent of the unregistered Community design, called a "supplementary unregistered design" (SUD), has been available in the UK. This is created with the initial disclosure in the UK but does not give rise to protection in the EU in the form of the CUD right. On the other hand, the first disclosure in the EU does not create a SUD right. Careful consideration should be given to the territory in which the design is first disclosed.

Exhaustion of IP rights

Industrial property rights are generally exhausted and can no longer be asserted as soon as the protected object has been placed on the market for the first time by the owner of the industrial property right and/or with his consent. The UK's withdrawal from the EU has the following impact on exhaustion:

Goods placed on the UK market after 1 January 2021 by and/or with the consent of the owner of the industrial property rights will no longer be considered exhausted in the European Economic Area (EEA). Therefore, companies exporting such protected goods from the UK to the EEA may need the consent of the IP owner. In the opposite case, however, exhaustion continues to occur. The UK will decide in the coming months what form a permanent exhaustion regime should take.

Other effects

In addition to the aforementioned effects, the withdrawal of the United Kingdom also has consequences, for example, for

  • collective and certification marks;
  • converted marks;
  • supplementary protection certificates;
  • geographical indications and designations of origin;
  • pending proceedings (e.g. preliminary injunction proceedings);
  • existing agreements (e.g. licensing agreements);
  • EU-wide applications for border seizure measures; and
  • copyrights;

on which we will be pleased to advise you comprehensively - in case you are interested.

 

Contact: Dr Wulff-Axel Schmidt, Dr Detlef Mäder, Dr Geert Johann Seelig

Insolvency law consequences of the Trade Agreement

The announcement of the trade deal between the UK and the EU on Christmas Eve initially gave hope. However, disillusionment quickly followed as the Agreement does not include any provisions concerning cooperation in insolvency law matters, which is why, as of the beginning of the year, the EU Insolvency Regulation no longer applies in relation to the United Kingdom. Instead, the recognition and enforcement of insolvency law decisions will in future be governed by British or German international insolvency law.

German international insolvency law

The provisions of German international insolvency law are found in Section 335 et seqq. of the German Insolvency Statute (Insolvenzordnung, InsO). Unlike the EU Insolvency Regulation, the Insolvency Statute does not grant automatic recognition of insolvency proceedings opened abroad. Instead, within the framework of a recognition procedure, the question of whether the opening foreign court has jurisdiction according to the standards of German law and whether the recognition does not violate essential German legal principles is examined first. In the absence of automatic recognition of British opening decisions, "forum shopping", i.e. the deliberate bringing about of a British court jurisdiction, will lose importance in the future.

Recognition under Sections 335 et seqq. InsO requires that the foreign proceedings are insolvency proceedings within the meaning of German law, i.e. that they have approximately the same characteristics. A British Scheme of Arrangement will not normally meet this requirement as it does not typically serve to satisfy all creditors in a uniform manner. Notwithstanding this, a Scheme of Arrangement may be immediately effective in Germany on the basis of Regulation (EC) No 593/2008 ("Rome I Regulation"). Despite court confirmation, the Scheme of Arrangement is ultimately a contract and it could be that its effectiveness has to be assessed under the provisions of the Rome I Regulation. By virtue of the principle of universal application laid down in Article 2 of the Rome I Regulation, it also applies to third countries. Accordingly, a Scheme of Arrangement may at any rate have effect in Germany if the claims covered by it are governed by British law.

British international insolvency law

Conversely, the administrator of insolvency proceedings opened in Germany may pursue their recognition in the United Kingdom through the Cross-Border Insolvency Regulation 2006, which transposes the UNCITRAL Model Law on Cross-Border Insolvency ("UNCITRAL Model Law") into British law. Recognition as foreign main proceedings is accompanied by automatic enforcement protection for the debtor's assets. The UK court has discretion to make further orders to support the foreign insolvency proceedings. Its recognition requires an application and, in terms of its content, proceedings based on "statutory provisions related to insolvency law", involving all creditors, subjecting the debtor's assets to control by a foreign court and aimed at reorganisation or liquidation. German debtor-in-possession management cases and protective shield proceedings are covered by this in any case, but not necessarily restructuring projects under the German Act on the Stabilisation and Restructuring Framework for Companies (Gesetz über den Stabilisierungs- und Restrukturierungsrahmen für Unternehmen, StaRUG), which has been in force since 1 January 2021. However, this does not appear to be ruled out from the outset, since, for example, British Schemes of Arrangement are recognised in the USA in accordance with Chapter 15 of the US Bankruptcy Code (the US implementation of the UNCITRAL Model Law).

Civil jurisdiction and judgments

On a quick note, it should be mentioned that after 31 December 2020, the Regulation (EU) no 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels I Regulation (recast)”) will no longer apply in relation to the United Kingdom. And this also means that civil judgments will no longer be automatically recognised. The United Kingdom has instead applied to accede to the Lugano Convention on 8 April 2020. Although not identical to the Brussels I Regulation (recast), it would allow the UK and the EU to retain many of the benefits of mutual recognition and enforcement of judgments. In the meantime, the possibility of a recognition and enforcement procedure under the 2005 Hague Convention on Choice of Court Agreements may be possible.

Finally, the United Kingdom has in the past concluded bilateral treaties on the recognition and enforcement of payment judgments with a number of states, including Austria, Belgium, France, Italy and Germany. In the United Kingdom, the Foreign Judgments (Reciprocal Enforcement) Act 1933 was enacted to implement these treaties. According to this Act, the foreign judgment must be "final and conclusive" and oblige one party to pay a certain sum of money, excluding judgments in tax matters or for the enforcement of fines.

 

Contact: Frank Tschentscher, Anastasia Shelestova

Insurance law

Insurance law

In general, the so-called "domicile principle" or "country of origin principle" applies both to insurance undertakings and insurance intermediaries based in the EU or EEA. This means that in the case of activities within the EU or EEA, insurers and intermediaries only require a licence in their country of domicile or origin, but not in other EU or EEA Member States in which they are or wish to become active (so-called "European passport").

From 1 January 2021, the 'European passport' rules no longer apply to the UK. The Trade and Cooperation Agreement between the EU and the UK announced on 24 December 2020 also contains no provisions in this respect. This means that UK insurance undertakings and intermediaries will only be allowed to operate in the EU or EEA with a third-country provider licence. On the other hand, insurance undertakings and intermediaries established in the EU or EEA require a licence under UK law to operate in the UK.

UK insurance undertakings, for example, accordingly require a licence in accordance with Section 67 et seqq. of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG) for their business operations in Germany. However, in a general decree which entered into force on 1 January 2021, the German Federal Financial Supervisory Authority (BaFin) has created regulations that differ in part: the "General Administrative Act [...] to regulate the conduct and run-off of cross-border activities of insurance undertakings and institutions for occupational retirement provision located in the United Kingdom of Great Britain and Northern Ireland and in Gibraltar” can be accessed via the BaFin website (www.bafin.de).

Under this general decree, insurance undertakings established in the United Kingdom which have done cross-border business in Germany until the end of 31 December 2020 do not need permission to continue and settle existing business. The general decree does not apply to new business, i.e. a permit is required for this.

With regard to whether it is permitted to continue and settle existing business without a permit, the general decree stipulates in particular that insurance undertakings must immediately terminate the insurance contracts they have concluded in Germany, if and as soon as legally permissible, and must completely wind them up on the basis of the terms and conditions of the individual contract. Furthermore, insurance undertakings may continue their existing business (even without notice of termination) pending the successful transfer of the portfolio to an insurance undertaking licensed in Germany, provided that the transfer of the portfolio has already been initiated before the end of 2020. In addition, certain documents must be submitted to BaFin once or annually throughout the implementation or settlement of the insurance contracts.

 

Contact: Dr Alexander Mönnig

International trade law/export control

Interestingly enough, even though the European Union and the United Kingdom concluded the Trade and Cooperation Agreement expressly "reaffirming their commitment (...) to countering proliferation of weapons of mass destruction" as stated in the preamble, and this - as well as all other commitments - are to constitute essential elements of the Agreement, the Agreement does not contain any substantial regulations on the handling of cross-border and international export control.

Only in the provisions concerning trade in goods under Part Two of the Agreement and in the provision there on export licensing procedures (Article GOODS.14 (4)), is there a brief reference to the fact that this provision does not prevent either the EU or the United Kingdom as a party to the Agreement "from implementing its commitments under United Nations Security Council Resolutions as well as under multilateral non-proliferation regimes and export control arrangements, including the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, the Australia Group, the Nuclear Suppliers Group, and the Missile Technology Control Regime, or from adopting, maintaining or implementing independent sanctions regimes" (in abbreviated form also in Article GOODS.13 (7) concerning import licensing procedures). In Part Six of the Agreement, under the title Basis for Cooperation in Article COMPROV.6, the commitment already formulated in the preamble is set out in more detail. Ultimately, however, this also only reaffirms the Parties' shared conviction "that the proliferation of weapons of mass destruction (WMD) and their means of delivery to state or non-state actors, represents one of the most serious threats to international stability and security”. The Parties therefore agreed, "to cooperate and to contribute to countering the proliferation of weapons of mass destruction and their means of delivery" - through the implementation of and compliance with obligations (in any case) already existing under international treaties and agreements, through measures to establish and implement other international instruments, and through the establishment of an effective system of national export controls, controlling the export as well as transit of WMD-related goods, including a WMD end-use control on dual-use technologies. The Parties have agreed to establish a regular dialogue on those matters.

From the point of view of export control law, this is to a certain extent a "no-deal Brexit". The UK has become a third country from the EU's perspective. The largely harmonised export control and embargo legislation will no longer apply and the UK will (have to) adopt new export control legislation of its own. For German or EU companies and trade in dual-use goods, this means, among other things:

Whereas the transfer of dual-use items, which can be used for both civil and military purposes, within the meaning of Annex I to Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items (“Dual-Use Regulation”), to the United Kingdom was previously possible without an export authorisation, the delivery of such dual-use items to the United Kingdom (a special regulation applies to Northern Ireland) will in future be an export requiring a prior authorisation in accordance with Article 3 of the Dual-Use Regulation. The so-called "catch-all" clause in Article 4 of the Dual-Use Regulation concerning all dual-use items not listed in Annex I will also apply in the future; this means that the export of all items not listed may also be subject to authorisation or notification in the case of corresponding knowledge of a sensitive intended use. The same may apply to brokering services of dual-use items pursuant to Article 5 of the Dual-Use Regulation.

However, there are also certain exceptions: Thus, the United Kingdom will be included in the Community General Export Authorisation No. EU001 (Annex IIa to the Dual-Use Regulation) alongside Australia, Canada, Japan, New Zealand, Norway, Switzerland and the United States of America. The export of dual-use items within the meaning of Annex I of the Dual-Use Regulation (with the exception of those listed in Annex IIg) is thus deemed to be authorised without the need for an individual authorisation. In addition, the German nationalGeneral Export Authorisation 15 applies, which also allows the export of dual-use items to the United Kingdom in other scenarios under certain conditions. Other existing General Export Authorisations have also been extended to include the United Kingdom. It should be noted, however, that the use of such general authorisations requires prior notification and registration with the competent authority (in Germany, the Federal Office for Economic Affairs and Export Control, BAFA). Exporters who have so far only delivered to Great Britain (and within the EU) and did not have to deal with export control and dual-use issues in detail will also have to check their portfolio of goods in the first place to see whether they include (dual-use) items that may require an authorisation.

The EU's country embargoes also need to be looked at and reassessed entirely if the UK is part of the supply chain: Whereas up to now it was theoretically possible to deliver goods intended for end use in an embargoed country (Russia, Iran, etc.) to the United Kingdom, since in case of doubt the British consignee would then have to take care of the necessary authorisation for export from the EU to the embargoed country, it must now be checked whether the delivery of the goods to the United Kingdom does not already require prior authorisation.

 

Contact: Ole-Jochen Melchior

Investment protection in the EU-UK relationship after Brexit

With Brexit, the protection of foreign investors from expropriation or other damaging measures must also be reassessed. The Trade and Cooperation Agreement , which has now provisionally entered into force, takes a different approach from past EU agreements. For example, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and the investment protection treaties agreed to accompany the free trade agreements with Singapore and Vietnam contain a large number of protection standards. They also establish investment tribunals at the procedural level. The Trade and Cooperation Agreement provides for much more limited investor protection.

Investment protection through the Trade and Cooperation Agreement

At the substantive level, the Trade and Cooperation Agreement guarantees, inter alia, market access, national treatment and most favoured nation treatment. Contrary to the usual standards for investment protection, however, it contains no provisions on either unfair or inequitable treatment or on expropriation. Moreover, instead of the direct rights of action for investors that are customary in investment protection, only a state-to-state arbitration mechanism is envisaged. Nor are the courts of the parties to the Agreement expressly competent to settle disputes under the Agreement. Investors depend on their home states or the EU to take action on their behalf. Investors on both the EU and UK sides are therefore increasingly concerned about how their investments are protected above and beyond the Trade and Cooperation Agreement.

Investment protection through BITs

The UK already had bilateral investment protection treaties (BITs) with EU Member States before Brexit - but only with states in Eastern Europe. These continue to apply. By contrast, there are no BITs with EU Member States of major economic importance, such as Germany, France or the Benelux countries.

However, the treaties still in place are not without controversy either. As a result of political pressure from the EU Commission and in response to the CJEU's Achmea decision , 22 EU Member States - including the UK - had declared as recently as January 2019that they would terminate their BITs with other EU Member States. However, the United Kingdom did not sign the Termination Agreement concerning the treaties that was concluded after this political commitment. Although there are infringement proceedings pending against the United Kingdom on account of the non-terminated BITs, which the CJEU could still rule on post-Brexit under the Withdrawal Agreement , an obligation to terminate the BITs is absurd under principles of international law after the end of EU membership.  Even in the event of unilateral termination of the BITs by the EU Member States, their ‘sunset clauses’ still apply, guaranteeing limited applicability of the treaties even after their termination. This is already the case with the UK-Poland BIT, which will continue to apply for 15 years since it was terminated by Poland in 2019.

It is to be expected, however, that the argument that the treaties should have been repealed and should not serve as a basis for arbitration proceedings will again be raised by EU Member States during future proceedings and at the level of enforcement of any arbitral awards.

Investment protection through the ECT

The situation is different with regard to the Energy Charter Treaty (ECT), to which the EU itself and all EU Member States are a party, except for Italy, which withdrew in 2016. The ECT covers various large-volume energy investments by sector, but in total it benefits only a few investors.

Unlike BITs, however, the ECT is not affected by the Achmea decision or the Termination Agreement. In addition, the position advocated here too by the EU Commission and consistently rejected by arbitral tribunals that the ECT should not apply between EU Member States is unlikely to be relevant after Brexit with regard to the United Kingdom, since it is simply no longer a matter of intra-EU relations.

EU-UK energy investments are therefore currently solidly hedged. However, the ECT is currently undergoing an extensive modernisation process, the end of which is not foreseeable at present. It is possible that the level of protection for investors will be further reduced as part of the modernisation process - at least this would be in line with the EU Commission's negotiating strategy.

Consequences

The current situation reveals gaps in protection - especially for investments from or in Germany and other western EU Member States. From an investor's point of view, it must be considered a failure that the Trade and Cooperation Agreement does not regulate investment protection in a legally certain manner. The protection of investments in the EU-UK relationship thus remains to be assessed in each individual case. In many cases, it may again make sense for investors to consider concluding state contracts with the host state of their investment, including direct arbitration agreements, or to plan investment structures in the light of the applicability of BITs.

 

Contact: Dr Richard Happ, Sebastian Wuschka

Life Science and Pharmaceutical law

Free trade agreement and the life sciences industry

From 1 January 2021, EU pharmaceutical legislation, as set out in the 'acquis
communautaire', will apply to and in the UK in relation to Northern Ireland only.

Even though the "Trade and Cooperation Agreement between the EU and the UK" has provisionally entered into force, since the beginning of the year the EU and the United Kingdom have not only formed separate markets but also different regulatory spaces.

The pharmaceutical industry, EU Member States and the European Medicines Agency (EMA) have been proactively preparing for Brexit. The EMA, with the support of the national regulatory authorities, has reallocated the UK portfolio of medicines to rapporteurs and co-rapporteurs in other EU Member States, Iceland and Norway. This concerned over 370 centrally licensed medicinal products. In parallel, all marketing authorisation holders for centrally licensed medicinal products previously based in the UK became based in an EU Member State by November 2020.

In addition, before 1 January 2021, the following persons and activities had to be located within the EU or EEA in order for the medicinal products to still be allowed to be marketed in the EU: marketing authorisation holder (MAH) and applicant, batch control and release (exception: batch control and batch release may take place in Northern Ireland), qualified person (QP), qualified person for pharmacovigilance (QPPV), graduated plan officer (in an EU Member State), pharmacovigilance system master file (PSMF). It was possible to achieve even this major accomplishment largely on time. Separate rules apply to decentralised and mutual recognition procedures. In ongoing decentralised procedures (DCP), the relevant changes can also be submitted after 1 January 2021. However, in ongoing mutual recognition procedures (MRP), only a change of applicant or future MAH is possible; all other changes must be applied for and completed by means of variation prior to the start of the MRP.

Despite the comprehensive preparations, companies in the pharmaceutical industry, as well as medical technology companies, will be confronted with new requirements and considerable bureaucracy in border traffic. There are still a number of outstanding issues in relation to third country provisions, where the EU-UK Trade and Cooperation Agreement must be taken into account. These will be taken up by a Working Group on Medicinal Products under the supervision of the Trade Specialised Committee on Technical Barriers to Trade. The Agreement provides for rules to avoid technical barriers to trade in relation to standardisation and conformity assessment procedures for medicinal products. However, the provisions of the Agreement on good regulatory practices and regulatory cooperation provide the contracting parties with extensive scope for defining and regulating their own levels of protection, particularly in the area of health (Article GRP 1 (3), which could result in considerably diverging regulatory frameworks for pharmaceutical and medical technology products.

Annex TBT-2: Medicinal Products explicitly sets out the possibilities for the acceptance of official GMP documents for medicinal products and active ingredients. It covers marketed medicinal products for human or veterinary use, including marketed biological and immunological products for human and veterinary use, advanced therapy medicinal products, active pharmaceutical ingredients for human or veterinary use and investigational medicinal products. However, these regulations again give rise to numerous unresolved issues, which are to be clarified by the Working Group on Medicinal Products set up for this purpose.

It should generally be noted that the Agreement contains only limited provisions on services, which can lead to considerable effort and expense when conducting clinical trials. For example, the qualified person for the release of clinical material (Investigational Medical Products/IMPs) must in all cases be located in the EU. The specific requirements must be taken into account when concluding cooperation agreements.

With regard to research cooperation, the fact that the United Kingdom intends to continue participating in part of the EU research programmes as an associate member must be regarded as something positive. For example, participation in Horizon Europe is still envisaged provided that the United Kingdom makes the financial contributions for the funding period 2021-2026.

 

Contact: Denis Ullrich, Cornelia Yzer

Litigation and arbitration

Legal disputes

Ordinary courts and substantive civil law

I.  Problem

Despite the Trade and Cooperation Agreement now concluded between the European Union and the United Kingdom, questions remain about judicial cooperation between the European Union and the United Kingdom in the area of civil law. While the Trade and Cooperation Agreement contains extensive provisions in the area of judicial cooperation in criminal law under "Part Three", there are no corresponding provisions in the area of civil law.

In contrast, the Withdrawal Agreement of 17 October 2019 between the European Union and the United Kingdom contains detailed rules in its Articles 66 et seqq. for civil (procedural) law, in particular with regard to (i ) the jurisdiction of courts of EU Member States, (ii) the recognition and enforcement of court judgments, and (iii) rules on the choice of applicable substantive civil law in disputes involving the United Kingdom. In this context, the Withdrawal Agreement declared that the so-called Brussels I Regulation (recast) would continue to apply to questions of procedural and enforcement law. As far as the applicable substantive civil law is concerned, the provisions of the so-called Rome I and II Regulations were declared to continue to be applicable.

However, the continuation of the Brussels I Regulation (recast) and the Rome I and II Regulations was determined in the Withdrawal Agreement only for the transition period which, according to Article 126 of the Withdrawal Agreement, ended on 31 December 2020.

The question therefore arises as to what will apply in future with regard to the United Kingdom (i) in the area of the jurisdiction of courts of the Member States of the EU, (ii ) for the recognition and enforcement of court judgments and (iii) forthe choice of applicable substantive civil law.

1. Brussels I Regulation (recast)

The Brussels I Regulation (recast) essentially regulates three areas of civil procedure or enforcement law:

  • The international jurisdiction of the courts of the Member States of the EU.
  • A court decision given in one Member State is recognised in the other Member States without the need for a separate recognition procedure (Article 36 of the Brussels I Regulation (recast)).
  • A judgment given in a Member State which is enforceable in that Member State is also enforceable in the other Member States without the need for a declaration of enforceability (Article 39 Brussels I Regulation (recast)).

 

After its withdrawal (31 January 2020), the United Kingdom will no longer be a Member State of the EU and so the Brussels I Regulation (recast) will no longer apply there. However, Article 67(1)(a) declared the Brussels I Regulation (recast) to continue to apply in relation to the United Kingdom for the transition period until 31 December 2020.

In the United Kingdom as well as in the Member States of the EU, the provisions of the Brussels I Regulation (recast) on the (international) jurisdiction of the EU courts, on the recognition of judgments in civil and commercial matters and on the enforcement of such judgments will therefore continue to apply for the transition period in judicial proceedings as well as in related proceedings or actions which have a connection with the United Kingdom and which were commenced by 31 December 2020. For the Brussels I Regulation (recast) to apply, it is crucial that the (legal) proceedings were initiated by the end of the transition period. On the other hand, the date of the decision on the proceedings is irrelevant for the application of the Brussels I Regulation (recast). Accordingly, for example, a judgment of a court in the United Kingdom is to be enforced in Germany in accordance with the Brussels I Regulation (recast) if the court proceedings were commenced in 2020 but the judgment to be enforced is not given until 2021 (or later).

A distinction must be made with regard to proceedings initiated on or after 1 January 2021:

The courts of the remaining Member States will continue to apply the Brussels I Regulation (recast) after Brexit and the end of the transition period on 31 December 2020. This is true even in the case of actions with a connection to the United Kingdom. However, this would, in principle (i.e. with the exception of the reservations referred to in Article 6 (1) of the Brussels I Regulation (recast)), for example, lead a German court to apply the German (autonomous) rules for determining international jurisdiction (Section 12 et seq. of the German Code of Civil Procedure (Zivilprozessordnung, ZPO) in the case of a defendant residing in or domiciled in the United Kingdom pursuant to Article 6 (1) of the Brussels I Regulation (recast).

In this context, a court of the United Kingdom will no longer base its decision on the rules of the Brussels I Regulation (recast) but on the (national) law of the United Kingdom. In addition, the UK acceded to various Hague Conventions on 29 September 2020, including the Hague Convention on Choice of Court Agreements, and so there will be a degree of legal uniformity and therefore legal certainty, at least within the scope of the Hague Conventions. This is because the European Union is also a party to the Hague Convention on Choice of Court Agreements.

2. Rome I Regulation

Similar questions to those raised by the Brussels I Regulation (recast) also arise in connection with the Rome I Regulation. This is because after leaving, the UK is no longer a Member State of the EU.

The Rome I Regulation basically regulates the determination of the applicable substantive law in the area of contractual obligations in civil and commercial matters which have a connection with the law of different states (Article 1 (1), Article 3 et seqq. Rome I Regulation).

As with the Brussels I Regulation (recast), the Withdrawal Agreement between the European Union and the United Kingdom provides that the Rome I Regulation will continue to apply in relations between the European Union and the United Kingdom for the transition period until 31 December 2020 (Article 66 (1) of the Withdrawal Agreement). Accordingly, with regard to a contract concluded, for example, between a German GmbH and a British LLP in 2020, the Rome I Regulation is to be applied to determine the substantive civil law applicable to this contract. This is true even if the question of substantive civil law does not arise until, say, 2021. The time of the conclusion of the contract is therefore decisive.

With regard to the period from 1 January 2021, a distinction must again be made:

As with the Brussels I Regulation (recast), the Rome I Regulation continues to apply to the courts of the remaining Member States of the European Union since Article 2 of the Rome I Regulation stipulates universal application (for German courts, see also Article 3 No. 1 b) of the German Introductory Act to the German Civil Code (EGBGB)). This also applies if the case has a connection with the United Kingdom.

UK courts, on the other hand, will have to apply the rules of UK (domestic) law from 1 January 2021 to determine the applicable substantive law in cases involving foreign countries. A certain degree of legal certainty may arise from the fact that the United Kingdom has announced that it intends to adopt the provisions of the Rome I Regulation and transpose them into national law.

3. Rome II Regulation

Finally, the Rome II Regulation also raises questions in relation to the Brussels I Regulation (recast) and the Rome I Regulation.

The Rome II Regulation basically regulates determination of the applicable substantive law in the area of non-contractual obligations in civil and commercial matters which have a connection with the law of different states (Article 2(1), Article 4 et seqq. Rome II Regulation).

As with the Brussels I Regulation (recast) and the Rome I Regulation, the Withdrawal Agreement between the European Union and the United Kingdom provides that the Rome II Regulation will continue to apply in relations between the European Union and the United Kingdom for the transition period until 31 December 2020 (Article 66 (2) of the Withdrawal Agreement).

Accordingly, the substantive civil law applicable to a non-contractual obligation (for example, damages arising from a car accident involving a British and a German car in the UK in 2020) is determined based on the Rome II Regulation.

With regard to the period from 1 January 2021, a distinction must again be made:

For the remaining EU Member States, the Rome II Regulation will continue to apply, including vis-à-vis the United Kingdom. This is because the Rome II Regulation, like the Rome I Regulation, claims universal application for itself pursuant to Article 3 of the Rome II Regulation (for German courts, see also Article 3 No. 1 a) EGBGB).

In the area of non-contractual obligations, the United Kingdom will apply its national law to determine the applicable substantive civil law in cases with a cross-border element.

II.  Conclusion

The Trade and Cooperation Agreement between the European Union and the United Kingdom was concluded at the "last minute" in order to avert the feared "no-deal" Brexit.

However, this Agreement has not contributed to legal certainty in the field of judicial cooperation in civil and commercial matters. A certain degree of legal certainty arises instead only from the Withdrawal Agreement of 1 February 2020. This is because, at least for the period up to 31 December 2020, the Withdrawal Agreement clarifies that, in the area of civil law, the Brussels I Regulation (redraft) in particular continues to apply in determining jurisdiction and the recognition and enforcement of judgments, and the Rome I and II Regulations continue to apply in determining substantive civil law.

For the period from 1 January 2021, such clear rules are unfortunately completely absent from the Trade and Cooperation Agreement between the European Union and the United Kingdom. From the point of view of the courts of the remaining Member States, there will be no changes of any kind; they will continue to apply the Brussels I Regulation (redraft), Rome I and Rome II. However, in relation to the United Kingdom, disputes will be characterised by a higher degree of legal uncertainty as the United Kingdom will revert to its national law in all these areas.

In terms of contract design, legal certainty may be achieved at least to a limited extent by including, where possible, clauses relating to the place of jurisdiction and the choice of law in contracts which are currently being negotiated or will be negotiated that are related to the matters in the United Kingdom. This is particularly true in light of the fact that both the European Union and the United Kingdom are now parties to the Hague Convention on Choice of Court Agreements.

Contact: Dr Florian Schulz, Dr Stephan Bausch

 

Arbitral tribunals

Brexit and the Trade and Cooperation Agreement will not have any impact on current or future arbitration proceedings. The legal framework for international arbitration is largely provided by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which applies to the UK even without EU membership.

Also, as a direct contracting state to the 1965 ICSID Convention, which established the International Centre for Settlement of Investment Disputes (ICSID) and also governs the enforcement of ICSID awards, the UK is bound by them regardless of EU membership. The Agreement is without prejudice to existing investment protection treaties between the UK and EU Member States. The same applies to the Energy Charter Treaty. The UK is no longer subject to the jurisdiction of the CJEU and so the enforcement of intra-EU investment arbitral awards, which is problematic within the EU because of the CJEU's Achmea decision, should now be made easier.

Restrictions on representation in arbitration proceedings arise from the Trade Agreement. According to the wording, advice and representation by German lawyers in proceedings under English law is only permissible if and to the extent that these take place in the EU, but no longer if the place of the arbitration is London, for example (and English law applies). It is unclear whether the application of English arbitration law is sufficient. Therefore, as a precaution, one should always engage English lawyers as co-counsel. It is also unclear whether German arbitrators may continue to act in proceedings in the United Kingdom since acting as an arbitrator was expressly excluded in the Agreement from the scope of the freedom to provide legal services.

Contact: Dr Richard Happ

M&A, private equity and venture capital transactions

The uncertainty associated with Brexit initially caused uncertainty in the transaction market for some time following the UK's decision to withdraw from the EU. As a result, the number of UK-related transactions also initially declined. However, due to the length of the negotiation period, the market had been focusing on economic issues again for some time, gradually recovering and recently returning to a very stable level. It can be assumed that the Trade and Cooperation Agreement now reached will not bring any immediate negative changes in this respect. Whether the Trade and Cooperation Agreement will have any effects in the medium and long term, what these will be, and to what extent the British market will remain interesting for investors in the long term cannot be conclusively foreseen at present. However, the EU market will in any case remain an important target market for investment from the UK.

As expected, the Trade and Cooperation Agreement itself does not contain any provisions directly dealing with the legal framework relevant to transactions. This is not surprising as transaction documentation is almost without exception subject to an independent and conclusive system of provisions and liability. Immediately after the UK's decision to leave the EU, there was discussion in this respect as to whether force majeure and MAC clauses provide legal protection against the possible negative economic consequences of a withdrawal in the case of transactions that have not yet been completed, and whether such provisions should be included in the contracts. Although this uncertainty remains in principle, it is to be expected that these issues will no longer play a role in future agreements.

Previously, the unified rules of Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (“Takeover Directive”) applied in the case of public offers. The Takeover Directive was significantly influenced by the British City Code on Takeovers and Mergers (“Takeover Code”). With the withdrawal of the United Kingdom, the direct applicability of the Takeover Directive ends; the Trade and Cooperation Agreement does not change this either. It is significant in this respect that the option of a shared place of jurisdiction is no longer available to companies in the United Kingdom. Irrespective of this, the EU Takeover Directive and the UK Takeover Code will continue to apply side by side with the previous similar content.

 

Contact: Dr Thomas Kuhnle

Movements of goods

Movements of goods/Regulation (including external trade)

Trade in goods

One of the pillars of the Trade and Cooperation Agreement is that both sides have agreed in principle to the free movement of goods without customs duties, import quotas or tariff barriers on goods and services, and subject to the WTO Agreement.

Rules on the trade in goods between the European Union and the United Kingdom can be found under the same heading in Part Two, Heading One, Title I of the Agreement. However, it is worth looking first at the "Other Provisions" under Part Two, Heading Six. In addition to various key definitions, there are, where one would hardly suspect it, some fundamental statements and regulations which are of decisive importance in order to understand the Agreement. The EU and the UK accordingly establish a free trade area in conformity with the General Agreement on Tariffs and Trade 1994 ('GATT 1994'). Furthermore, the Parties expressly reaffirm their mutual rights and obligations under the WTO Agreement entered into in Marrakesh on 15 April 1994 establishing the World Trade Organisation, and under other agreements to which they are parties. Nothing in the Agreement shall require either Party to act in a manner inconsistent with its obligations under the WTO Agreement. In interpreting and applying the provisions of Part Two of the Agreement, account shall be taken of relevant WTO case-law. On this basis, the Agreement governs trade in goods between the United Kingdom and the European Union, in particular as follows:

With respect to internal taxation and internal regulation, each party shall accord national treatment to the goods of the other party in accordance with Article III GATT 1994 (Article GOODS.4). Furthermore, the Parties shall grant each other freedom of transit through their territories within the meaning of Article V GATT 1994 (Article Goods.4A). In particular, however, customs duties on goods are in principle prohibited, at least insofar as the  goods originate in the other party (Article GOODS.5): Export duties or taxes and other charges on or in connection with exports to the UK or the EU may not be adopted or maintained (Article GOODS.6 (1) half-sentence 1, except for certain fees and charges under Article GOODS.7, which the parties shall publish on the Internet without delay); internal taxes or charges on exported goods may be adopted or maintained only to the extent that they do not exceed those which would be imposed on like goods if they were destined for domestic consumption (Article GOODS.6 (1), second half-sentence). Moreover, the restriction that the goods must originate in the other party does not apply to goods exported and re-imported for the purpose of repair (Article GOODS.8 "Repaired goods"). Remanufactured goods are to be treated in the same way as equivalent goods in new condition (Article GOODS.9 "Remanufactured goods").

As far as originating status is concerned, the Agreement differentiates as follows (Article ORIG.3): Products originating in a party to the Agreement, namely the EU or UK, are products (a) wholly obtained or produced in the state of that party (details in Article ORIG.5; these are, for example, products obtained from live animals raised in the EU or UK or from slaughtered animals born and raised there) or (b) which have been produced exclusively from originating materials in that party or (c) which have been produced in that party incorporating non-originating materials, provided that the products satisfy the requirements set out in ANNEX ORIG-1 and ANNEX ORIG-2, taking into account the tolerances set out in Article ORIG.6 (for example, for motor vehicles, there is a limit of 45% of non-originating primary materials measured by the ex-works price of the total product, but for electric and hybrid vehicles, the battery pack must be an originating product, ANNEX ORIG-2, Chapter 87).

In accordance with Article ORIG.18 et seqq., in order to be able to receive preferential tariff treatment, the importer must claim such treatment with the customs authorities of the party into which the goods are to be imported. The exporter of a product shall attach a statement of origin at the request of the customs authority. For the rest, the details of the import declaration are governed by national legislation. However, it is also possible to import originating goods without first claiming preferential tariff treatment and to subsequently file this claim within a period of three years; in this case, duties levied are refunded retroactively.

However, it is important to note that the cross-border movement of goods between the EU and the UK will still require customs clearance in the future, despite the fact that goods will in principle be exempt from customs duty. This may involve increased administrative, time and cost burdens and must be taken into account in logistics and within supply chains.

Product compliance

Even after the conclusion of the Trade and Cooperation Agreement, the withdrawal of the United Kingdom from the EU and the expiry of the transition period agreed by both sides have created two clearly separate jurisdictions, each with its own regulatory framework. Unlike in the past, therefore, cross-border sales and placing on the market of goods or services can no longer necessarily take place on the basis of a uniform and cross-border regulatory system.

Against this background, the parties to the Trade and Cooperation Agreement commit themselves in their Agreement to the common objective of preventing, identifying and removing unnecessary technical barriers to trade. To this end, they have agreed on appropriate arrangements for the development and application of standards, technical regulations and conformity assessment procedures that may affect trade in goods between the parties (Article TBT.2). First of all, this sets out a preference for the application of international, i.e. non-national, standards or standards developed by international organisations (Article TBT.4/5). To this end, the Trade and Cooperation Agreement also refers to the TBT Agreement (Agreement on Technical Barriers to Trade) under the aegis of the WTO, among other things.

For conformity assessments of goods, priority is given to the manufacturer's self-declaration of the conformity of the goods he intends to place on the market (Article TBT.6). In this respect, each of the parties shall, for those product categories for which it has accepted the submission of a declaration of conformity by the manufacturer of the goods (self-declaration) on the date of entry into force of the Trade and Cooperation Agreement, continue to accept such a declaration of conformity by the manufacturer in principle (Article TBT.6 No. 5). However, changes to the acceptance of conformity assessments, and in particular the introduction of a requirement to obtain the assessment of third parties, including the authorities of the party concerned, before placing the goods on the market, are justified in the future on the grounds of legitimate objectives. With regard to labelling requirements for goods, the parties have also adopted provisions for the purposes of harmonisation and to make things easier for the companies affected (Article TBT.8). Cooperation between authorities in the area of market surveillance is also provided for in the Trade and Cooperation Agreement (Article TBT.9). In particular, the framework conditions for an exchange of information with the EU's Rapid Alert System RAPEX are to be created in the short term.

The Trade and Cooperation Agreement contains special provisions for certain categories of goods, such as motor vehicles and parts, pharmaceuticals, chemicals, agricultural products, etc., which are set out in annexes to the Agreement.

Sales law

The Trade and Cooperation Agreement does not directly regulate sales law, i.e. the law governing sales agents (commercial agents, authorised dealers, etc.). Consequently, as things stand at present, no special provisions are envisaged for companies selling goods or services between the United Kingdom and the EU Member States beyond the general rules laid down in the Agreement (e.g. national treatment, most-favoured-nation treatment). This means that the same rules apply as for distribution agreements with companies from third countries. It must therefore be assumed that the provisions of EU law on sales law, such as in particular the Commercial Agents Directive (86/653/EEC), will in future no longer be indispensable for sales agents operating in the territory of the United Kingdom, but can be waived by agreement between the parties (at least this is the situation if German law is applicable). Conversely, on the basis of the CJEU's Ingmar case law, this does not apply to commercial agents operating within the territory of the EU, even if they are supposed to act on behalf of a principal from the United Kingdom under English law. Under the Trade and Cooperation Agreement, therefore, the way distribution agreements are drafted will in future be of greater importance than in the past.

 

Contact: Volker Steimle

Taxes and customs duties

In recent years, European law has greatly influenced and changed national German tax law, in particular corporate tax law. A large number of regulations apply explicitly only to relations with other EU Member States, but not to relations with third countries. Brexit will therefore lead to tax-relevant changes in cases that are related both to the UK and the EU. As a result of the Brexit agreement, the UK was treated as a Member State until the end of 2020 following its withdrawal on 31 January 2020 and UK residents were treated as EU residents. The legal situation has therefore changed with effect from the beginning of 2021.

For example, the CFC [controlled foreign corporation] rules under the German External Tax Relations Act (Außensteuergesetz, AStG) do not apply to low-taxed companies in the EU or in another country of the European Economic Area.

Allocation of the taxation of hidden reserves in assets transferred to a foreign permanent establishment to the year in which they are contributed and the following four years is only possible if the said permanent establishment is located in a Member State of the EU or the EEA. If assets are transferred from Germany to the UK after 31 December 2020, hidden reserves are taxable immediately. However, for assets already transferred to the UK before 1 January 2021, Brexit alone will not lead to immediate taxation.

Real estate transfer tax relief for cross-border intra-group reorganisations is only granted if the reorganisation process takes place under the law of a Member State of the EU or the EEA.

As a result of the withdrawal, the benefits of Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (“Parent-Subsidiary Directive“) with respect to withholding tax on distributions within the Group will cease to apply in the future for distributions to UK companies. Accordingly, dividends from companies in which the respective shareholder holds at least 10% are not subject to withholding tax. Dividends distributed by UK companies are already not subject to withholding tax under UK domestic law; in this respect, the fact that the benefits of the Parent-Subsidiary Directive no longer apply has no adverse consequences. In the absence of the Directive, distributions by German companies to their UK shareholders will be subject to the corresponding tax rates under the double taxation agreement (5% for legal entities holding at least 10% of the shares in the distributing company).

Under Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (“Interest and Royalties Directive”), no withholding taxes are levied within the EU on interest and royalty payments to associated companies. Germany does not generally levy withholding taxes on interest under national law. Under German national law, however, the withholding tax on royalty payments is 15%. Since the double taxation agreement assigns the right of taxation to the country of the recipient, there are no disadvantages in this respect.

Certain cross-border conversions involving UK companies will no longer be possible on a tax-neutral basis. Conversions which have already been initiated shall be subject to transitional arrangements under which the benefits are still granted under certain conditions. Brexit alone does not result in the taxation of a pre-Brexit contribution.

On 25 March 2019 the German legislator already passed the Tax Act relating to Brexit (Brexit-Steuerbegleitgesetz) in order to provide for UK limited companies having their administrative seat in Germany which could be deemed to have been dissolved as a result of the UK's withdrawal from the EU (see para XXX[HD3] ) being treated for tax purposes as if they had not been dissolved.  The hidden reserves of such a company are thus not subject to taxation (cf. Section 12 of the German Corporate Tax Act (Körperschaftssteuergesetz, KStG). Nor will real estate transfer tax arise solely as a result of Brexit (Section 4 No. 6 of the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG)) and the tax benefits already accrued under Section 6a GrEStG will not cease to apply as a result of Brexit.

Under the terms of the Withdrawal Agreement under which the UK withdrew from the EU on 31 January 2020, there was a transitional period for VAT purposes which ended on 31 December 2020. The Trade and Cooperation Agreement does not change that. In principle, this means that the United Kingdom has been treated as a third-country territory for VAT purposes since the beginning of this year. Northern Ireland continues to be subject to the rules on intra-Community trade in goods, while Northern Ireland is a third-country territory for trade in services. Some transitional arrangements can be found in the letter of the German Federal Ministry of Finance dated 25 November 2020.

The Trade and Cooperation Agreement does not change the fact that the United Kingdom is now no longer a member of the EU Customs Union and is no longer part of the EU single market. As a result, import and export declarations are required and border controls are carried out. Duty-free treatment is only available for goods originating in the EU or the UK. Companies must declare preferential origin. Errors in this declaration may be sanctioned. Northern Ireland, on the other hand, will in future be treated for customs purposes as if it were part of the EU customs territory.

 

Contact: Ulrich Siegemund


 

 [HD3]Hier fehlt noch ein Querverweis.

 

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York-Alexander von Massenbach
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