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04 November 2016

"Brexit judgment" - what does it mean for business?


The judgment of the High Court on 3 November 2016 in R. v. Secretary of State for Exiting the European Union ex parte (1) Gina Miller & (2) Deir Tozetti Dos Santos [2016] EWHC 2768 ruled that HM Government was not permitted to trigger Article 50 of the EU Treaty without the prior authorisation of Parliament.  In this short paper, we set out the essentials of the judgment and what it means for business. The full judgment is available here.

Background to the case

Article 50 of the Treaty on the Functioning of the European Union provides that where a member state wishes to leave the European Union, it may do so by providing notice in accordance with its constitutional requirements. The notice sets in train a two year timetable during which time the terms of withdrawal can be negotiated with the European Union (the timetable being extendable only with the approval of the 27 other member states).  The notice cannot be a conditional one and, once given, does not appear to be capable of being cancelled.

HM Government, led by Prime Minister Theresa May, had made clear its intention to use its executive powers to issue Article 50 notice.  This was the controversial step which was the subject of the court proceedings to decide if the Article 50 notice could be given by an executive act only without prior Parliamentary approval.  An executive “prerogative power” provides an ability of the Crown to act directly in relation to certain matters, where this does not clash with other applicable rules or constitutional principles.  For example, this power cannot be exercised in a manner that is contrary to Acts of Parliament. 

A number of individuals and interest groups challenged the proposed use of the Government’s executive power in Court, arguing that notice should only be given with Parliamentary approval once Parliament had been given the opportunity to debate the Government’s proposals and to vote on them (in other words that the Government does not have the executive power to issue the Article 50 notice).

The UK constitution and prerogative powers

The Court began by noting that the UK does not have a constitution to be found entirely in a written document. There are, however, established and well-recognised legal rules which govern the exercise of public power and which distribute decision-making authority between different entities in the state and define the extent of their respective powers. 

This judgment concerned a legal point, not a political one, whether or not the Government’s proposed use of the prerogative powers would be within the boundaries of those rules.  The critical aspect of the case was the argument that the Government cannot exercise its prerogative powers in a way that goes against an Act of Parliament - in this case.the European Communities Act 1972 (“ECA”), which established the UK’s membership of the European Union.

This principle is of critical importance and sets the context for the general rule on which the Government seeks to rely – that normally the conduct of international relations and the making and unmaking of treaties are taken to be matters falling within the scope of the Crown’s prerogative  powers. That general rule exists precisely because the exercise of such prerogative powers has no effect on domestic law, including as laid down by Parliament in legislation.

As the challengers pointed out, the ECA is different, insofar as it confers important rights on UK citizens.  These include rights to live and work in different member states (a right enjoyed by many expatriate British nationals who now fear losing their homes and livelihoods overseas).  Other important rights include those conferred by EU legislation, such as Regulations and Directives relating to employment law protections and rights to study, or to exercise a particular profession, or provide goods or services abroad.  

The Government’s case was that when the 1972 Act was passed, Parliament must have intended that the Crown would retain its executive or prerogative power to effect a withdrawal from the EU Treaties and thereby intended that it should have the power to choose whether EU law should continue to have effect in the domestic law of the UK or not.

The Court’s decision

Lord Chief Justice Lord Thomas agreed with the principal submissions of the claimant.  His decision read: “The court does not accept the argument put forward by the Government. There is nothing in the text of the 1972 Act to support it.

“In the judgment of the court the argument is contrary both to the language used by Parliament in the 1972 Act and to the fundamental constitutional principles of the sovereignty of Parliament and the absence of any entitlement on the part of the Crown to change domestic law by the exercise of its prerogative powers.”

Comment and next steps

The judgment sets an obstacle to Theresa May in her wish to serve notice under Article 50 by March 2017.  However, the judgment is subject to an appeal before the Supreme Court in December so it is by no means certain that this will be the last word on the issue. 

Superficially, the judgment adds more uncertainty and – potentially – could delay the process.

An important unresolved issue is the Government’s negotiation stance in talks with the EU.  The Prime Minister and her cabinet must decide what they want to achieve from those talks and what concessions they will grant in return.  Business has, for example, been notably anxious about whether tariff free trade can be continued if we leave the single market (certain car manufacturers in particular have been pressing this issue with Government). 

Could this litigation offer either greater transparency in relation to the future of trading relationships with the EU or make it more likely that the UK will remain part of the EU single market (favoured by many in the business world)?

Our view is that these possibilities should not be overstated.  Whatever the outcome of the current litigation, the Government is likely to continue to play its cards close to its chest.     

Our recommendation to the business world however, is to work on the assumption that Brexit will ultimately go ahead and, for planning purposes, to assume it may take what is being referred to as a “hard Brexit” form.  Parliamentary scrutiny would not in our view present an insurmountable challenge to the Government in pursuing Brexit, particularly as some of the opposition parties in Parliament have indicated their willingness to respect the outcome of the referendum.  We emphasise that while planning should take place, it may be advisable for businesses to hold off on execution of those plans until the timetable for Brexit becomes clearer.  In terms of the potential for business disruption, it would be sensible to hope for the least disruption but to prepare for the worst.

This article was written by Paul Henty. For more information please get in touch via or +44 (0)20 7427 6506.