Continuity Of Contracts And Business On A 'Hard' Brexit: Human Rights And Reverse Solicitation To The Rescue!

Various industry bodies and regulators, including the Bank of England and Bafin, have recently raised fears that there will be a cliff edge on Brexit for certain types of financial contract, most notably derivatives and insurance, due to the loss of passporting rights.1 This note explains why, in a no-deal Brexit scenario, this should not be the case. The loss of "passporting" rights and other freedoms under EU treaties should neither frustrate existing contracts nor render the performance of existing cross-border UK-EU contracts illegal nor cause them to be void or voidable.

We discuss how the right to property under the European Convention on Human Rights (ECHR) and the EU Charter of Fundamental Rights, and the doctrine of "acquired rights" under public international law, protect contractual rights. The protections afforded will shield many contracts entered into between UK and EU-27 parties before Brexit and should therefore permit such contracts to be performed to their full extent in a hard-Brexit scenario. These human rights concepts will mean that, despite the removal of the financial services "passport" upon Brexit, any licensing requirements that spring into force on Brexit for parties performing existing contracts—and any other legislative changes that frustrate contracts—would be contrary to the human rights and other protections afforded to contracts entered into before Brexit.

UK-based and EU-based businesses should be cognisant of these protections and, moreover, should take additional steps to future-proof their existing contractual agreements before the UK withdraws from the EU so that they can continue to provide a full range of services to their customers.

Our previous client note on Brexit and the free movement of natural persons considered whether the concept of "acquired rights" would safeguard free movement rights post-Brexit. This note now evaluates the concept, and human rights law, in the context of businesses and contracts, with particular reference to financial sector contracts.

The Right to Property Under the ECHR and EU Charter

Background

The ECHR is an international human rights treaty with 47 state parties, including, among others, the UK and all EU Member States. ECHR rights are afforded to everyone within the jurisdiction of a state party. Since the ECHR does not derive from the EU, Brexit will not affect its applicability in the UK or any current EU Member State.2 In the UK, for example, the Human Rights Act 1998 will continue to allow persons to challenge, before a UK court, UK public authorities for violations of Convention-based rights. We are not aware of any proposals among EU Member States to disapply the ECHR with respect to UK persons post-Brexit, nor would this be permitted under the ECHR.

Separately, the EU Charter, which has the status of an EU treaty, codifies fundamental rights protected under EU law and applies where a Member State's actions involve 'implementing' EU law, regardless of where a claimant is located. The term 'implementing' has been interpreted broadly and includes not only Member States giving effect to directly applicable EU regulations, but also the exercise of discretion when implementing EU directives through domestic legislation.3 As currently drafted, the UK's Great Repeal Bill specifies that the EU Charter will cease to be part of UK domestic law on or after the UK's exit day4 and also seeks to extinguish most unasserted claims accrued under the EU Charter prior to exit.5 In addition to asserting ECHR-based rights, both non-EU and EU persons will retain the right to legally challenge remaining Member States and their respective government bodies and regulators if the EU Charter rights accorded to them are infringed by acts which involve implementing EU law.

Whether any relevant case falls within the ECHR or the EU Charter (or both), or under European Court of Justice (ECJ), European Court of Human Rights (ECtHR) or national court jurisdiction, will depend upon whether any restriction on contractual performance was imposed at EU or national level and the extent to which it can be said to derive from an EU regulation or directive.

The Right to Property

The "right to property" is codified in both the ECHR and EU Charter and, in each case, applies to legal as well as natural persons. This right is, in principle, capable of being relied upon by businesses to protect against interference with proprietary entitlements.

Both the ECHR and EU Charter rights provide protections to persons' "possessions." The ECtHR and national courts have interpreted the term "possessions" broadly, autonomously from domestic law categorisations,6 so as to encompass many forms of property, including contractual rights. Accordingly property right protections have been found to exist in the context of many different kinds of contracts, including rights to receive rent,7 exclusive rights to use an online domain name,8 broadcasting rights,9 the rights between a pawnee and pawnor,10 contracts for the installation of solar panels and the goodwill associated with such concluded contracts.11

ECtHR and national court jurisprudence provides that a contract will qualify as a "possession" under the ECHR if it gives rise to an "asset."12 The jurisprudence of the ECtHR suggests that the core question when assessing intangible assets such as contracts is whether the contract in question "gave rise to financial rights and interests and thus had an economic value."13 The UK courts, applying and interpreting the ECHR and ECtHR case law, have held that tangibility, transmissibility or assignability, realisability and economic value are all relevant indicia for determining whether a contract constitutes a "possession" for these purposes.14 The UK Court of Appeal acknowledged that "transmissibility cannot always be a touchstone of a possessory entitlement"15 but that it is a highly relevant factor where it does exist,16 especially because marketability normally ascertains the economic value of intangible rights.

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