Investors Left Waiting As English Court Blocks Brexit

Background

On June 23, 2016, the United Kingdom voted 52% in favor of leaving the European Union (the Referendum).

Leaving the EU requires the U.K. to withdraw from the treaties forming the EU via a process set out in Article 50 of the Treaty of Lisbon (Article 50). In short, Article 50 requires an announcement of an intention to leave the EU by the U.K. which in turn starts the clock on a two-year period during which it is intended that any post-exit deals will be negotiated. Upon the expiry of the two-year period (unless unanimously extended by the European Council) the U.K. will no longer be subject to EU legislation or a member of the EU single market (Brexit). Prime Minister Theresa May has indicated that the government plans to trigger Article 50 in Q1 2017 without holding a vote in Parliament to approve that action.

Following Brexit, the U.K. will interact with the EU either on the basis of new trade deals or, in the event that new deals cannot be negotiated prior to the expiry of the two-year period, as a nonmember state. Interactions with the EU as a nonmember state without negotiated deals could include tariffs on the sale of goods and services, financial transactions taxes on movement of capital, and restrictions on free movement of people both from the U.K. into the EU and vice versa.

From the disquiet fueled by a slump in sterling and the absence of a clear plan and opening negotiating position from the government arose questions over the government's power to trigger an exit from the EU at all. It is on this basis that a legal challenge was brought against the U.K. government in the High Court of England and Wales, claiming that the government is not permitted to trigger Article 50 without first seeking a vote in Parliament authorizing it to do so (the Opposition). The Opposition centers on two central constitutional issues: the sovereignty of Parliament (i.e., laws can only be enacted by or repealed by Parliament as a whole) and the Royal Prerogative (i.e., the government's delegated powers from the crown allowing the government to conduct international affairs without the consent of Parliament). This challenge to the Royal Prerogative of the government is unprecedented and - given the precedent, principle and practice-based nature of the British constitution - is raising interesting constitutional questions in the court.

Following a hearing in October, on Nov. 3, the High Court found in favor of the Opposition, effectively...