24 June 2016

BREXIT – Impact from a Swiss lawyer's point of view

The people of the UK have voted to leave the EU. Many standard agreements in the financial world, including loan agreements and derivative contracts, are governed by English law. This raises the question of the impact of the BREXIT vote.

No direct impact of the UK vote
As a general rule, the vote has no direct impact on these standard agreements and no immediate action by the contract parties is required. The UK will only cease to be an EU member in 2018 at the earliest.

Indirect impact possible
An indirect impact is however conceivable since the BREXIT has already affected the financial markets and has developed a potential to a change of ratings of the UK and market participants. Hence, in specific cases, the occurrence of an event of default due to a changed rating of the contract parties cannot be ruled out.

Impact upon execution of BREXIT
The consequences of the BREXIT will to some extent depend on the upcoming negotiations with the EU. In addition, and maybe more importantly, they will depend on the different steps to be taken by the UK government in order to replace the currently existing EU law regime:

  • The Brussels Regulations on jurisdictional matters will no longer apply. Will the UK become a member of the Lugano Convention instead?
  • The Rome Regulations on the applicable law on contractual and non-contractual obligations will no longer apply. While the recognition of choice of law clauses for contractual obligations is in line with long-standing practice of the English courts, further questions may arise with regard to non-contractual obligations.
  • The EU insolvency framework will no longer apply. The recognition of English insolvency proceedings across the EU is no longer guaranteed.
  • Collateral arrangements will no longer benefit from the UK implementations of the EU Collateral Directives.

While it is likely that the UK government will take steps to address these issues, this will take some time. The outcome is unclear.

Recommendations
We therefore recommend reviewing existing contracts in order to determine whether they would also be valid and enforceable if only general English common law rules were to apply. Further, we suggest considering alternative choices of law and jurisdictions, or the selection of arbitration for future agreements, to avoid uncertainty until the impact of the BREXIT is better known and can be assessed in detail. For further questions, please contact our Banking Team.

Authors: Dr. Markus Guggenbühl and Dr. Jana Essebier

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