Ius Gentium

University of Baltimore School of Law's Center for International and Comparative Law Fellows discuss international and comparative legal issues


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The Double-Edged Sword in the Stone: London’s Fate as a Seat of International Arbitration Post-Brexit

Esther-Jane Grenness

Her chest tightened and her palms began to sweat when an email popped up in her inbox with the subject line, “Attention HSBC London Employees.” Her worst fears were confirmed. Her job was moving to Paris as “preemptive action” in response to Brexit uncertainties.[1] She picked up her phone and dialed her father’s number. A Welsh collier who eagerly voted “Yes!” to leave the EU, he picked up the phone, happy to see his daughter calling. Without even saying hello, she blurted, “Thanks a lot, Da! My job’s to move to France because you an’ all voted to give them the boot.” Tears welled up in her eyes. After a moment’s pause, her father exclaimed, “Bloody foreign loving bastards! Shame on them. They’re a British bank.” Dejected, she mumbled, “It’s all because of Brexit.”

Brexit is the term used to describe the United Kingdom’s June 2016 referendum in which 51.9% of the eligible electorate voted to leave the European Union.[2] Not expecting it to actually happen, the United Kingdom must now decide how, and when, to trigger Article 50 of the Treaty on the Functioning of the European Union (TFEU – or Lisbon Treaty). Article 50 gives the U.K. two years in which to negotiate its exit, but the legislation that links the U.K. and EU is exceedingly complex. Not surprisingly, experts argue it could take ten years to unravel legal ties going back 45 years to the enactment of the European Communities Act of 1972.[3]

The Razor Edge

There is no doubt that Brexit has the British financial markets in turmoil. In addition to HSBC’s dash for the door, VTB Bank, a Russian bank, announced recently that it will also relocate due to Brexit.[4] Moves like this highlight the depth of the Brexit sword’s cut. London is a major player in the financial clearing sector, which is where banks act as intermediaries in business transactions.[5] As a member of the EU, the U.K. enjoys what is known as passporting, which allows the free flow of funds between countries in the European Economic Area (EEA).[6] Without such a free flow, additional regulatory authorizations would be necessary.[7] Brexit strips the U.K. of these EU benefits and leaves the U.K.’s financial market clout teetering on the edge of a sea of quicksand. And it’s not just the free flow of money that’s implicated in Brexit. The heretofore mobile workforce with expertise in “complex and multi-jurisdictional matters”[8] will be curtailed. British lawyers who are currently allowed to “provide interstate services on a temporary basis” in EU member states could lose that right if Brexit goes through.[9] Indeed, experts argue London could lose as many as 18,000 jobs in the legal and accounting services sector, and 83,000 total jobs over the next seven years as a direct result of Brexit.[10]

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The Blunt Edge

Where does this financial sector flight leave the international arbitration business in London? According to a 2015 survey, London is one of the most popular seats of international arbitration.[11] British law is also among the most widely chosen law to govern international commercial contracts—whether or not the contract was formed, performed, or even remotely related to Britain.[12] With such a top spot, the U.K. understandably doesn’t want to lose its primacy to competing international arbitration seats such as Paris, Dubai, Singapore, Hong Kong, Geneva, New York, Zurich, and Stockholm.”[13]

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Most writers on the subject believe London’s primacy as a seat for international arbitration will chug along “business as usual.”[14] There are two major reasons. First, EU law doesn’t govern arbitral awards. Rather, any awards granted in London are governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. This Convention allows parties to enforce arbitral awards in the domestic courts of any of its 156 member states. Second, the U.K.’s Arbitration Act of 1996 is very friendly to arbitration. Britain’s courts take a largely hands off approach but will step in to assist arbitral tribunals with such things as compelling witnesses to testify, preserving evidence, and ordering injunctive relief.[15]

Other arguments posed are that because the U.K. would no longer be bound by rulings from the Court of Justice of the European Union (CJEU), any precedent considered harmful to arbitration could be cast aside.[16] They argue further that in the field of investor-state arbitration, Brexit has its perks. After Brexit, the U.K. would not be bound by the EU’s recent move away from investor-state dispute settlement (ISDS) to an untested investment court system (ICS). Under the current ISDS model, investors are allowed a voice in choosing the arbitrators that will hear their case. Under the EU’s new ICS model, investors would no longer have a voice in arbitrator selection. Only member states would manage the names on a revolving roster of randomly appointed arbitrators. In a post-Brexit world, investors could continue to cherry pick from the various investment treaties to which the U.K. is a party in its own right. Investors could also happily anticipate the new investment treaties the U.K. would now be free to negotiate on its own behalf.

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Given these sunny predictions, one quickly nods one’s head in agreement with such common sense arguments. The sword is still in the stone, however. More recent studies have pointed out that the proponents of these arguments are largely U.K. centered practitioners, who are naturally biased in favor of keeping London at the top of the list.[17] In addition, optimists downplayed the significance of the financial sector’s flight. Even the most myopic commentators had to acknowledge London’s primacy as a seat of arbitration is “undeniably influenced by its role as an international business hub,” but they were quick to soften the potential “knock-on effect” as “expected to be minimal.”[18] A more realistic prediction for this blunt side of the sword is that an “exodus of businesses” would eviscerate London’s status as the financial hub in Europe.[19] Therefore, if London lost its status “and something else becomes the financial center of Europe, over time you may see arbitration gravitate that way.”[20]

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As a British national living abroad, I wasn’t eligible to participate in the U.K. referendum. I wish I could say I agree with the optimists, but the writing is on the wall. Most of the financial sector jobs are moving to Paris.[21] Because Paris is one of London’s competitors for international arbitration market share, it’s only a matter of time before the arbitration business bleeds out of London. The people of Britain have their hands on both edges of the Brexit sword, but as they pull it out of the stone, London’s international arbitration market is likely to wind up cut just as deeply as that of its financial sector.

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Esther-Jane Grenness is an evening student in her fourth year of studies at the University of Baltimore School of Law. She graduated from the University of Baltimore in 2013 with a Bachelor of Arts in Jurisprudence and obtained her Associate of Arts from Howard Community College in 2001. Esther is a member of the International Arbitration Committee’s Investment Treaty Working Group of the American Bar Association’s Section of International Law. She also participated in the Mentorship program with the Women in International Law Interest Group of the American Society of International Law. In addition to her studies, Esther coordinates government procurement contracts in the mobility sales operations group for AT&T’s Global Business – Public Sector Solutions segment.

 

[1] Chris Johnson, HSBC Prepares to move 1,000 U.K. Jobs to Paris Due to Brexit Confusion, Law.com (Jan. 11, 2017), http://www.law.com/sites/almstaff/2017/01/11/hsbc-prepares-to-move-1000-u-k-jobs-to-paris-due-to-brexit-confusion/?et=editorial&bu=Law.com&cn=20170111&src=EMC-Email&pt=ALM%20Morning%20Minute&slreturn=20170021202538.

[2] King & Wood Mallesons, Brexit and Arbitration: Shaken but not Stirred, KWM News & Insights (Sept. 15, 2016), http://www.kwm.com/en/knowledge/insights/the-impact-of-brexit-on-international-arbitration-20160915.

[3] Caroline Simson, What Brexit Could Mean for International Arbitration, Law360 (Jun. 22, 2016, 5:22 PM EDT), https://www.law360.com/articles/808801/what-brexit-could-mean-for-international-arbitration.

[4] Chris Johnson, EY Report: Brexit Could Cost London 18,000 Legal, Accounting Jobs, The Am Law Daily (Nov. 14, 2016), http://www.americanlawyer.com/id=1202772254983/EY-Report-Brexit-Could-Cost-London-18000-Legal-Accounting-Jobs?mcode=1202617075486&curindex=0&curpage=ALL&slreturn=20170021203506.

[5] Clearing, Investopedia, http://www.investopedia.com/terms/c/clearing.asp (last visited Jan. 20, 2017).

[6] What is Passporting? Definition and Meaning, Market Business News, http:/marketbusinessnews.com/financial-glossary/passporting-definition-meaning/ (last visited Jan. 20, 2017).

[7] Id.

[8] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf.

[9] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[10] Chris Johnson, EY Report: Brexit Could Cost London 18,000 Legal, Accounting Jobs, The Am Law Daily (Nov. 14, 2016), http://www.americanlawyer.com/id=1202772254983/EY-Report-Brexit-Could-Cost-London-18000-Legal-Accounting-Jobs?mcode=1202617075486&curindex=0&curpage=ALL&slreturn=20170021203506.

[11] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[12] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[13] Caroline Simson, Post-Brexit Barriers Could Hurt London Arbitration: Study, Law360 (December 15, 2016, 5:18 PM EST), https://www.law360.com/articles/872676/post-brexit-barriers-could-hurt-london-arbitration-study.

[14] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 15 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[15] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 16 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[16] King & Wood Mallesons, Brexit and Arbitration: Shaken but not Stirred, KWM News & Insights (Sept. 15, 2016), http://www.kwm.com/en/knowledge/insights/the-impact-of-brexit-on-international-arbitration-20160915.

[17] Maxi Scherer and Johannes Koepp, Consequences of “Brexit” on International Dispute Resolution: Special Issue of Journal of International Arbitration, Kluwer Arbitration Blog, (Oct. 21, 2016), http://kluwerarbitrationblog.com/2016/10/21/consequences-brexit-international-dispute-resolution-special-issue-journal-international-arbitration/.

[18] James Rogers, Simon Goodall and Charles Golsong, How will Brexit impact arbitration in England and Wales? It’s Business As Usual, Norton Rose Fulbright, 18 (Sep. 25, 2016), http://www.nortonrosefulbright.com/files/international-arbitration-report-issue-7-142408.pdf

[19] Caroline Simson, What Brexit Could Mean for International Arbitration, Law360 (Jun. 22, 2016, 5:22 PM EDT), https://www.law360.com/articles/808801/what-brexit-could-mean-for-international-arbitration.

[20] Id.

[21] Chris Johnson, HSBC Prepares to move 1,000 U.K. Jobs to Paris Due to Brexit Confusion, Law.com (Jan. 11, 2017), http://www.law.com/sites/almstaff/2017/01/11/hsbc-prepares-to-move-1000-u-k-jobs-to-paris-due-to-brexit-confusion/?et=editorial&bu=Law.com&cn=20170111&src=EMC-Email&pt=ALM%20Morning%20Minute&slreturn=20170021202538.

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Further Brexit Complications: On Patents

John Rizos

Milan: home of fashion, of a historic soccer rivalry, and of… intellectual property protection? Well, of course! Milan is a center of life science innovators and international property expertise[1]. The Milanese Court manages most of Italy’s patent litigation and hosts the majority of Italy’s intellectual property practitioners[2].

In response to the Brexit vote,  the Italian Trade Body in Milan (L’Ordine dei Consulenti in Proprietà Industriale) wants to replace the Court of First Instance in London, which handles claims related to pharmaceutical patents, since the court would apply EU law and Court of Justice of European Union (CJEU) rulings.  The UK Intellectual Patent Office (UKIPO), however, stated that it will preserve and implement EU regulations and abide by them as signatory to the Unified Patent Court Agreement (UPCA)[3]. The UK was historically one of the main supporters of the unified patents, had lobbied extensively to host the court in London, and had worked in advance in preparation for the system[4].

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Intellectual property protection is a huge factor in the EU’s goal of harmonizing domestic laws, mainly achieved by removal of technical obstacles and implementation of directives[5]. Recently, the focus has been on harmonizing the intellectual property industry, especially patents[6]. The European Patent Convention (EPO) was signed in agreement in 1973[7], independent from the EU, comprised of EU and non-EU members. In 2013, 25 EPO States signed the Unified Patent Court Agreement (UPCA). It aims to establish the Unified Patent Court (UPC)[8] and a system of uniform patent protection throughout EPO States on new patents from any other EPO State[9]. Although it is independent from the EU, it comprises mostly EU law and can only be ratified by EU members[10]. The UPC will centralize disputes[11] through a main court in Paris with jurisdiction over legal disputes regarding patents, and two courts with jurisdiction over patents with specialized subject matter; one in Munich for engineering issues and one in London for disputes in pharmaceuticals and life sciences[12].

UK patent laws are formed by a mixture of domestic and EU laws, as many have been enacted in response to treaties and European cooperation. The UK’s ratification will not have an effect on its domestic laws, since it already includes EU law and is a signatory of the EPO. The organization will carry out the patent process as scheduled[13].The current UK patent system is governed by the Patents Act of 1977[14]. This act was framed to comply with the terms of international agreements, mainly the Cooperative Patent Classification (CPC), which although was never ratified by the EU, it was created by its predecessor, the EEC, pursuant to which the UK aligned its patent infringement provisions.[15] UK patent law is within the EU legislative framework in the areas of competition law defenses and relief for infringement for intellectual property[16]. UK supplemental protection certificates, a form of intellectual property protection which compensates for a period between filing and granting of a patent application for pharmaceuticals, is also governed by legislation implemented pursuant to EU regulation[17]. Additionally, the UK is expected to be an EU member until at least 2019[18]. During this period, the country will operate under a transitional framework pursuant to EU legislation. The government has stated that it will keep implementing EU directives and that the courts will continue to interpret EU law[19].

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In the case of an actual Brexit, the UK will likely ratify the court through the transitional framework of an EU exit or will lose its ratification vote and the UPC will be established through the very likely ratification of the rest of the EU. Even if the UK does not ratify the UPC, its patent law will be heavily influenced by EU law and it will remain an EPO member. If the UK does ratify the new court system, it would entwine UK law even closer to EU law by granting the court jurisdiction to resolve patent disputes covering EU members that have chosen to participate in the system[20]. In the case of Brexit, there would be no fundamental reason for the UK not to participate, but its participation would have to be secured by separate agreements with other countries. Since the agreements would have to be done with EU members, the UK government would have to implement laws to ensure compliance with EU laws[21]. The UK will likely consider three agreements: It remains a European Economic Area (EEA) member, it joins the European Free Trade Agreement (EFTA), or it maintains a trade partnership with the EU[22].

First, if it remains part of the EEA, court references will be made to EFTA courts and not the CJEU. However, EFTA functions to ensure uniform interpretation of EU law and the EEA has adopted EU intellectual property regulation regarding medicinal and plant protection products[23]. That may not seem important, but patent protection on medicinal products serve as “life blood” of the pharmaceutical industry, which generates 10% of the UK’s GDP, employs 100,000 people, and allows the UK to host clinical trial markets, foreign companies[24], and European medicinal organizations[25]. Second, if the UK joins EFTA, some of the remaining EU legislation could be expected to apply, especially through the transitional framework[26]. Third, if the UK decides to just trade with the EU, it would operate pursuant to a bilateral trade agreement, making it subject to CJEU jurisdiction and to EU law implementation to prevent gaps in legislation and in judicial opinions. Historically, UK judges have been influenced by decisions from other European judges, meaning they will keep referencing to CJEU rulings[27].

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In conclusion, in the field of patent protection, the EU has ostensibly achieved its goal of unity through embedded values, from which the UK will find it hard to separate. Europe does not have to worry as Brexit will not adversely affect European patent protection or UK patent law. The UK will still be guided by EU law regardless of whether it leaves the Union.

John Rizos is a 3L at the University of Baltimore School of Law with a concentration in International Law. He has an interest in human rights and international criminal law. In addition to being a CICL Fellow, John has served as the Secretary for Phi Alpha Delta Law Fraternity and is currently enrolled in HarvardX’s online course, “Humanitarian Response to Conflict and Disaster.” In June 2016, John was a member of the CICL Fellows team that, under the supervision of Professor Moore, assisted in drafting an amicus brief to the Extraordinary Chambers in the Courts of Cambodia, which was later approved and published. John graduated with honors from Towson University with a BA in International Studies (2013). He has interned at the Press Office of the Greek Embassy in Washington, D.C. and the International Civil Advocacy Network (ICAN), a non-profit organization advocating for women’s rights in the Middle East.

[1] https://www.thelawyer.com/issues/online-october-2016/brexit-mean-end-unified-patent-court/

[2] Id.

[3] http://www.lexology.com/library/detail.aspx?g=06cd3962-2c1d-4e8f-9618-c63b784b0875

[4] http://arstechnica.co.uk/tech-policy/2016/09/brexit-eu-unitary-patent-plans-legal-analysis/

[5] http://www.europedia.moussis.eu/books/Book_2/3/6/02/1/?all=1

[6] http://www.europedia.moussis.eu/books/Book_2/3/6/02/1/?all=1

[7] https://www.epo.org/about-us/office/timeline.html

[8] https://www.unified-patent-court.org/

[9] https://www.ft.com/content/9199ea86-80c8-11e6-8e50-8ec15fb462f4

[10] https://www.thelawyer.com/issues/online-october-2016/brexit-mean-end-unified-patent-court/

[11] http://www.lexology.com/library/detail.aspx?g=06cd3962-2c1d-4e8f-9618-c63b784b0875

[12] https://www.ft.com/content/9199ea86-80c8-11e6-8e50-8ec15fb462f4

[13] https://www.ft.com/content/9199ea86-80c8-11e6-8e50-8ec15fb462f4

[14] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[15] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[16] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[17] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[18] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[19] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[20] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[21] http://arstechnica.co.uk/tech-policy/2016/09/brexit-eu-unitary-patent-plans-legal-analysis/

[22] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[23] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[24] http://www.lexology.com/library/detail.aspx?g=06cd3962-2c1d-4e8f-9618-c63b784b0875

[25] http://www.lexology.com/library/detail.aspx?g=06cd3962-2c1d-4e8f-9618-c63b784b0875

[26] http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8

[27]http://www.lexology.com/library/detail.aspx?g=dd074ec3-2c21-486f-b33e-5c0af5512ae8