Business leaders would be wrong to think that the Brexit referendum does not have immediate consequences for them, a seminar on the key challenges facing Irish organisations doing business with or in the UK ,business has been told.
Material adverse change conditions in contracts, and what contracts should say as to what jurisdiction's laws should apply in disputes, are just two of the immediate issues that arise as a result of the poll's outcome, according to John Cronin, head of the Brexit group at law firm McCann Fitzgerald.
The Brexit referendum has no legal effect and the UK remains part of the EU and subject to the same EU rules and laws as it was prior to the referendum, but that does not mean that there are not new challenges to be addressed.
Challenges
Speaking at a seminar in the firm’s Dublin office, Brexit: What Happens Now?, Mr Cronin said Irish organisations need to be on their toes right away and that the prospect of the UK leaving the European Union should now go to the top of many companies business risks list. He recommended the immediate establishment of review teams which would examine what the risks and challenges are.
The departure of the UK from the EU would have a particularly severe effect on the UK’s financial services sector. While it was likely there would be a short to medium-term benefit for the Irish financial services sector, the longer term picture was not so clear.
Post-Brexit, the UK will have "third country" status in financial services terms. Major financial firms may look to locating parts of their activities in Ireland in order to do business in the EU. Darragh Murphy, a partner in the firm's banking and financial services group, said financial services firms would have to move "demonstrable substance" here if they wanted to get authorised status here and the right to pan-EU access.
He said firms moving here would need staff who are in Ireland rather than Irish staff, so any constraints in terms of limited suitable staff in the Irish population would be solved by the EU’s freedom of movement rules.
Services
Mr Cronin said that the interests of the financial services sector will not be given the same weight at future EU negotiations if the UK is no longer at the table.
The stakes are high for Ireland’s food and drink industry, with increased costs for consumers post-Brexit, and Irish exporters, including our beef sector, having to cope with increased competition in the UK from no-EU suppliers, Mr Cronin said.
Patricia Lawless, head of the firm's energy and natural resources group, said she did not see the gas infrastructure between Ireland and Britain, which supplies 90 per cent of our gas needs, being "switched off". The real issue was whether full value would be achieved. The purpose of the infrastructure was to reduce prices but it was possible post Brexit that tariffs could be introduced. It would make "no sense" to build a gas interconnector with another EU country.
Mr Cronin speculated that attempts by Ireland to negotiate special arrangements with the UK could open up the prospect of the EU, which would have to approve such arrangements, putting pressure on Ireland over its corporation tax rate.
Philip Andrews, head of the firms competition, regulated markets and EU law group, said the two-year timeframe set out in Article 50 of the EU treaty for negotiating a departure from the EU, was "massively short".
The timeframe kicks in once the UK officially notifies the EU of its desire to leave, but an extension can be given at the end of the two years if a deal has not been agreed. “There is no assumption that that extension will given in Brussels right now.”
