Brexit and Covid-19

Abstract

The COVID-19 pandemic and the United Kingdom’s (UK) withdrawal from the European Union (EU) constitute the two greatest challenges faced by the UK state in modern times. The former has resulted in ‘the largest peacetime shock to the global economy on record’, with UK Gross Domestic Product ‘set to fall by 11 per cent this year – the largest drop in annual output since the Great Frost of 1709.’1The latter involves the UK leaving both the EU customs union and the EU single market and attempting to replace these arrangements with a much less ambitious free-trade agreement, thus constituting ‘the single gravest act of economic segregation in modern history.’

Either of these challenges on their own would have undoubtedly caused widespread disruption to the legal and political order of any European nation state. One of the great misfortunes of our time, it seems, is that they both happen to have come along at the same time. The impact of COVID-19 and Brexit within the domestic legal order of the UK is neatly illustrated by AG v OG, a case concerned with the cross-applications for financial remedies by a divorced couple who had previously co-owned and operated a ducting business. The respondent in the case argued that when it came to calculating the value of the company, ‘a discount of 10% should be applied to reflect the effects of the economic downturn caused by the COVID -19 pandemic and the likely future disruption to be experienced on account of Brexit, particularly where there appears to be an appreciable risk that this country will not conclude a trade agreement with the European Union by 31 December 2020.’

This was because a significant portion of the company’s business was with customers based in the EU and, for the time being, that business was conducted on a tariff-free basis. The risk at the time of the UK and EU failing to reach an agreement in the ongoing negotiations (leading to a ‘no deal’ Brexit) was thus liable to have adverse consequences for the business. Similarly, it was argued that the COVID-19 pandemic had had a considerable impact upon the company, which had not only experienced a significant decrease in demand for the time being, but was likely to be negatively affected in the future by a predicted recession. In giving judgment in the case, Mostny J recognised that this was ‘an issue novel to this court but one which will likely become a recurring feature in cases like this.’ Ultimately, in accepting that the combination of Brexit and COVID-19 were likely to have a significant impact upon the value of the business at the centre of the dispute, Mostyn J agreed to the application of a ‘discount for COVID/Brexit on trading element at 10%.’

For the High Court, the uncertainty caused by the prospect of a no deal Brexit and the devastation caused by the COVID-19 pandemic were so closely intertwined that it was appropriate to consider their impact together when calculating the value of a company. Against this background, this short paper examines the disruption that the COVID-19 pandemic has caused to the Brexit process. Section II deals with the negotiations between the UK and the EU regarding the terms and conditions of what became the UK-EU Trade and Cooperation Agreement (TCA). I refer to this as the external dimension to the Brexit process. As we shall see, the effort that both sides have expended in responding to the pandemic placed immense pressure on the time and resources available for negotiating and concluding the new TCA, affecting the time available to scrutinise its contents before its entering into force on 1st January 2021. Section III then turns to examine the internal dimension of Brexit, drawing attention to the effects that the pandemic has had upon the abilities of the UK parliament and executive to prepare the domestic UK legal order for life after Brexit. Section IV is a conclusion.