British banks could sue the EU to ensure gradual Brexit transition

Law firms make case that they have "acquired rights" that cannot be withdrawn...

Brexit, Irish in Britain, referendum, vote, EU, Ian, London, letter, travel,

File photo of EU and UK flags above the EU Commission offices in Westminster, London | Image: Stefan Rousseau / PA Wire/Press Association Images

A number of large London-based law firms have advised British banks that they may be in a position to sue the European Union if it fails to agree to a slow transition towards Brexit.

Linklaters, Clifford Chance and Freshfields argue in a new analysis that there are precedents for this approach, including the Vienna Convention on the Law of Treaties which give “acquired rights” that cannot suddenly be withdrawn.

The document states: 

"EU law cites a number of different bases for requiring transitional arrangements. A failure to do so could possibly create an entitlement for an affected EU firm... to take action against the commission."

It comes as financial institutions based in London call for the retention of so-called passporting rights that allow them to operate across the EU. They are lobbying for a transition deal to be struck between Britain and the EU that would allow them to keep many of the current arrangements for up to five years to help soften the blow of Brexit. 

The banks may appeal to the European Court of Justice that they be allowed to continue trading in the single market, based on one of the four principles of EU law, which is "legal certainty". 

The document continues:

"EU firms utilising their passport rights do have 'legitimate expectations' within the meaning of EU law that their rights will not simply disappear on Brexit. They will have structured their businesses, and invested into them, in light of those rights."

It goes on to find precedent in a 2003 case where the Belgium government sued the European Commission after it ruled that it had to stop giving tax concessions to certain companies on the grounds that it was an unfair form of State aid. The European Court of Justice struck down the ruling three years later, stating that it was unjust because companies had made substantial investments and long-term commitments on the basis of the concessions.

Speaking to Reuters, Bernardine Adkins, head of EU, trade and competition at Gowling WLG, said it was unlikely that companies would be able to use the Vienna Convention because Article 50 would override it.

She said:

"It is one of these clever weasel arguments people come up with. I don't think it holds water."