On Thursday 18 September, Scotland will go to the polls to determine whether the nation should become independent from the United Kingdom. Should the majority of voters opt for an independent Scotland, the country's legal status would not be altered immediately. Rather, a transition period would ensue during which negotiations between the UK government and Scottish government would take place and new constitutional arrangements would be settled and implemented. The Scottish National Party ("SNP") has estimated that this transition period would last no longer than 18 months and hopes that 'independence day' will occur in March 2016.
In this article, we have listed some possible prospective scenarios in different areas of law, should Scotland vote for independence on Thursday.
Initial indications are that the UK Civil Aviation Authority would report to the Scottish Government on regulatory matters affecting aviation in Scotland prior to the establishment of a separate Scottish regulatory body in due course. In the transitional period to independence, it is also likely that Scotland would elect to follow the European Aviation Safety Agency regulatory framework.
Air traffic services would continue to be provided by National Air Traffic Services ("NATS") although Scotland would seek to negotiate an equitable share of the UK Government's 49% shareholding of NATS Holdings. Reduced air passenger duty in Scotland has also been pledged. Consideration will likely also be given in due course to setting up a separate aircraft register (the White Paper makes reference to the creation of a Scottish shipping register), offering tax incentives to aircraft owners and investors and ratifying the Cape Town Convention.
Contracts may need to expressly allocate risk for the possibility of any substitution to Scotland's currency changes. Many contracts already contain Euro adoption wording, but if a service provision covers Scotland, a clause concerning currency change risk (and exchange rate risk) might need to be included. If costs of operating services across Scotland and the remaining UK increase, then outsourced service providers may look for ways to pass these costs onto their customers (which will depend on the change control and variation mechanisms written into the contract). Contracts usually deal with taxation (VAT), data protection, employment, IP and other issues which could be impacted by independence as set out in this article so all of these areas may have knock-on implications for commercial contracts.
Data Protection Law
This is a reserved issue. In another words, the Data Protection Act 1998 currently applies in Scotland. If this territory were to become independent, it would suddenly be regarded as a third party country not offering an adequate level of data protection. Organisations transferring personal data to entities (e.g. local offices, third party suppliers) in this territory would therefore have to address data transfer requirements.
Whilst Scotland is already a distinct legal jurisdiction from England and Wales and as such has its own courts system, at present it is relatively easy to enforce a judgment obtained in the English courts against assets based in Scotland and vice versa. However, if Scotland is no longer part of the UK there will be no automatic reciprocal enforcement arrangements in place and, if Scotland (temporarily or permanently) cease to be a member of the EU, the reciprocal enforcements arrangements which are in place between EU member states will also not be applicable.
Whilst it already has its own legal system, almost all of Scotland's employment law is derived from and governed by UK legislation (e.g. the Employment Rights Act 1996 & the Equality Act 2010). In the event of independence, as will be the case in relation to other areas, Scotland will either need to implement its own equivalent, or quite possibly different, legislation. Over time at least, that means there is potential for divergence between Scotland and the rest of the UK, potentially leading to one country having laws which are more favourable to employees (or, conversely, employers) than the other. For example, Scotland could reduce its minimum wage to make it more economically competitive or, to enhance employee protection, could give employees with only one year's continuous service the right to claim ordinary unfair dismissal again. There would also be a major question-mark as to whether Scotland continues with an Employment Tribunal system in its current form – at the very least, it may well abolish the fee system that has recently been implemented throughout the UK.
IP is currently a reserved issue (with one minor exception) for Westminster meaning that the same substantive intellectual property regime applies throughout the United Kingdom. IP can however be enforced locally within the courts of Scotland which have jurisdiction to grant injunctions covering the whole of the UK in certain circumstances.
As the UK is a member of the EU, certain European-wide IP rights (such as Community Trade Marks) are directly enforceable before the UK's courts (and those of other EU Member States). Many EU laws covering IP matters have also been implemented into UK national IP law.
If an independent Scotland (either temporarily or permanently) ceases to be a member of the EU, it would follow that European-wide IP rights would no longer extend to or be enforceable within Scotland during the period it is not an EU member. EU law relating to IP matters would also more generally cease to apply in Scotland. An independent Scotland may however choose to align its IP laws with those of the rest of the EU with a view to achieving a less complicated re-entry into the EU from an IP perspective. The treatment of existing UK-wide IP rights in an independent Scotland would also need to be considered. One possibility is that the Scottish Parliament could legislate to allow for existing UK and EU IP rights to be converted into Scottish national IP rights. Another possibility is that the status quo could be preserved with regard to the enforcement of existing UK IP rights. This would however require the agreement of both the UK and Scottish governments.
Real Estate Finance
As highlighted in a HM Treasury report published last summer, following a vote for Independence the Scottish banking sector would likely be perceived by the finance market as being more vulnerable, resulting in higher funding costs which are then passed on to consumers. As such, those in an independent Scotland may incur higher mortgage and lending rates, putting pressure on domestic finances and commercial residential development scheme margins, potentially driving down the value of housing, as buyers seek affordability in the market as whole.
After independence the Scottish Parliament would have full control over taxation in Scotland and it would then be for elected governments to decide on taxation legislation. The Scottish Government has proposed a transitional period after independence during which HM Revenue & Customs would continue to administer taxation functions in Scotland and the rest of the United Kingdom. Initially, therefore, the tax system would not change fundamentally post-independence except that Scotland’s share of tax receipts would ultimately flow to the Scottish Government. After the 2016 election it would be for the elected government to begin to make amendments to the system of taxation which would begin to diverge from its current position. If elected, the SNP have set out in their White Paper, “Scotland’s Future – Your Guide to an Independent Scotland”, that their intention to reduce the rate of corporation tax and to simplify the tax system.
Aviation Law: Paul Briggs & Mike Scrimgeour
Commercial law: Ronald Hendrikx & Barry I Jennings
Data Protection Law: Ruth Boardman & Gabriel Voisin
Dispute Resolution: Victoria Hobbs
Employment Law: Martin Barr
Intellectual property: Katharine Stephens & Mark Livsey
Real Estate Finance: Oliver Goodwin
Tax: Adam Singer & Mathew Oliver