Mathias Cheung provides a post-election update on the direction of the Brexit negotiations and the implications for the construction/infrastructure industry. The three key takeaways are:

• There are likely to be delays in starting the Brexit negotiations, and the UK may have to ask for an extension somewhere down the line.
• The UK could be heading for a softer Brexit due to pressure from parliament and the electorate, which would be beneficial to construction and infrastructure.
• The government should involve devolved governments and major political parties in the negotiations in order to garner cross-party support and protect the UK’s industries.

‘It’s like waiting for Godot,’ one senior EU official reportedly said in the wake of the UK’s second hung parliament in a decade. There is no doubt an element of poetic licence, but it is also not a far cry from the drama which is Britain’s current political scene.

The analogy is irresistible, not the least because many in the UK feel that ‘in an instant, all will vanish and we’ll be alone once more, in the midst of nothingness’, and that ‘in this immense confusion one thing alone is clear. We are waiting for Godot [i.e. Brexit] to come’. What does the future really hold for Brexit and the UK’s construction and infrastructure industries?

An election that defied expectations

Prime Minister Theresa May’s intention when calling a snap general election was to strengthen the Conservatives’ parliamentary majority before joining the negotiating table. In the pre-election issue of this Bulletin, I cautioned that Labour could enjoy a surge in popularity in the light of the Conservative manifesto. On 9 June 2017, Britain woke up to the surprising result of a hung parliament in which the Conservatives have lost their pre-existing majority, with only 318 seats against Labour’s 262.

Yet another own goal, after Cameron now May, will make already complex negotiations even more complicated.

— Guy Verhofstadt (@GuyVerhofstadt) June 9, 2017

It was a catastrophic result for the Prime Minister and her party, and as Conservative MP Nigel Evans memorably said, ‘We didn’t shoot ourselves in the foot, we shot ourselves in the head’. Guy Verhofstadt, the European Parliament’s Brexit negotiator, even described it as ‘yet another own goal’.

Although the Prime Minister has pledged to form a government with a ‘confidence and supply’ deal with the Northern Irish Democratic Unionist Party (“DUP”), rumours abound on the waning support for Mrs May within her own party, not the least the serious misgivings about the DUP deal which senior politicians like Sir John Major have. The question is, will all the current chaos and instability in government translate into turmoil in the upcoming Brexit negotiations and the future of Britain?

Potential delays to Brexit negotiations

Brussels has been quick to point out that the negotiations should start as soon as possible. After a meeting with French President Emmanuel Macron on 13 June 2017, the Prime Minister announced that the negotiations will start as planned, and this has now been confirmed by Brexit Secretary David Davis after preliminary talks in Brussels. This is to be welcomed – as Michel Barnier (EU’s chief negotiator) said to the Financial Times, ‘time is passing, it is passing quicker than anyone believes because the subjects we have to deal with are extraordinarily complex’.

Credit ratings agencies Moody’s and Standard & Poor’s, however, have warned that the lack of a majority could ‘complicate and probably delay Brexit negotiations’, with negative repercussions for the economy. To add to this mix of uncertainty, Mr Barnier has threatened to push back the negotiations for a whole year in order to draft a new mandate, if the Prime Minister insists on negotiating a trade deal concurrently with other priority issues. It is likely that the Prime Minister will have to adjust her negotiating stance in the light of all these complications.

A softer Brexit?

For those on the other side of the English Channel, there appears to be little if any change in attitude towards Brexit and the EU’s negotiating stance. What seems to be the consensus is that Britain may well adopt a more conciliatory tone and go for a softer Brexit, as the election results are perceived as a rejection of the Conservatives’ vision of a hard Brexit. This is corroborated by reports that certain cabinet members (particularly First Secretary of State Damian Green) are planning a soft Brexit.

Although the official line of the cabinet is that nothing has changed, a number of factors militate against a hard Brexit. Moody’s said that the election results represented an ‘electoral shift’ towards a softer Brexit. Pro-EU politicians have observed that the majority of elected MPs wish to avoid a hard Brexit, and Lord Heseltine made the point that the UK needs a leader who can appeal to France and Germany and keep the UK ‘within the European family’.

On a more practical level, the DUP is likely to demand a softer Brexit in order to avoid a hard border with Ireland and have continuous access to the EU market, as a condition precedent to any deal with the Conservatives. This, together with the general sentiments of the electorate, can be a significant incentive for the government to prioritise continuing access to the single market over migration curbs.

If so, this would be beneficial to the construction and infrastructure industry, as the UK’s industry would continue to have access to projects in the EU market, and the supply of EU materials and labour to the UK’s industry can carry on under similar conditions. The certainty that this would create can stimulate growth in the industry, and also assist the government in solving housing and infrastructure shortages.

Scepticism about a weak government

Whatever the current stance of the government might be, there are growing concerns that the Prime Minister would be a weak negotiating partner without majority support in Parliament, which could in turn frustrate the possibility of reaching any deal or compromise in the Brexit negotiations.

German MEP Elmar Brok told the BBC that ‘a weak government has no real possibilities for the needed common flexibility you need in every negotiation. So I’m surprised how weak Britain does go into these negotiations now’. Similarly, EU Budget Commissioner Guenther Oettinger stressed that ‘we need a government that can act… with a weak negotiating partner, there’s a danger that the negotiations will turn out badly for both sides’.

A lot is therefore hanging in the balance, and in order to ensure that the UK is on course for a successful Brexit deal, the government is likely to have to soften its tone and allow the participation of all major political parties in the negotiation process, in order to garner sufficient support in parliament for the final deal. After all, the government’s mandate is to deliver a Brexit which would be a success for the entire British people, and the Prime Minister herself pledged after the election to ‘fulfil the promise of Brexit together and – over the next 5 years – build a country in which no one and no community is left behind’.

At this critical hour, the country must call on all its best talents and resources to see through the Brexit negotiations, by means of a cross-party delegation or committee. The SNP and the Scottish Conservatives have called for the involvement of devolved governments and major political parties, in order to work out a UK-wide position with cross-party support. David Cameron has also made a similar plea. This would be a sensible way forward, and would also serve to protect the construction/infrastructure industry.

Returning to the theme we began with, it is worth recalling the wisdom of Waiting for Godot: ‘Let us do something, while we have the chance! It is not every day that we are needed. But at this place, at this moment of time, all mankind is us, whether we like it or not. Let us make the most of it before it is too late!’

Mathias Cheung

Mathias’ practice covers all areas of Chambers’ work, including construction, engineering and infrastructure, energy and utilities, information technology, and professional negligence. In addition to these specialist areas, he has gained experience in a wide range of commercial disputes, including cases on fraud, insurance, assignment, subrogation, and conflicts of law. Mathias is also the winner of the SCL Hudson Prize 2015 for his essay entitled ‘Shylock’s Construction Law: the Brave New Life of Liquidated Damages?’.

As a native of Hong Kong, Mathias is fluent in both Cantonese and Mandarin, and he is therefore able to take instructions for cases involving Chinese-speaking parties and Chinese documentation in Hong Kong, Mainland China, Singapore and other jurisdictions.