Rules of separation

With the referendum a little over six months away, it’s time for businesses to start considering the consequences of an independent Scotland

Rules of separation

The issue of Scottish independence has dominated the political airwaves of late. With the referendum looming on the horizon, key figures in both camps have been reiterating their stance and taking snipes at the opposition. The war of words over currency between Alex Salmond, the Scottish first minister and George Osborne, the chancellor of the exchequer, has certainly got tongues wagging.

And the wider debate even weaved its way into the British music industry, with David Bowie expressing his own preference – albeit through Kate Moss – when accepting a Brit Award for Best Male Solo Artist. “Scotland, stay with us,” Bowie proclaimed with the assistance of his supermodel chum. For many, it was a rare highlight of a campaign that is only now shifting into gear. For others, with tongue firmly in cheek, it was a turning-point for ‘yes’ and ‘no’ voters alike.

Suffice to say, things don’t look like cooling off before the fateful day in September and one would suspect that, whatever the outcome, the fallout will rumble on for a number of months. Nevertheless, aside from what the result could mean for citizens north and south of the border, the potential impact of an independent Scotland on British businesses is one that is deserving of attention.

Should the result go the way of Salmond and Co, enterprises of all sizes may find themselves with some pesky legal obstacles to overcome, depending on what shape an independent Scotland takes post-referendum. 

Money minefield 

Walk away from the UK and you walk away from the pound. That was the fairly resounding message delivered from the chancellor to the Scottish first minister last month. The latter hit back, claiming that by rejecting the possibility of currency union, businesses would face costs totalling hundreds of millions.

However, it seems that much will depend on the nature of contractual arrangements struck between parties in different countries. This, in part, is due to the special circumstances that Scotland would find itself in, should it split from the rest of the UK. “When one currency is taken away it is usually replaced by a new currency, but Scotland is going to be slightly different,” says Kathryn Rogers, associate at Cripps Harries Hall, the law firm. “If it gets a new currency, sterling is still going to exist so it will be possible for sterling to still be used under a contract.”

Rogers does warn that an independent Scotland could introduce legislation requiring that existing contracts be redenominated into the new currency. Going through 78 contracts with a fine tooth comb should however go some way to alleviating any burdens. “It is going to be a question of applying some legal principles and basically looking at the terms of the contract,” explains Rogers. “It would have to be considered whether the parties had referred to sterling in the contract because that just happened to be the currency at the time that the contract was made, or they said sterling because that is what they had intended it to be even if there were a different currency available.”

Companies based in England or Wales would therefore do well to bear this in mind when looking to enter into a new contract with a Scottish customer or supplier – and vice versa. After all, the last thing anybody wants is a costly court case. “Expressly dealing with it in the contract will avoid any disputes in the future,” says Rogers. She also adds that the payment of wages could provide a further administrative headache in the event of a currency changeover, given the prospect of fluctuating exchange rates and outdated payroll systems. 

Lesson of the law 

Since devolution, Scotland has been granted extensive law-making powers to the extent that contracts can be governed by either Scottish law or that of England and Wales. Rogers explains that companies of Scottish origin often tend to make contracts subject to English and Welsh law because of its recognition on the international stage. Nevertheless, independence could bring a change in the tide.

“At the moment the two legal systems are quite similar but obviously if they become independent, it could be that over time, the differences between them become more pronounced,” says Rogers. “If Scottish law starts favouring companies considerably more than English law currently does, there may well be a greater push towards having Scottish law being the governing law in a contract.”

If independence became a reality, Scotland would also be a separate entity on the global stage. And with the EU giving no guarantees when it comes to membership, the challenges are fairly predictable.

“Essentially, if Scotland gets independence, they are going to be treated like a foreign country,” says Rogers. “If you are a UK company dealing with Europe, there are different implications there than there would be if you are just dealing with another company in England. All of those issues are then going to arise in relation to contracts that cross the England-Scotland border.” 

Close protection 

A final headache for firms could come in the shape of registration and trademark procedures. Rogers suggests that an independent Scotland may establish its own companies register, and Companies Act, which would provide yet another administrative burden for SMEs with offices in both countries. “They would have two lots of documents to file each year and two different filing regimes,” she says.

Likewise, with trademarks, separate applications may need to be sought. “There is a European-wide trademark registry for community trademarks and I would assume that if Scotland was going to get independence, it would still seek to be part of Europe,” says Rogers. “People may find that applying for community-wide trademarks becomes something that they want to do.”

For now, it’s still all up in the air. However, getting one’s house in order wouldn’t be the worst idea – just in case. 

Adam Pescod
Adam Pescod

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