England's High Court ruled on Thursday that the British government requires parliamentary approval to trigger the process of exiting the European Union, upsetting Prime Minister Theresa May's Brexit plans.
The government said it would appeal against the decision and a spokeswoman for May said the prime minister would press ahead with the planned timetable of launching talks on the terms of Brexit by the end of March.
The pound rose on the court's ruling, hitting a three-week high against the dollar. Many investors took the view that lawmakers would temper the government's policies and make an economically disruptive "hard Brexit" less likely.
"The most fundamental rule of the UK's constitution is that parliament is sovereign and can make and unmake any law it chooses," said Lord Chief Justice John Thomas, England's most senior judge.
Thomas and two other senior judges did not spell out what action the government needed to take. They also did not say whether it would need to pass a new law to trigger the divorce proceedings, which could face opposition and amendments from both houses of parliament, particularly the House of Lords, the unelected upper chamber.
In theory, parliament could block Brexit altogether. But few people expect that outcome, given that the British people voted by 52 to 48 percent to leave the EU in a referendum in June.
However, the ruling makes the already daunting task of taking Britain out of a club it joined 43 years ago even more complex. It also puts at risk May's March deadline triggering Article 50 of the EU's Lisbon Treaty, the formal step needed to start the process of exiting the bloc.
"The government is disappointed by the court's judgment," trade minister Liam Fox told parliament. "The country voted to leave the European Union in a referendum approved by acts of parliament. The government is determined to respect the result of the referendum."
Making clear the government planned to stick to its timetable, the spokeswoman for May said: "Our plan remains to invoke Article 50 by the end of March, we believe the legal timetable should allow for that."
"HARD BREXIT" NOW LESS LIKELY?
The court ruled that the government could not trigger Article 50 without approval from parliament.
"The court does not accept the argument put forward by the government," Thomas said. "We decide that the government does not have power ... to give notice pursuant to Article 50 for the UK to withdraw from the European Union."
The judges granted the government permission to appeal to the Supreme Court, Britain's highest judicial body, which has set aside Dec. 5-8 to deal with the matter.
Investment manager Gina Miller, the lead claimant in the legal challenge, said the case was about "process, not politics" and rejected accusations of trying to usurp the will of the people.
"One of the big arguments (in the referendum) was parliamentary sovereignty," she told reporters. "So you can't on the day you get back sovereignty decide you're going to sidestep or throw it away."
Lawmakers largely voted to remain in the EU in the June referendum. Many investors believe greater parliamentary involvement in the process would therefore reduce the influence of ministers in May's government who are strongly pro-Brexit.
This could reduce the likelihood of a "hard Brexit", a scenario in which Britain prioritizes tight controls on immigration over remaining in the European single market.
Nigel Farage, head of the anti-EU party UKIP, said on Twitter that he feared the ruling could turn into an attempt to scupper Brexit altogether.
"I worry that a betrayal may be near at hand," he said. "I now fear every attempt will be made to block or delay triggering Article 50. They have no idea (of the) level of public anger they will provoke."
(Additional reporting by Andy Bruce, Kylie Maclellan, Sarah Young and Costas Pitas, writing by Estelle Shirbon, editing by Guy Faulconbridge and Timothy Heritage)