Disputes - What to look out for in 2019: Brexit

The UK leaving the EU will have repercussions for the enforcement of contractual dispute resolution clauses, while EU law is to be transposed into the UK statute book.

In brief

  • If a withdrawal agreement is signed between the UK and the EU, little will change immediately in relation to dispute resolution.
  • If the UK leaves the EU in March without a transition period agreed, there will be implications for agreements on jurisdiction and on the enforceability of judgments between the UK and EU.
  • If there is no transition period, existing EU law will be incorporated into domestic legislation as provided for by the European Union (Withdrawal) Act 2018 on 29 March 2019. There are bound to be uncertainties as to how this legislation operates. It looks unlikely that the Government will have drafted all the secondary legislation needed to make sense of EU law for a country outside the EU, so there may be disputes in relation to the meaning and application of retained EU law.

Governing law

Regardless of when the UK leaves the EU, a choice of English law to govern a contract will remain effective across the EU. The Rome Regulations, which govern the choice of law for obligations across the EU, do not distinguish between a choice of law of an EU member state and any other laws. Contractual choices of English law will therefore continue to be effective. The UK Government has published draft regulations copying the Rome Regulations into domestic law with only minor changes, meaning UK courts will continue to recognise choice of governing law in the same way as courts in EU Member States.

Jurisdiction clauses

Contractual choices of jurisdiction are a different matter. These are currently governed by the Brussels Regulation (Recast), which will cease to apply to choices of UK courts when the UK leaves the EU. In July 2018 a survey of businesses by Thomson Reuters Legal found that 35% of respondents had changed dispute resolution clauses in their contracts in the past two years, with just over half of those having chosen for disputes to be heard in EU courts, such as those in France or Germany, rather than in the UK. In the same month, ISDA introduced Irish and French law versions of the ISDA Master Agreement to offer its EU/EEA members both common law and civil law options.

On 28 December 2018 the UK Government lodged an Instrument of Accession with the Ministry of Foreign Affairs of the Kingdom of the Netherlands to bring the Hague Convention on Choice of Court Agreements into effect for the UK from 01 April 2019. This ensures the continuity of the UK’s membership of the Hague Convention, to which it has previously been a party through its EU membership. As a signatory to the Hague Convention, courts of EU Member States would therefore continue to recognise exclusive jurisdiction clauses (but only exclusive ones) in favour of UK courts. The Instrument of Accession makes clear that, in the event of the Withdrawal Agreement between the EU and the UK being signed, the UK will withdraw the Accession Instrument and continue to be treated as an EU Member State and thereby a signatory of the Hague Convention for the duration of the transition period. The UK Government had previously passed regulations maintaining the application of the terms of the Hague Convention in the UK before the UK re-joins in its own right, but as domestic legislation this does not affect the law in any EU Member States.

The UK Government has also signalled that it will attempt to join the Lugano Convention, to which all EFTA states are signatories and which has the benefit of recognising non-exclusive jurisdiction clauses. However, joining Lugano requires the approval of all existing signatories and it is unclear how long this may take.

Enforcement of judgments

In the event of no transition period, no reciprocal apparatus would exist for the enforcement of judgments between the English courts and the courts of the EU Member States. The Hague Convention on Choice of Court Agreements offers some limited assistance, while the Lugano Convention would effectively replicate the current regime. In reality, the number of English judgments that are enforced in other EU Member States is very small and any gap in the recognition of judgments is likely to be short-lived, even if there is no transition agreement.

Arbitral awards are enforceable under the New York Convention, to which all EU Member States are signatories, so parties concerned to be able to enforce the outcome of their dispute across borders may favour arbitration post-Brexit.

The post-Brexit legal landscape

Making any predictions relating to Brexit is obviously something of a fool’s errand. But with only 183 of the expected 800 statutory instruments required to transpose existing EU law to the UK statute book laid before Parliament by the beginning of December 2018, it looks a safe bet that not everything will be ready by March 2019.

After the UK leaves the EU there is likely to be a period where retained EU law throws up questions of interpretation and application. The European Union (Withdrawal) Act 2018 gives Ministers sweeping powers to make changes to legislation to deal with “deficiencies” in law carried across from the EU. Disputes may arise over how legislation designed to be applied in the context of the EU should be applied in a country that is not a member of the EU, so if there is no transition period we may see the first cases raising such issues in 2019.

What it means for you

  • Parties need not have any concerns about choosing English law for their contracts, as such a choice will continue to be recognised across the EU.
  • For now, parties wanting any disputes with a European connection heard by courts in the UK would be well advised to use exclusive jurisdiction clauses, to take advantage of the Hague Convention.
  • For greater analysis of the impact on jurisdiction clauses and enforcement of judgments across EU Member States, you may be interested in our award-winning Disputes Aviator online product. For more on Brexit as a whole, see our microsite.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.