Disputes 2017: Jurisdiction clauses

As the UK's intentions become clearer regarding reciprocal civil justice arrangements with the EU, contracting parties will need to consider the impact on jurisdiction clauses.

In brief

  • First indications from Government likely on approach to any future agreement with EU on jurisdiction.

  • EU courts likely to ramp up efforts to compete with London.

  • English-speaking Netherlands Commercial Court to launch.

Brexit means ….?

2017 should see the first indications of how the UK Government intends to deal with the withdrawal of the UK from the Brussels Regulation (Recast), which will occur when the UK leaves the EU. Under the Brussels Regulation, courts in EU Member States are bound to recognise a contractual choice of a UK court and to stay any proceedings brought in another court until a UK court has decided whether it has jurisdiction. The Regulation also permits the enforcement of UK court judgments in all the other Member States, and vice versa, with only minimal formalities.

The law in many EU Member States would recognise a jurisdiction clause in favour of a non-Regulation country’s courts. However, if no reciprocal arrangement is negotiated after the UK’s withdrawal from the EU, there will be less certainty, and local advice may be needed as to the likely enforceability of a UK jurisdiction clause.

Given that the public interest will be focused on other issues, it is possible that an attempt to maintain the status quo by some means would not meet much political resistance within the UK. But the Brussels Regulation (Recast) is not EU legislation that can simply be incorporated into English law. The reciprocal nature of it means that any parallel regime would need the agreement of all the EU Member States. A separate difficulty is the fact that the Court of Justice of the EU is the ultimate source of authority on the interpretation of the Regulation. A statement published by HM Department for Exiting the European Union on 02 October 2016 announced that the proposed Great Repeal Bill would end the jurisdiction of the CJEU in the UK.

Unsurprisingly, issues of jurisdiction are low on politicians’ lists of issues to address. The Labour Party’s list of 170 questions relating to Brexit contained only one on civil justice, which made no reference to the Brussels Regulation (Recast). Nonetheless, the Government’s silence on these issues does not mean nothing is being done to consider them. The Parliamentary Justice Committee has already sought written submissions on the “Implications of Brexit for the Justice System” for an enquiry covering all aspects of both civil and criminal law. Read written evidence submitted to the committee, including a submission from Simmons & Simmons. The EU Justice sub-committee also heard oral evidence from academics and barristers on 06 December 2016, while on 19 December the Law Society’s CEO Catherine Dixon was appointed to a committee of experts to advise London Mayor Sadiq Khan on Brexit (though whether she will continue to participate is unclear as she has since announced her resignation as CEO of the Law Society).

Given that any uncertainty as to the future effectiveness of dispute resolution clauses is highly undesirable, it is to be hoped that the Government will make a public statement as to its intentions as early as possible in 2017 to promote confidence in the continued use of English jurisdiction clauses during the negotiation of the UK’s exit from the EU.

Competition for London

Legal services have been a major success story for the UK, and none moreso than dispute resolution. Several separate studies have confirmed the fact that the UK has established itself as the premier hub for legal services outside the US. IRN’s UK Legal Services Market Report 2016 estimated the value of UK legal services at £32.1bn in 2015. A report by TheCityUK in July 2016 found that the UK accounts for 10% of the global market for legal services and 20% of legal services in Europe.

Many jurisdictions in the European Union have long envied the income that the UK derives from exporting English law. While the UK’s position on reciprocal arrangements on civil justice is awaited, it is likely that leading European dispute resolution centres will step up their attempts to position themselves as serious rivals to London. Already articles from eminent legal commentators on the Continent have talked up the risk of UK jurisdiction clauses not being recognised, of ensuing parallel proceedings and even mutually inconsistent judgments.

The Netherlands Commercial Court will launch in Amsterdam in 2017, offering an English language forum for commercial disputes that promises to be lower cost than the London courts. There have previously been efforts in Germany to allow English speaking proceedings in certain courts, but as yet these have not come to fruition. Expect a concerted push in 2017 from Paris, Amsterdam and Frankfurt to promote themselves as the European dispute resolution centre of choice.

What it means for you

Parties entering into agreements need to consider their jurisdiction clauses more carefully in 2017. The use of exclusive jurisdiction clauses is likely to increase, as these will benefit from enforcement in the EU under the Hague Convention, regardless of what is ultimately negotiated between the UK and the EU. Arbitration clauses may also become more popular, allowing a choice of English law and a forum in London, with enforcement possible across the EU via the New York Convention. Those drafting commercial contracts will need to monitor developments and react accordingly as Brexit unfolds.

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.