Brexit: implications for dispute resolution
The UK’s status as a Member State of the EU means it has been included within a framework for deciding jurisdiction in disputes, recognising judgments of other Member States (and having the judgments of its own courts recognised and enforced throughout the EU), service of proceedings and deciding the governing law of contracts and for tortious claims. When the UK leaves the EU, although the UK may not be able to (or choose to) remain part of that framework in its current form, there are a number of alternatives which should mean that UK courts and parties should not become isolated from the mutual recognition and common principles involved in disputes.
The UK currently applies the Brussels Regulation, which provides a means of determining which courts of the EU Member States will have jurisdiction over a claim. Courts of the Member States must apply the rules rather than exercise any general discretion as to whether they have jurisdiction, providing certainty as to where proceedings will be heard and ensuring that agreements as to jurisdiction generally have primacy over all other considerations. The Brussels Regulation prevents the courts of the UK from issuing anti-suit injunctions to prevent parties bringing proceedings elsewhere in Europe, including where the parties have agreed to arbitrate a dispute.
Once the UK exits the EU, it may be possible to reach some form of parallel arrangement on the same (or broadly the same) terms as the Brussels Regulation; that is now a matter for negotiation. A precedent for this can be found with certain states outside the EU, such as Norway and Switzerland, through the 2007 Lugano Convention. The UK, once it is no longer a Member State, may wish to sign up to the Lugano Convention and/or the Hague Convention on Choice of Courts Agreements, in either case with the potential to supplement those reciprocal arrangements through national legislation. Such steps should largely address the risk that jurisdiction clauses in favour of the UK’s courts will be undermined by proceedings commenced in other EU Member States, which will otherwise increase when the UK exits the EU. Otherwise, parties who face proceedings in another Member State in breach of a jurisdiction clause might have to rely upon anti-suit injunctions to prevent parallel proceedings, once the protective regime of the Brussels Regulation no longer covers the courts of the UK. That said, see our analysis here as to why, in practice, a clause giving exclusive jurisdiction to the English courts is likely to be just as effective post-Brexit as before.
See here for our article on how the Hague Convention on Choice of Court Agreements would be effective to ensure the enforcement of exclusive jurisdiction clauses across the EU. In addition, the Hague Convention provides that a (non-chosen) court of a Contracting State must suspend or dismiss proceedings in favour of the chosen court. See our article here on how signature of the Hague Convention by the UK would provide commercial parties with protection for their exclusive jurisdiction clauses. As to the transitional arrangements of the Hague Convention and their practical implications, see our article here.
There has been some talk of the revival of the anti-suit injunction upon the UK’s exit from the EU. If, as seems eminently sensible, the UK does ratify the Hague Convention on Choice of Court Agreements however, it seems unlikely that anti-suit injunction will be accepted as against any of the Convention signatories (including the remaining EU Member States). See our article here. One advantage of the inapplicability of the Brussels jurisdiction regime is, however, that it might strengthen the UK courts’ ability to protect arbitration proceedings with their seat in the UK by issuing anti-suit injunctions where parties breach arbitration agreements by commencing proceedings in an EU Member State, something the UK courts have not been able to do under the Brussels Regulation.
- Governing law
At present, courts within the EU, including those within the UK, decide the governing law of contracts in accordance with the Rome I Regulation and the law applicable to tortious claims (eg negligence) under the Rome II regulation. When the UK exits the EU, these Regulations will cease to be applied in the courts of the UK jurisdictions. These specify that they are of universal application, so a choice of English law clause will be largely unaffected as the same rules would continue to be applied by the courts of the remaining Member States (so English law could be found to apply by EU Member State courts applying Rome I or Rome II).
That may mean little change in respect of laws governing commercial contracts: most contain express governing law clauses anyway, which trump other considerations, and, under the common law, the English courts would apply a similar test to that set out in the Rome I Regulation in any event.
In the case of tortious claims, the English position might revert to that under the Private International Law (Miscellaneous Provisions) Act 1995, which still applies to torts occurring before 11 January 2009, the date on which Rome II came into force. This would mean that the law applicable to torts would usually be that of the jurisdiction in which the tort occurred, or the country in which the most significant elements of the tort occurred where multiple elements occurred in different countries. In some cases this might lead to a different result to that under Rome II, which applies the law of the jurisdiction where the damage occurs, regardless of where the action that caused the damage took place.
The inapplicability of Rome II following exit will probably make little practical difference, however, particularly where there are concurrent contractual and non-contractual obligations so the common law rules will apply produce broadly consistent results - see here for our article.
- Service of proceedings
Where a court in the UK has jurisdiction under the Brussels Regulation or other EU instrument, the claimant may currently serve proceedings on the defendant in another EU Member State without having to obtain permission from the court, provided certain conditions are met. While such service still takes longer, and costs more, than service within the jurisdiction, it is usually much more efficient than serving proceedings in a country outside the EU scheme. Since April 2011, it has been possible for parties to give the address of their solicitor or European lawyer within any European Economic Area State to accept service of proceedings on his behalf. Again, it is highly possible that parallel arrangements can be put in place to continue these arrangements, but these will need to be negotiated, and much will depend upon the attitude of the remaining EU Member States. Certainly, in addition, amendments to the procedural rules can (and will need to) be made to ensure a smooth transition.
Businesses dealing with counterparts in EU Member States will need to understand how proceedings could be served on those counterparties should the need arise. The inclusion in agreements of an obligation to appoint a process agent within the relevant UK jurisdiction, already usually a sensible option in any event, could become even more important.
- Enforcement of judgments
Currently, judgments of one EU Member State may be recognised and enforced through the courts of another Member State without any requirement for separate proceedings founding an action on the judgment or seeking a declaration of enforceability. This is governed by the Brussels Regulation and amendments to this introduced in January 2015 aimed to make cross-border enforcement even more straightforward than before. Once the UK exits the EU, unless some agreement is reached to the contrary, there will be no automatic enforcement of judgments between the UK and the EU. The UK will revert to the old common law provisions and whatever treaties were previously in existence between the UK and individual EU Member States.
In reality, this will be disadvantageous for parties across the whole of the EU and it is highly likely that some form of reciprocal arrangement will be entered into between the UK and either the EU, or at least many of its Member States. Again though, this (or these) will need to be negotiated. In any event, certainly as regards enforcement of English judgments, concerns about coming out of the EU regime may in practice be unfounded - see our article here.
- The legacy of the supremacy of EU law
EU Regulations are directly applicable, while other EU laws have been implemented into English law by statute or by secondary legislation. Once the UK exits the EU, EU Regulations will no longer apply from the date of exit. Court decisions which had applied Regulations in their interpretation of English statutes will still be binding authority, but might be vulnerable to challenge and restatement of the law by the courts once the Regulations no longer apply. There could therefore be uncertainty on elements of the laws of the UK where a Regulation has previously applied. The effect of Directives will depend on whether they have been implemented by UK statute, in which case they will continue to apply until the relevant Act of Parliament is repealed, or by direct effect, in which case they will fall away unless the Government legislates for equivalent provisions to remain in place. See "The effect and application of EU law in the UK" in Brexit: the legal implications.
Any uncertainty of law is obviously problematic for businesses, and there will need to be express incorporation into English law of previous EU Regulations, at least for a transitional period, to preserve the status quo to the extent possible at the point of the UK’s exit; without that there could be a period of judicial decision taking that could undermine certainty as to contractual and other obligations.
Will Brexit make English law/jurisdiction a less attractive prospect? For parties outside the EU, probably not. However, parties within the EU might have concerns about the extra complications that will now come with English law and jurisdiction following the UK’s exit from the EU. These can and should be mitigated by whichever arrangements are now put in place to replace the current EU regime.
There would seem to be little to gain for other Member States if the UK comes to be outside the scope of mutual recognition arrangements, as it would make the enforcement of judgments issued in other Member States more difficult in the UK, which is, and will remain, a major financial centre. It would also increase the scope for parallel proceedings in multiple jurisdictions, arguments over which law should govern contracts or tortious claims and allow anti-suit injunctions to be issued by the UK’s courts against parties seeking to litigate elsewhere in Europe in breach of the jurisdiction clauses in their contracts. It is hard to see how any of this would benefit businesses anywhere in the EU and as a result it is possible that, leading up to the UK’s exit of the EU, ways will be found to continue these arrangements post-exit, by parallel agreements outside the EU framework.
Although the attractiveness of English law as a governing law for international agreements might be reduced by the UK’s exit from the EU, as might the attractiveness of the UK’s courts if their judgments will perceived not to be as easily enforceable, across Europe, these issues can be overcome. It will take effort but we can and should ensure that the arrangements now put in place are sufficiently certain and straightforward to give the parties continued confidence in a choice of English law and jurisdiction.
On 13 July 2017, the EU published its Position Paper on transitional arrangements regarding jurisdiction and enforcement of judgments. See our article: "Beware Europeans bearing gifts".
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.