14 March 2016

Brexit in Brief: Dispute Resolution


If the UK leaves the EU what’s the impact likely to be on commercial contracts and on disputes?

It is unclear at the moment what the UK's arrangements would be in the event that there is an exit from the EU, but it might be helpful to start with something that won’t change. One area that won’t change is English contractual law, so there will be no impact on the general law that affects commercial contracts in terms of interpretation, breach, frustration, and implied terms and so on. None of that will be affected by an exit from Europe. There will be discreet areas such as commercial agents where that won’t be the case, but by and large none of that will change.

So what might change? To the extent that there is European law that is being implemented or is directly effective in England, it’s all up in the air as to whether that will continue to have an effect in England and be implemented here or whether it will be replaced or appealed in various ways. It seems likely that legislation will remain in force or be implemented into English law, but the interpretation of it will fall to the English courts instead of the European courts and so there may be divergence over time between those two sets of interpretation. It’s possible that the UK won’t go down this route and instead will fall back to our previous English legislation rather than keeping the European legislation in place.

How does this play out in terms of dispute resolution?

There are three key areas to think about here. The first is choice of law clauses, secondly jurisdiction clauses and thirdly enforcement of English judgements. In terms of choice of law clauses, most likely whatever regime comes into force, the English court will continue to uphold a choice of law clause. It’s always historically done so and it is likely that it will continue to do so. Similarly, the European Courts will be continue to be bound by the same EU rules currently in force and will continue to respect choice of law clauses as well.

When it comes to jurisdiction clauses the position is a little more complicated because the arrangements depend on reciprocity between the European member states. Most likely, the UK will look to enter into a new arrangement with the EU member states so that reciprocity in some form will remain. If that is the case, the arrangement the regime is unlikely to change a great deal. There is a risk though that if such arrangement isn’t entered into then it will fall back to traditional rules under the various member states as to how they interpret jurisdiction clauses, whether they enforce them, whether they withhold them or not, so there is a bit of a risk area there.

The third area is enforcement of English judgements. At present an English judgement can be taken to anywhere in the EU and enforced based on EU rules – unless or until a new regime is agreed with the EU or the member states directly, when that would cease to be the case. There is a risk as to how enforceable an English judgement will be. Again, most likely a new regime will be put in place to deal with this but there is a risk that arises in this area and it may be sensible to think about arbitration as an alternative to English court litigation in the interim.

So overall there are certainly issues to consider and commercial parties should be thinking about this now in respect of their current contracts and contracts that they are going to be entering into, but not everything is going to change and there are certainly steps that can be taken to help address some of the risks that might arise.

One area in particular where there may be a risk is current commercial contracts, which are premised on the continuing operation of the EU and on England being subject to EU rules. In the event of a Brexit, those contracts could arguably be frustrated and it may be that parties try to walk away from contracts as a result so something else that clients can be doing now is thinking about whether they can put a clause into their contract now that either says the event of a Brexit is or is not a force majeure, or a frustrated event, or a material adverse change -- whatever it may be -- either in a new contract that they are entering into today or amendments to a contract that is already in existence.

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