20 February 2020

The more things change, the more they stay the same: Cross border litigation and arbitration post-Brexit

This article was written by Natalie QuinlivanJames McKenzie, Edmund Northcott and Chris Andrews.

The UK officially left the European Union (“EU”) at 11pm on 31 January 2020

So where to now for the multitude of businesses that rely upon the laws and procedures of the United Kingdom to govern their contractual relationships and resolve their disputes? 

At least initially, during the transition period established under the Withdrawal Agreement (which ends on 31 December 2020), it is business as usual.  Afterwards, Brexit and its consequences call for businesses to be alert, but not alarmed.  

1 What impact will Brexit have on cross-border dispute resolution in the UK?

1.1 Business as usual during the transition period where disputes have an EU nexus

Unless extended before 1 July 2020, which the UK government has ruled out, the transition period will run from 1 February 2020 until 31 December 2020. 

During this period, there will be no change to how disputes involving parties based in the EU, or with attachable assets in the EU, will be decided and enforced.  For example, a judgment obtained pursuant to English legal proceedings started before the end of the transition period will be recognised and enforced in the EU in the same manner as if enforcement took place before Brexit. 

1.2 No impact on the majority of international commercial disputes, including notably:

(a) Disputes in the UK that concern non-EU parties or attachable assets based outside the EU.

Brexit will only affect those suing under an English law and England & Wales jurisdiction clause involving parties based in the EU, or with attachable assets in the EU.  For example, if you are a Japanese company pursuing an English company in the English courts, there will be no change to how your dispute is decided and enforced within the UK.    

(b) Where parties have elected to resolve their disputes via arbitration

Arbitration is not regulated by EU law and the UK and the EU member states are signatories to the 1958 New York Convention which provides a strong framework for the enforcement of arbitral awards internationally.  As a result, arbitration clauses – seated in London or the EU, choosing English law or seeking to enforce arbitral awards in the EU – will be unaffected by Brexit and arbitral awards will continue to be enforceable in the same ways as currently.  

1.3 Certain changes will take effect in 2021 where disputes have an EU nexus 

The UK is currently bound by a number of EU treaties and regulations which facilitate efficient cross-border dispute resolution within the EU. 

Once the transition period ends, however, certain EU treaties and regulations will cease to apply to the UK.  From a dispute resolution perspective, the key areas affected are: 

(a) jurisdiction clauses and enforcement of judgments;
(b) service of legal documents; and
(c) taking of evidence  

It is anticipated that these areas, discussed in further detail below, are likely to be addressed by agreeing a framework of civil judicial cooperation with the EU which will closely mirror the current EU system. 

2 Will choice of law clauses be affected by Brexit?

No. The Rome I Regulation and The Rome II Regulation are the key EU regulations which enable parties to elect the law governing their contractual and non-contractual obligations respectively.

Under The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019, the substance of each of Rome I and Rome II will be incorporated into the domestic law of the UK at the end of the transition period. 

Therefore, following the transition period, the courts of the UK and the remaining EU member states will continue to apply the pre-Brexit rules in determining the validity and effect of governing law clauses.

3 How will issues of jurisdiction be determined by the EU and UK following the transition period?

Three key instruments are relevant to cross-border jurisdiction clauses and enforcement issues.  These are: 

(a) the Recast Brussels Regulation
Which ensures that the state in which the defendant is domiciled will have jurisdiction, except where the parties have agreed that the courts of a particular state should have jurisdiction.

(b) the Lugano Convention
Similar to the Recast Brussels Regulation, but applies to Iceland, Switzerland and Norway in addition to the EU; and 

(c) the Hague Convention on Choice of Court Agreements
Applies only where parties to a contract have agreed an exclusive jurisdiction clause.

Each of these instruments will cease to apply to the UK at the end of the transition period. 

The UK has indicated its intention to accede to the Lugano Convention and the Hague Convention following the transition period. While accession to the Hague Convention can be accomplished unilaterally, accession to the Lugano Convention requires the unanimous consent of its members, including the EU. The UK has so far received statements of support for its intention to accede to the Lugano Convention from Norway, Iceland and Switzerland.

Should the UK successfully accede to the Lugano Convention, there will be little change to the status quo, as the Lugano Convention affords the same key benefits as the Recast Brussels Regulation.

If the UK does not accede to the Lugano Convention immediately after the end of the transition period, save where the Hague Convention applies, the issue of jurisdiction will be determined according to the domestic law of the UK or relevant EU member state.

4 Will UK judgments continue to be enforceable in the EU and vice versa?

The reciprocal recognition and enforcement of UK judgments in the EU is currently provided for under the Recast Brussels Regulation, the Lugano Convention and the Hague Convention (where it applies).

Enforcement of UK judgments in the EU will remain largely the same should the UK accede to the Lugano Convention at the end of the transition period. As above, if the Lugano Convention does not apply, UK judgments will still be recognised within the EU, but the procedure will be dictated by the relevant domestic law, and available remedies may be more limited.

5 Other procedural matters

The EU Service Regulation and the EU Taking of Evidence Regulation will also cease to apply at the end of the transition period. Instead, matters of service and evidence involving the EU will be governed by the Hague Service Convention and the Hague Evidence Convention respectively.

Since all EU Member States, including the UK, have signed the Hague Service Convention and all but Austria, Belgium and Ireland have signed up to the Hague Evidence Convention, there are clear alternative routes for service and/or the taking of evidence. Where they do not apply, there will be other methods available for both service and the taking of evidence through the application of the relevant Member State’s domestic laws. 

6 A frictionless transition from Member State to Third Country?

We will have to wait and see. While agreement on the exact terms of the exit arrangement between the EU and the UK is pending, confirmation that the UK will sign up to the Hague Convention on Choice of Court Agreements at the end of the transition period, alongside indications that agreement to the UK’s accession to the Lugano Convention is likely, provides a helpful degree of certainty to parties involved in disputes in the UK and EU.  

Going forward, the reasons why parties choose English law, such as freedom of contract, a body of precedent, certainty and predictability, and a transparent, independent judicial system, remain unaffected. Brexit should therefore have little impact on parties continuing to choose English law and jurisdiction clauses in their commercial contracts.

If you have any questions about Brexit and how it might impact on your business or dispute, please contact KWM’s Dispute Resolution team. 

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