While the UK left the EU on 31 January 2020, the uncertainty created by the Brexit saga still persists in relation to the management of disputes with UK companies. The negotiations between the UK and the EU concerning their future relationship, including the framework for civil justice and judicial cooperation rules, are only just starting.
In the meantime, if you are facing the prospect of a legal dispute with a UK company, you may wish to consider the following currently known key
implications of Brexit on the management of disputes. Following the conclusion of the revised withdrawal agreement between the UK and the EU
on 17 October 2019 (the “Withdrawal Agreement”), these implications are different to what we highlighted in our previous Brexit article written
before the conclusion of the Withdrawal Agreement.
The post-Brexit transition period until 31 December 2020
The Withdrawal Agreement between the UK and the EU, ratified on the Brexit date of 31 January 2020, stipulates that most EU law (as amended or
supplemented) will continue to bind the UK during the transition period. The transition period will end on 31 December 2020, unless the UK and the EU
decide by 30 June 2020 to extend the transition period for up to one or two years. The UK domestic legislation, the European Union (Withdrawal
Agreement) Act 2020 (the “WAA”), nevertheless currently prohibits the UK government from agreeing to any such extension.
During the transition period, the European Court of Justice continues to have jurisdiction in the UK. Similarly, the EU framework concerning the rules for determination of applicable law (the Rome I and II Regulations), courts’ jurisdiction to hear disputes and enforcement of judgments (the Recast Brussels Regulation) will continue to apply to disputes between UK and EU member state companies in the transition period.
Thus, for most purposes, the UK’s exit from the EU will have no real practical legal implications during the transition period.
EU law is frozen into UK law after Brexit
Pursuant to the UK legislation, European Union (Withdrawal) Act 2018 (“EUWA”) (as amended by the WAA), EU law as in force before the end of the
transition period will be retained as part of the UK’s domestic legislation. Retained EU law includes direct EU legislation, EU-derived domestic legislation and directly effective rights of individuals and other rights derived from EU treaties. The EUWA further stipulates that retained EU law is to be interpreted in accordance with retained EU case law and the retained general principles of EU law. Retained EU case law in turn comprises both decisions of the European Court of Justice and judgments of UK courts that relate to EU legislation before the end of the transition period.
Brexit has not affected arbitration
Brexit has not affected, nor will affect, arbitration proceedings and enforcement of arbitral awards. The UK is and will remain a contracting state to the
New York Convention 1958 providing a virtually worldwide framework for the recognition and enforcement of arbitral awards. The domestic
Arbitration Act 1996 providing the framework for arbitration in the UK will further remain in force.
The recent 2018 Queen Mary, University of London and White & Case LLP International Arbitration Survey identified London as the respondents’ most
preferred seat of arbitration. The majority of the respondents further considered that the Brexit will not affect the use of London as a seat.
However, some arbitration commentators have suggested that Brexit may have already affected the European parties’ perception of London as a neutral seat and arguably fuelled the scepticism towards “an English style arbitration.” It remains to be seen whether Brexit will indirectly affect arbitration in London.
Brexit has not changed the substantive governing law rules
Brexit has not changed the choice of law rules applicable to contractual and non-contractual obligations that are set out in the Rome I and II
Regulations, respectively. These EU instruments also contain rules for the enforcement of parties’ choice of governing law clauses.
The Rome I and Rome II Regulations will continue to apply to disputes between UK and EU companies during the transition period. After the transition
period, under Article 66 of the Withdrawal Agreement, the Rome I Regulations will apply to contracts concluded before the end of the transition period
and the Rome II will apply to events giving rise to damage, if those events took place during the transition period. Moreover, the UK has passed a
statutory instrument under EUWA that will come into force at the end of the transition period and will give effect to the substantive rules in Rome I and Rome II Regulations as a matter of domestic law.
Accordingly, the parties may consider choosing English governing law for the same reasons as they did before Brexit. English law is often chosen
because of its flexibility and because the rules of contractual interpretation do not allow evidence of parties’ subjective intentions to be taken into
account; the parties generally get what they have written in their contracts. English law has also gained a strong dominance in certain industry sectors, such as finance, banking and insurance, due to well-established case law in the field. In contrast, it may
not be advisable to choose English law in circumstances, where the parties agree that the courts of an EU member state have jurisdiction over
their dispute and/or the agreement is concluded before Brexit and it concerns a certain regulated activity under EU legislation.
The rules concerning jurisdiction and enforcement of judgments remain the same during the transition period
The Recast Brussels Regulation, which provides for a largely automatic process of determining which court has jurisdiction over a dispute between parties from different EU member states as well as for recognising and enforcing judgments between EU member states continues to apply to disputes with UK companies during the transition period. The 2007 Lugano Convention, which contains similar rules that apply to disputes between parties from EU and EFTA member states, also continues to apply during the transition period. Moreover, the EU Enforcement Order, which
provides for the enforcement of uncontested claims, applies during the transition period.
The rules concerning jurisdiction and enforcement of judgments after the transition period
1. Where the proceedings are commenced before the end of the transition period, the Brussels Recast Regulation Applies
Article 67 of the Withdrawal Agreement provides that the Recast Brussels Regulation will apply to proceedings commenced before the end of the
transition period and to the recognition and enforcement of judgments given in proceedings commenced before the end of the transition period.
2. A new agreement between the UK and EU may provide rules for the determination of a court’s jurisdiction and recognition and enforcement of judgments
During the transition period, the UK and the EU may be able to conclude a new bilateral agreement that provides new rules for the determination of a
court’s jurisdiction and recognition and enforcement of judgments in disputes between UK and EU companies. It is too early to tell but a potential new
agreement may stipulate similar rules than the Brussels Recast Regulation stipulates.
3. The Hague Convention governs jurisdiction and enforcement of European judgments in the UK in case of exclusive jurisdiction agreements
The UK has ratified the Hague Convention on Choice of Court Agreements 2005 (“Hague Convention”) in its own right. The other contracting states are the EU, Mexico, Singapore and Montenegro. As long as the Brussels Recast Regulation applies in the UK, the Hague Convention
is largely inapplicable as the Recast Brussels Regulation takes priority over it.
The Hague Convention provides rules on jurisdiction and enforcement of judgments in circumstances, where the disputing parties have concluded an
exclusive jurisdiction agreement in civil and commercial matters. The Hague Convention has, therefore, a much more limited scope than the
Brussels Recast Regulation and the Lugano Convention. It will not apply in case of non-exclusive jurisdiction agreements, nor interim measures and
may not apply to agreements concluded before the end of the transition period.
It is uncertain as to whether the courts in EU member states will apply the Hague Convention to contracts concluded with a UK party before 1 January 2021, the date when the UK is expected to rejoin the Hague Convention in its own right, after the Transition Period. The UK courts will, however, be likely to apply the Hague Convention to contracts concluded on or after 1 October 2015, the date when the Hague Convention entered into force in EU member states.
4. The Lugano Convention may apply after the transition period
The UK has previously indicated that it wishes to re-join the 2007 Lugano Convention in its own right. The UK may be able to do
so, if all the current signatories, EU, Iceland, Norway and Switzerland agree. The Lugano Convention provides for similar rules than the Brussels Recast Regulation for determination of a court’s jurisdiction and recognition and enforcement of judgments. There are, however, differences.
Under Brussels Recast Regulation, the courts in the member states uphold the parties’ jurisdictional agreements, where the parties have agreed that a
court in an EU member state has jurisdiction over their dispute, even if the parties themselves are domiciled elsewhere. In contrast, under the Lugano
Convention, the parties’ jurisdictional agreements are effective only if one of the parties is also domiciled in one of the member states.
In addition, unlike the Brussels Recast Regulation, the Lugano Convention does not contain the lis pendens rule, which obligates a court of a member
state to stay proceedings in favour of the court that the parties have designed as having exclusive jurisdiction over the matter. Thus, under the Lugano
Convention, there is a risk of parallel proceedings, even where the parties have agreed on an exclusive jurisdiction clause.
5. Where none of above instruments apply, the common law rules govern jurisdiction and enforcement of European judgments in the UK
In cases, where the rules of the above described instruments do not apply, the jurisdictional issues and enforcement of judgments will be governed by
the common law in the UK. The common law rules on jurisdiction are arguably less certain and predictable than the rules under the European regime instruments as they contain an element of discretion. The common law rules further include a court’s power to grant anti-suit injunctions, which may be beneficial in some circumstances but may also increase the time and costs of disputes over jurisdiction.
Enforcement of European judgments under the common law rules may be more time-consuming and onerous, as the rules require the judgment
debtor to commence fresh proceedings to enforce the foreign judgment as a debt. In addition, the common law rules provide wider grounds for
resisting enforcement than the Brussels Recast Regulation and the Lugano Convention.
6. Where none of the above instruments apply, the domestic law of an EU member state in question governs jurisdiction and enforcement of UK judgments
In circumstances, where none of the instruments described above apply, after the transition period, the courts of EU and EFTA member states will
determine their jurisdiction in accordance with the domestic law in the member states in question and, where applicable, the rules of the Recast Brussels Regulation applicable to parties from non-EM member states. Similarly, unless the Hague Convention (or the other instruments described
above) applies, the enforcement of UK judgments will be subject to the rules of the domestic law of the EU member state in question.
In Finland, in cases, where the Hague Convention, or any other above instruments, does not apply, there will be no simplified enforcement procedure to enforce UK judgments. The case may be retried on its merits, in which case the foreign judgment only serves as evidence in the retrial. Consequently, the enforcement of UK judgments in EU and EFTA states becomes potentially more onerous, time-consuming and expensive.
How to prepare for the future when drafting dispute resolution clauses
When drafting dispute resolution clauses, we would foremost recommend opting for arbitration instead of dispute resolution in domestic courts. Arbitral awards will be recognised and enforced almost universally under the New York Convention framework. This remains unaffected by Brexit. In
contrast, as described above, while the UK and the EU are still negotiating for their future cooperation, there remains uncertainty as to what rules will
eventually govern jurisdictional issues and enforcement of judgments in disputes between UK and EU companies. The changed framework after
the transition period may make enforcement of UK judgments in the EU and vice versa more onerous, time-consuming and expensive.
Alternatively, if the parties cannot agree on arbitration, we would recommend agreeing on an exclusive jurisdiction clause. This would ensure that at least the Hague Convention applies after the transition period. However, if the contract is concluded before the end of the transition period, it may be advisable to subsequently amend the jurisdiction clause in the contract on or after 1 January 2021, particularly if the parties envisage that a potential judgment may need to be enforced in an EU member state. This is because it is not currently entirely certain that the courts of EU member states will apply the Hague Convention to contracts concluded before the end of the transition period.
The outstanding uncertainties created by Brexit may, however, be lifted in the near future if the UK is able to re-join the Lugano Convention or if the EU and the UK conclude a new agreement to replace the Brussels Recast Regulation. There is also a new Hague Convention on the Recognition and
Enforcement of Foreign Judgments in Civil or Commercial Matter, dated 2 July 2019. This Convention is not yet in force but it may in the future
be an important legislation.