European Commission issues pre-Brexit reminder to EU lawyers

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Guy Pendell
CMS, London
guy.pendell@cms-cmno.com

Liz Williams
CMS, London
liz.williams@cms-cmno.com


The European Commission (EC) has issued a short factual statement to the legal profession and other stakeholders in the European Union, setting out the civil justice instruments that currently apply to the United Kingdom by virtue of its EU membership.

After the UK leaves the EU as a result of the Brexit process, those instruments will cease to apply to the UK unless interim arrangements are agreed.

This article summarises the contents of the EC’s statement and elaborates on potential post-Brexit arrangements that are alluded to, but not described in detail, in the statement itself.

Introduction

The EC is the executive branch of the European Union. Its role includes international representation of the EU. In that capacity, it is charged with negotiating agreements with the UK on the arrangements for Brexit and the future relationship between the EU and the UK.

The statement issued on 21 November 2017 must be read in the context of that negotiation. It highlights four areas: jurisdiction; recognition and enforcement of judgments; judicial cooperation procedures; and specific EU procedural mechanisms.

Jurisdiction

As between the UK and the EU, the statement correctly notes that after Brexit (in the absence of agreement), UK and EU courts will use their own conflicts of laws rules to determine whether or not they have jurisdiction over proceedings.

Although the statement does not elaborate on this, for EU courts the applicable rules will continue to be those of the Brussels I Regulation as recast in 2012 (‘Brussels Recast’). This creates a regime that binds EU member state courts when considering jurisdictional issues in cases with links to one or more other states. The default rule under this regime is that defendants should be sued where they are domiciled.

However, there are a number of exceptions to this rule. Most importantly, EU courts must respect properly drafted choice of court agreements between the parties, even if the parties are not domiciled in a member state. In the absence of such an agreement, claimants also have the option of suing in contractual disputes in the place of performance, or in tortious disputes in the place where the harmful event occurs. Further special rules apply to certain types of claim.

UK-domiciled parties who select the courts of an EU member state to resolve that dispute, or who exercise the option to sue an EU-domiciled defendant in the member state where a contract was to be performed, or a harmful event occurred, will therefore see their choice respected.

The UK government has stated that it intends to continue to participate in the Hague Convention on Choice of Court Agreements (to which the EU is also a party) and in the Lugano Convention (a predecessor to Brussels Recast, which continues to apply between European Free Trade Association (EFTA) and EU countries and is open to third-party countries with the agreement of all other parties). Together, these agreements provide a regime almost identical to Brussels Recast in most circumstances and would ensure that EU and Lugano Convention courts would continue to respect a properly drafted choice of court agreement in favour of the UK.

If, contrary to the government’s expressed intention, the UK were to cease to participate in the Lugano and Hague Conventions, UK courts would apply common law conflicts of laws rules, which are well established. Crucially for business clients, these rules also require courts to recognise properly drafted choice of court agreements. Parties that include such agreements in their contracts can expect to see them honoured by UK courts, regardless of whether the chosen courts are those of one of the constituent parts of the UK, an EU or EFTA member state, or a third country. Most business clients will therefore notice very little difference after Brexit with regard to where their contractual disputes are litigated.

Recognition and enforcement of judgments

At present, recognition and enforcement of judgments between EU member states is also dealt with under Brussels Recast. Member states are required to enforce each other’s judgments without a declaration of enforceability (exequatur) or any other special procedures, provided the judgment creditor produces certain specified documents. Limited exceptions are provided, including grounds of public policy, failure to serve the defendant with the proceedings and irreconcilable prior judgments.

The statement notes that recognition and enforcement of EU judgments in the UK and of UK judgments in the EU will be governed by the law of the state where recognition and enforcement is sought, or by international agreements to which both are parties. As noted above, the UK has announced its intention to remain in the Lugano Convention, to which the EU is also a party. This contains substantively the same obligation to enforce judgments without special procedures, although it does not specifically prohibit a requirement for exequatur. Essentially the same exceptions apply.

In summary, this means that mutual recognition and enforcement of judgments between the EU, EFTA and UK is likely to continue on much the same terms as before. UK procedure does not require exequatur, so for parties seeking to enforce an EU judgment in the UK, there will be no substantial difference.

Parties seeking to enforce a UK judgment in certain EU member states may have to seek exequatur in future, as was the case within the EU prior to 2012. While usually this will cause no more than a short delay, it may be more problematic if the judgment was entered in default of appearance by the defendant, is not enforceable in its country of origin, or was given by a court whose jurisdiction is not recognised by the court in the place of enforcement. This last difficulty is unlikely to arise where there is a properly drafted choice of court agreement, for the reasons outlined above.

Any parties that are nevertheless concerned about this possibility may consider the option of UK-seated arbitration as an alternative to UK litigation. Arbitration awards are enforceable independently of the EU treaties by virtue of the New York Convention, to which the UK and all EU countries are parties. The New York Convention prohibits a requirement for exequatur in relation to the enforcement of a foreign arbitral award and otherwise provides a streamlined process for recognition and enforcement with very limited exceptions.

Judicial cooperation procedures

At present, all EU countries benefit from mutual arrangements relating to cross-border service of documents and taking of evidence. The Commission notes that after Brexit, these arrangements will no longer apply between the EU and the UK. However, the UK government has stated that it intends to continue to participate in the Hague Conventions, to which the EU is also a party.

The EU Evidence Regulation provides that an EU court wishing to obtain evidence from another EU country may either take evidence directly in that country, or request that country’s courts to take the evidence on its behalf. The Hague Convention on Taking of Evidence provides a very similar request procedure, and an alternative procedure whereby the requesting court may appoint a commissioner to take evidence on its behalf in the foreign state, with the permission of that state. The differences between these procedures are unlikely to have a major impact on cross-border litigation involving the UK.

As regards service of documents, the provisions of the EU Service Regulation and the Hague Convention regime are very similar. Both provide for judicial service of documents via a central body designated by each member state and consular service by the diplomatic staff of the sending state. The main difference is regarding postal service, which under the EU Service Regulation is permitted automatically, but under the Hague Convention only if the receiving state does not object.

Eleven of the 27 remaining EU countries have registered an objection to postal service (Croatia, Czech Republic, Germany, Greece, Hungary, Lithuania, Malta, Poland, Portugal, Romania and Slovakia). Clients doing business with counterparts in these countries can avoid any delays associated with judicial or consular service by requiring the appointment of an agent for service of process in the UK or another jurisdiction that permits postal service.

Specific EU procedural mechanisms

Certain specific EU-wide procedures, such as the European Payment Order procedure for enforcement of uncontested debts and the European Procedure for Small Claims (up to €5,000), will no longer apply between the EU and the UK.

There is at present no alternative convention covering uncontested debts or small claims, so some very low-value claims may become uneconomic to enforce between the UK and EU member states. However, there has been a relatively slow take-up of the EU mechanisms in the legal market, so the practical impact of these changes is unlikely to be great. Higher-value claims will still be enforceable by means of the Lugano regime, as outlined above.

Arbitration

The legal status of arbitration will be unaffected by Brexit, and accordingly the EC’s statement does not deal with enforcement and recognition of arbitral awards and other matters relating to arbitration. Both EU courts (by virtue of the Brussels Regulation) and UK courts (by virtue of the Arbitration Act 1996 in England and Wales and its equivalents in Scotland and Northern Ireland) will have an ongoing obligation to stay court proceedings in favour of arbitration where there is a valid arbitration agreement. Arbitration awards will continue to be enforceable in the UK and all EU countries under the New York Convention.

Anti-suit injunctions

Depending on the terms of any agreement reached with the EU, it is possible that after Brexit the UK courts will again be able to grant anti-suit injunctions to restrain proceedings brought within the EU in breach of an arbitration agreement – something which is effectively prohibited by Brussels Recast. Currently, the UK courts can only grant such injunctions in relation to proceedings brought outside the EU. Their willingness to do so is often seen as an advantage of UK-seated arbitration. (Anti-arbitration injunctions to restrain arbitration proceedings brought in breach of contract – for example, in the wrong seat or against the wrong party – are also possible, but are only granted by the UK courts in the most exceptional circumstances.)

Anti-suit injunctions to restrain proceedings brought in breach of a choice of court agreement are prohibited under both Brussels Recast and the Lugano Convention, so these are likely to remain unavailable where the proceedings are in the courts of an EU or EFTA member.

Conclusion

The EC’s statement is a pithy summary of the EU instruments that, as an obvious consequence of Brexit, will cease to apply to the UK. As such, it does not fully reflect the degree of continuity which can be expected after Brexit. For most commercial claims, in particular, the Lugano and Hague regimes should continue to provide effective cross-border mechanisms. Arbitration also continues to provide a highly effective dispute resolution mechanism for international business.

References

Council Regulation (EC) No 1206/2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters (EU Evidence Regulation), OJ L174/1

Council Regulation (EC) No 1393/2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (EU Service Regulation), OJ L324/79

Council Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), OJ L351/1

Dicey, Morris & Collins, The Conflict of Laws, 15th edition, Sweet & Maxwell 2017

European Commission Directorate-General Justice and Consumers, Notice to Stakeholders – Withdrawal of the United Kingdom and EU Rules in the Field of Civil Justice and Private International Law, Brussels, 21 November 2017

Hague Convention on Choice of Court Agreements, 44 ILM 1294, 2005

Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, 658 UNTS 163, 15 November 1965

Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, 847 UNTS 231, 18 March 1970

HM Government, Providing a cross-border civil judicial cooperation framework – A future partnership paper, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/639271/Providing_a_cross-border_civil_judicial_cooperation_framework.pdf, accessed 7 December 2017.

Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, 28 ILM 620, 1989

New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 330 UNTS 38, 10 June 1958

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