Brexit: implications for dispute resolution after EU-UK transition ends
Despite the EU and UK’s eleventh-hour deal on trade in December 2020, no direct agreement was reached to replace the Brussels Regulation (recast) regime. This regulation provides a streamlined process for the reciprocal enforcement of judgments between the courts of EU Member States. Since 1 January 2021, therefore, the regime no longer applies to the UK.
On jurisdiction and enforcement, then, a ‘hard Brexit’ could be said to have prevailed.
Although at first blush, that may seem a bad outcome, says Tim Strong, Co-Chair of the IBA Litigation Committee and a partner at Taylor Wessing, the effect is mitigated by the UK’s accession in its own right to the Hague Convention on Choice of Court Agreements (HCCCA).
We are seeing a trend whereby multinationals are becoming more open-minded to including arbitration clauses in their contracts
Partner, Winston & Strawn
‘This gives us a similar regime to [the Brussels Regulation (recast)] where a contract contains an exclusive jurisdiction clause, with a simplified enforcement process for resulting judgments’, he says.
Some uncertainties remain, however, about exclusive jurisdiction clauses agreed before 1 January 2021.
‘The UK has expressed its view that the HCCCA will apply to any such clauses agreed since it joined the Convention as an EU Member State on 1 October 2015’, explains Lucinda Orr, Chair of the IBA Young Litigators Forum and a partner at Enyo Law. ‘However, EU courts may not adopt the same approach.’
There’s also uncertainty while the UK waits to see if its application to accede to the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is accepted.
In the absence of the Convention or a convention with a similar effect, ‘there will be no uniform system of rules by which an English judgment can be enforced in EU Member States’, says Leigh Crestohl, a partner at Zaiwalla & Co.
Crestohl explains that each case would depend upon the particular national laws of each country, which may offer a judgment debtor greater opportunities to resist enforcement. This, in turn, ‘introduces an element of uncertainty, increased cost and risk’, says Crestohl.
An important and attractive feature of the previous regime was the possibility of obtaining an English Worldwide Freezing Order, which could then be enforced in other EU Member States with relative ease. ‘This may be a more difficult route for claimants should the UK not accede to the Lugano Convention’, Crestohl says.
Whether the disputes landscape will be heavily disrupted will depend on whether the UK is allowed to accede to the Lugano Convention, and on how UK courts will interpret EU law in the future and whether they will diverge, says Orr.
‘It may also be that some UK litigants will decide to roll the dice and seek to overturn UK decisions grounded in EU law’, she adds. ‘It will be particularly interesting to see how EU and national courts view UK proceedings, now that the UK is a third country to the EU.’
English governing law clauses will continue to be recognised by the EU27 courts. However, Ben Bruton, a partner at Winston & Strawn, recommends using exclusive jurisdiction clauses, rather than non-exclusive or asymmetrical – where one party can only sue in one country but the other can sue wherever convenient – clauses, to improve the enforceability of a resulting UK judgment within the EU27 or to improve enforceability of EU27 court judgments within the UK.
‘In view of the ambiguity as to whether the HCCCA applies to exclusive jurisdiction clauses concluded prior to 1 January 2021, for business-critical contracts, a prudent approach would be to consider whether the ambiguity can be removed through a supplemental agreement with your counterparty’, he says.
Commercial parties should think carefully when negotiating contacts and the potential enforcement issues, says Orr. ‘Consider appointing an agent for service of process and potentially consider “conditional” dispute resolution clauses that allow for a greater degree of flexibility as the position becomes clearer.’
Companies may wish to review any standard form templates or agreements and highlight any clauses which may be problematic to enforce in the EU27.
‘In practice this may mean considering whether any choice of law agreement is going to be considered valid and effective under the laws of the other contracting party, as well as ensuring wherever possible that contractual terms are compatible with mandatory rules of the other party’s national law or EU law’, says Crestohl.
‘This may narrow the range of possible objections to enforcing a future court judgment’, he adds.
Commentators note that so far, we’ve seen little effect from Brexit in relation to ongoing disputes, as the Brussels regime continues to apply for proceedings that had already begun on 31 December 2020.
Strong does not expect Brexit to have a significant impact on the popularity of English courts being selected for dispute resolution and English law being chosen as the governing law of contracts.
‘If English law is specified, that choice will be upheld by courts in the UK and the EU’, explains Strong. ‘As for jurisdiction, there remain many advantages to commercial parties choosing to resolve disputes in the English courts, and provided contracts specify English jurisdiction exclusively there is no issue with enforcement.’
Similarly, he says, there are Hague conventions on service and the taking of evidence which provide good alternatives to their EU equivalent regulations.
‘The other factor which helps, frankly, is that there aren’t many realistic alternatives in EU Member States’, says Strong. ‘There are good commercial court initiatives in the EU, with perhaps the Netherlands Commercial Court standing out as perhaps the best candidate to take work away from the Commercial Court in London.’
In time, he says, these may develop into real competitors, but they do not yet have the history and reputation that the English commercial courts have earned.
It’s possible that arbitration may emerge as a winner from Brexit, rather than the courts of any specific jurisdiction.
‘Notwithstanding the unlikelihood of the enforceability of UK court judgments being affected by Brexit, we are seeing a trend whereby multinationals, including financial institutions, are becoming more open-minded to including arbitration clauses in their contracts’, says Bruton.
This, he adds, does also seem to be driven by other perceived benefits of arbitration – including confidentiality, the ability to control the process and the ability to select an industry expert arbitrator.
Philippe Pinsolle is Co-Chair of the IBA Arbitration Committee and Head of International Arbitration for Continental Europe at Quinn Emanuel Urquhart & Sullivan in Geneva. He does not believe Brexit will have any significant impact on arbitration.
‘The EU never regulated arbitration, fortunately’, he explains. ‘The competition between arbitration places was already a matter of the arbitration law of each country and the way their courts support arbitration.’