The Impact of Brexit on Cross-Border Disputes
As part of your business do you deal with parties based in EU member states? Whilst such relationships going wrong isn’t always at the forefront of your mind, as the transition period before the UK is nearing its end and there is a risk of the UK and the EU not agreeing the deal by 31 December 2020, now is the time to consider how you will be affected should a dispute arise with a party in an EU member state and what factors you should consider when contracting with parties in EU member states going forward.
EU law currently sets out rules relating to parties in different member states litigating disputes with cross border elements. The EU rules deal with such matters as which country will have jurisdiction over a dispute, the law that is to govern the dispute, the service of court documents and taking of evidence, and the recognition and enforcement of court judgments.
EU law will cease to apply to the UK from 1 January 2021 and unless there is a future relationship agreement the majority of the EU rules relating to cross border disputes will no longer apply. Parties will be left relying on a mixture of various international treaties, English law rules as well as the national rules of the remaining EU member states.
Businesses dealing with parties in other EU member states should prepare now in order to reduce their risk and should seek advice accordingly. The steps a business should take needs to form part of the longer-term commercial planning of the business and how the business is going to adapt to Brexit.
This article looks at some of the impacts no agreement may have between the UK and EU come 1 January 2021 and sets out some points for businesses to consider.
Which law applies?
Currently EU rules provide that generally a member state should respect a parties’ choice as to which law applies to a contract it is a party to. A clause in a contract specifying that English law applies will therefore in general be upheld across the EU.
The Withdrawal Agreement provides that these current rules will continue to apply to any contracts agreed prior to 31 December 2020.
Following 1 January 2021, it is expected that there will be little impact on the treatment by courts in different EU member states as to the law that applies if it has been selected by the parties in a contract.
It is likely therefore that a party can be safe in the knowledge that a clause in a contract providing that English law applies will generally be upheld. This may be important as it is often the case that parties choose and want English law to apply to a contract.
Which country has jurisdiction?
EU rules now set out which country has jurisdiction to hear a claim. These rules effectively mean that there cannot be multiple claims on the same dispute in different EU member states. In general, if the parties to a contract provide that the English courts should have jurisdiction to determine a dispute then the claim will need to be brought in the English courts and attempts to bring proceedings in another member state will not be allowed will be stayed.
Under the Withdrawal Agreement the current rules as to jurisdiction will apply to any proceedings which begin prior to 1 January 2021.
If you currently have an ongoing dispute with a party in another EU member state it may be advantageous for you to commence proceedings prior to 1 January 2021 and I would suggest you obtain advice on any such disputes as soon as possible.
Unless a deal is agreed then as of 1 January 2021 the position will be that the various regulations that set out in the rules will no longer apply. This could lead to situations which a party to a contract with an English jurisdiction clause finds that the other party to the contract has issued proceedings in breach of that clause in an EU member state. This therefore increases the risks to parties’ being pulled into disputes in multiple countries trying to determine which country has jurisdiction to deal with the claim.
The UK is looking at being a part of various international treaties that it was a part of as a member of the EU in its own right. These international treaties, such as the Hague Convention, provide rules for its members relating to the use of exclusive jurisdiction clauses in contracts. Generally, the country stated in a clause in a contract should deal with a dispute and the clause prevents courts of other members of the Hague Convention from hearing the proceedings as well. The Hague Convention however is restricted to exclusive jurisdiction clauses (there are various other types of jurisdiction clauses in a contract) and a business should consider whether it requires an exclusive jurisdiction clause within any of its contracts (existing and future) so that it can have the benefit of the Hague Convention rules.
Service of documents
The current EU rules provide for ways to serve documents throughout EU member states. This is a relatively straightforward and inexpensive procedure.
As of 1 January 2021, these rules will no longer apply and parties will need to rely on a mix of international conventions, English law rules as well as the national law of the relevant member states. In these circumstances, it is likely to be more time consuming and costly to serve documents in other EU member states and may require the taking of advice from local EU member state lawyers.
Enforcing judgments
EU law rules currently allow for an effective and streamlined procedure that means judgment in one EU member state is recognised in another EU member state and can be enforced throughout the EU.
These rules will continue to apply to the enforcement of judgments given in proceedings which began before 1 January 2021. This is again another reason why it may be advantageous to begin proceedings prior to that date if you currently have an ongoing dispute with a party based in any EU member state.
As with some of the rules above, if there is a no deal, the starting point is that the rules relating to enforcement of judgments will no longer apply.
The Hague Convention, as with which country shall have jurisdiction, may provide a party with some protection as it allows for the enforcement of judgments granted by a court specified in an exclusive jurisdiction clause to be recognised in other states contracting to the Hague Convention. This does not apply to orders such as injunctions or freezing orders.
Also, it is common in many states that foreign judgments are enforced under national law. There may therefore be additional procedural obstacles to overcome as well as additional time and cost in enforcing judgment in EU member states. It is again likely that local advice will be required as enforcement will be particularly important to consider prior to any proceedings commencing against and EU member state and the strategy to be adopted in any litigation.
Key Considerations
I have set out below some matters that a business may wish to consider now is it is preparing for Brexit.
- Many contracts contain clauses dealing with how disputes relating to that contract should be resolved as well as law and jurisdiction clauses. These are often found towards the end of a contract and are usually treated as boilerplate clauses. If you are contracting with an EU member state it is important that these clauses are not treated as boilerplate clauses and are given consideration as to what you would want to do should there be a dispute. For example, you may need to give consideration to whether an exclusive jurisdiction clause is appropriate and also as part of your preparation obtain advice from lawyers local in the EU member state of the party you are contracted with in relation to enforcement – if you are entering into a contract with a party and there becomes a dispute, you will want to know that if you obtain judgment you can enforce that judgment against them if they don’t pay.
- As well as considering your options when entering into any new contracts with parties in EU member states it is also important to review your existing contracts with parties in EU member states to determine what your current position is should there be a dispute with that party and whether you need to seek to negotiate any amendments to your contracts.
- You should consider any dispute you currently have with parties in EU member states and whether it is advantageous for you to commence proceedings prior to 1 January 2021.
- If you have judgment against a party in an EU member state, you should seek advice now prior to 1 January 2021 to ensure that judgment can be enforced in the EU member state as cost effectively as possible.
- If you are entering into any contract with a party in an EU member state, consideration should be given as to the dispute resolution provisions within your contract. For example, would arbitration be suitable and provide a simpler method of dispute resolution. Arbitration and the enforcement of arbitration awards is unaffected by Brexit as this is governed by the New York Convention.
The most important practical step if you are contracting with parties in EU member states is to seek advice now to ensure your contracts are Brexit ready. This should include a review and advice on your position should there be a dispute under that contract and what options you would have in those circumstances. You should review your existing contracts so you can understand your exposure and risk as well as taking time to consider the dispute resolution and law and jurisdiction clauses contained within any new contracts you are entering into with EU member states.
It will be important to keep a close eye on developments in this area and how you may be impacted. It is not yet known whether the UK and EU will reach an agreement and the UK is also seeking to accede to a number of international treaties that may impact upon cross border dispute resolution. If UK and EU reach an agreement this may change.
For further details on Cross – Border disputes please contact Richard Harris on 0151 230 1215.
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