When the Article 50 exit mechanism is eventually triggered there will be an initial two year time limit to negotiate an exit from the EU. Until then, the UK will remain in the EU and continue to be bound by its rules and regulations. Even so, it is important that businesses begin to anticipate the possible implications of Brexit now.
DTM Legal considers the current law and possible changes to litigation following Brexit.
Jurisdiction and Jurisdiction Agreements
Currently jurisdiction is governed by the Recast Brussels Regulation for proceedings issued on or after 10 January 2015, and the old Brussels Regulation for proceedings issued before 10 January 2015.
Pursuant to the Recast Brussels Regulation, where a contract contains a jurisdiction clause in favour of an EU Member State court, that is the court that will determine whether it has jurisdiction to deal with the dispute arising out of the contract. Until the question of jurisdiction is resolved, any proceedings issued in other Member States must be stayed.
Where there is no jurisdiction clause in the contract, the court first seised of the dispute will determine whether it has jurisdiction, and any proceedings in other Member States must be stayed.
Following Brexit the Brussels Regulations will cease to have effect in English law and the new process will be determined by the UK’s chosen foundations for the relationship with the EU.
If the Government choses membership of the European Economic Area (EEA) or the European Free Trade Association (EFTA) then the UK is likely to agree to the 2007 Lugano Convention Although very similar to the Recast Brussels Regulation, a jurisdiction agreement will only be effective under the Lugano Convention if one of the parties is domiciled in a Lugano Contracting State. Where precedence cannot be given to a jurisdiction, the question of jurisdiction is determined by the court first seised of the dispute.
This gives rise to the possibility of parties tactically issuing parallel proceedings or Italian torpedo tactics where a party ensures that the courts first seised of the dispute in the EU are those of a country where the judicial process is known to be slow and/or complicated, even if they believe jurisdiction will ultimately be refused, in order to delay proceedings before the court named in a jurisdiction clause.
If the UK opts for the World Trade Organisation (WTO) regulation, the UK could still seek to accept the Lugano Convention, or look to negotiate individual treaties.
Alternatively, the UK could implement the Hague Convention on Choice of Court Agreements, which came into force between EU Member States and Mexico in October 2015. This would give effect to exclusive jurisdiction agreements.
Once the European Council makes a regulation it needs to be incorporated into English law. The Civil Jurisdiction and Judgments Act 1982 (and subsequent amendments) implement the Brussels Regulations (as well other jurisdiction regulations) into English law. Following the departure from the EU, depending on the deal that is agreed, it is more than likely that large sections of the Act will need to be repealed and a new Act put in place to govern the English law on jurisdiction.
Service
Under the Recast Brussels Regulation, the English law does not usually require permission for service in an EU member state and can make use of the Service Regulation to effect service. There are similar provisions under the Lugano Convention.
Currently jurisdiction clauses are enforceable in contracts governed by English law. A jurisdiction clause allows the Claimant to issue and serve a party without permission where one party is based in a Member State regardless of where the other party is, even where the party is outside of the EU.
Following Brexit if the UK does not implement the Lugano Convention it is likely that service on defendants in the EU will become a longer and more expensive process especially if no agreement is entered into to replace the Service Regulation. Claimants may therefore be required to apply for permission to serve in EU Member States.
The UK may also review the law on jurisdiction clauses on the basis that service in a Member State requiring the permission of a court may put English parties at a disadvantage in proceedings.
Enforcement of a Judgment
The Recast Brussels Regulation currently provides an effective mechanism to enable the recognition and enforcement of judgments across EU member states.
This process, which includes limited exceptions in which enforcement of a judgment may be refused, has increased parties confidence that a judgment obtained from the court of one of EU member states may be easily enforced in other EU member states.
If the Recast Brussels Regulation no longer applies following Brexit, the most obvious way forward would be for the UK to accede to the Lugano Convention. However, the enforcement regime under this convention is less straightforward.
The UK could possibly accede to the Hague Convention on Choice of Court Agreements, however, enforcement under the Hague Convention is quite limited in scope, applying only to judgments given by the court of a contracting state designated in an exclusive jurisdiction agreement.
The UK therefore may seek to negotiate bilateral and multilateral treaties with the EU. It is a possibility that judgments will not be as readily recognised or as easily enforced as under the current system.
Governing Law
Currently the Rome I Regulation applies to contractual obligations and gives effect to the parties’ choice of law (subject to certain exceptions) where the parties have expressly stated their choice. Rome I also provides rules to determine the governing law where this has not been agreed.
The Rome II Regulation deals with non-contractual obligations such as Tort and allows parties to agree the governing law for non-contractual obligations. In the absence of agreement, the law will apply from the country in which the damage has occurred.
Following Brexit, if the UK decides not to apply the Rome I and Rome II Regulations, English law could revert to the rules prior to the Regulations. For contractual obligations this was the Rome Convention. The terms of the Rome Convention are similar to those of Rome I, and it respects the parties’ choice of governing law.
For non-contractual obligations, this was previously set out in the Private International Law (Miscellaneous Provisions) Act 1995 and does not give effect to parties’ agreement on governing law.
Arbitration
Brexit will not affect the conduct of arbitrations with their seat in London, as these are governed by the Arbitration Act 1996.
Neither will it affect the international enforcement of arbitration awards, as all current EU members are members of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In addition, following the non-application of the Recast Brussels Regulation, the courts in England and Wales will be able to grant an anti-suit injunction to restrain proceedings brought in an EU Member State court in breach of a London arbitration clause, something which is currently prohibited by EU case law.
In light of the above it is important that parties continue to specify explicitly in their written contracts their choice of law and jurisdiction. There is no reason not to continue to assert English law as the choice of law and England and Wales as the jurisdiction even where a contract may continue beyond the two year Article 50 period. The English legal system has an excellent reputation for its certainty, judicial excellence and integrity and parties’ will remain attracted to the benefits the English system brings.
It would however seem an appropriate time to enforce any judgment against an EU party as soon as possible to ensure that you are able to take advantage of the currently favourable EU enforcement of judgments regime.
At DTM Legal, our Commercial Litigation team are experienced in advising on cross border litigation, including between EU contracting parties.
Should you have any questions arising from Brexit and how this may impact upon any potential dispute please contact us on 01244 354800 and we would be happy to discuss your options.
