July 03, 2019 Articles

Deal or No Deal: What Is the Likely Effect of Brexit on Key Areas of Dispute Resolution in the U.K.?

A how-to manual for navigating the complex road map for arbitration, recognition and enforcement of judgments as withdrawal from the European Union approaches.

By Steven Mash, Victoria Prince and Gerald Brent

What are the implications of Brexit—the United Kingdom’s (U.K.’s) anticipated departure from the European Union (E.U.)—and how deep an impression on the landscape of civil and commercial legal proceedings in the U.K. will Brexit create? These questions are front and center as the interrelations between English and E.U. law are redrawn. There surely will be implications for pan-European litigation regardless of whether or not the U.K. exits the E.U. on October 31, 2019, on the basis of a negotiated withdrawal agreement (the draft Withdrawal Agreement endorsed on November 25, 2018, with the other 27 E.U. member states (EU27)). That draft agreement provides for transitional arrangements which would expire on December 31, 2020 (the end of the transition period) or which likewise would expire if no deal is reached, at which point E.U. law automatically ceases to apply to the U.K.

General Law

In a “no deal” scenario, where all reciprocal elements of E.U. law will cease to have effect in the U.K., the U.K. will need to apply preexisting domestic or international (non-E.U.) law. Agreements that pre-date the U.K.’s E.U. membership and that had been superseded by E.U. law may become effective once more.

In some cases, this will lead to the application of the same or very similar legal principles and have a negligible effect on English legal practice. For example, the U.K. is already a party to the Hague Service Convention (1965), which provides an agreed process for the service of judicial documents on parties based in another convention state. The EU27 (with the exception of Austria) are also parties to, or have acceded to, the Hague Service Convention. The convention’s rules, although cumbersome, overlap with requirements set out in the E.U. Service Regulation, which operates pre-Brexit. As a result, it should remain possible to serve documents on opponents in E.U. member states. This should mean that disruption to U.K. litigants seeking to serve process on parties in the EU27, and corresponding disruption to EU27 litigants seeking to serve process in the U.K., will be minimal.

Regardless of the terms of Brexit, the U.K. has indicated that it intends to reach an agreement with the EU27 on continuing civil judicial cooperation with the E.U. post-Brexit, in its white paper on the future relationship between the U.K. and the E.U., published on July 12, 2018. In some cases, it is not yet clear how this will operate (for example, whether the EU27 will require the U.K. to agree to be bound by future amendments to E.U. law as a condition of this cooperation) or how long it will take for the U.K. and EU27 to reach any agreement and what will happen in the interim. There are, however, some key areas where the likely position already can be ascertained. These are dealt with below.

Choice of Court

E.U. law provides a mechanism for determining which state’s courts have jurisdiction over civil and commercial litigation via Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Recast Brussels Regulation”). The Recast Brussels Regulation provides that the courts of E.U. states will give effect to exclusive choice-of-forum agreements entered into by contracting parties.

In anticipation of a “no deal” Brexit or a finalized Withdrawal Agreement that does not provide for the continued application of the Recast Brussels Regulation to the U.K. post-Brexit, the U.K. has ratified the Hague Convention on Choice of Court Agreements (HCCCA), concluded on June 30, 2005. The U.K.’s accession to the Hague Convention in its own right will be suspended during the Article 50 extension period ending October 31, 2019. In the meantime, the U.K. remains bound by the Hague Convention by way of its continued membership in the E.U.

The HCCCA similarly provides that the courts of contracting states will give effect to exclusive jurisdiction agreements. All of the EU27 states are signatories to the HCCCA, so ratification by the U.K. preserves the status quo on jurisdiction agreements as between the U.K. and the EU27 and between the U.K. and other signatories to the HCCCA.

Governing Law

While the U.K. remains a member of the E.U., U.K. courts apply E.U. law to ascertain which state’s laws will determine parties’ rights and obligations. The E.U. conventions that deal with this—Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June  2008, and Regulation (EC) No. 864/2007 of the European Parliament and of the Council of 11 July 2007, on the law applicable to noncontractual obligations (known as “Rome I” and “Rome II”)—allow parties to agree to a governing law with respect to both contractual and noncontractual obligations. The courts of E.U. states will uphold and apply the parties’ contractually agreed choice of law, even if the chosen law is that of a non-E.U. state. This mirrors the position in preexisting English legal practice: English courts have applied the governing law chosen by the parties since the early twentieth century.

As a result, Brexit is unlikely to have any meaningful impact on choice-of-law agreements. A clause stipulating English law as the governing law of an agreement will be upheld by the courts of the EU27 post-Brexit, while the English courts will continue to apply the laws of the EU27 or any non-E.U. state when presented with a sufficiently clear choice-of-law clause.

Contracting parties therefore can take comfort in the continued predictability and transparency that the existing E.U. law and English law provide by recognizing the supremacy of parties’ rights to choose the law that will govern their relations.

Enforcement of Judgments

E.U. law provides a system of rules regarding the reciprocal enforcement of judgments by member states, which simplifies and streamlines the enforcement of U.K. judgments in the EU27 and of EU27 judgments in the U.K., as provided in the Recast Brussels Regulation.

The Withdrawal Agreement provides for continued mutual enforcement of judgments across the U.K. and EU27 during the transition period where proceedings were commenced before the end of the transition period. However, the E.U. rules on enforcement of judgments no longer will apply automatically in the event of a “no deal” Brexit or once the transition period under the Withdrawal Agreement has expired.

The U.K. government has noted that in its post-Brexit/trade deal negotiations with the EU27, it intends to seek a deal “which reflects closely the substantive principles of cooperation under the current EU framework.” This suggests an intention on the part of the U.K. to agree to something similar to the existing rules under the Recast Brussels Regulation.

In the meantime, there is a risk that cross-border enforcement may become slower or more burdensome for judgment creditors, who no longer will benefit from the streamlined enforcement process provided by the Recast Brussels Regulation.

One solution to this problem proposed by the U.K. government would be for the U.K. to accede to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters signed in Lugano on October 30, 2007 (the Lugano Convention), which provides for the mutual recognition and enforcement of judgments in civil and commercial matters between the U.K., Norway, Switzerland, Iceland, and the E.U.

There are some existing protections that are provided to parties who seek to enforce U.K. judgments in the EU27 or vice versa, post-Brexit. For example, the HCCCA (to which the U.K. and EU27 are parties) provides that where parties have entered into an exclusive jurisdiction agreement, contracting states will recognize and enforce judgments delivered by the designated state.

Nevertheless, there is some uncertainty about the extent to which relief granted by the U.K. or EU27 courts will be recognized and enforced by each other, particularly in relation to orders for declaratory relief, specific performance, or injunctions, which are not covered by the HCCCA.

However, it is likely that the enforcement of money judgments will continue in the vast majority of cases, due to the historical practice of such judgments being enforced across the European continent and the British isles and due to the pre-E.U. existence of bilateral treaties governing money judgments affecting entities across European countries, given legal effect in the U.K. by the Foreign Judgments (Reciprocal Enforcement) Act 1933 and related statutory instruments.

Arbitration

Arbitration clauses and arbitral proceedings are unlikely to be affected by Brexit. This is because the interpretation and enforcement of arbitration agreements and arbitral awards, while recognized and accepted by E.U. law, do not emanate from E.U. law. The mutual enforcement and recognition of arbitral awards between the U.K. and the EU27 derive from their status as contracting parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), which binds them regardless of their continued status as E.U. member states. For that reason, international arbitration with a seat in London, and the enforceability of awards made under it, will not be affected by Brexit.

Conclusion

Although Brexit remains a threat to international business, its effect on civil and commercial law in the U.K. will be limited to procedural changes that will not have a dramatic effect on international litigants. The same results are likely to be achieved for them, albeit by different mechanisms than those to which they may have become accustomed during the U.K.’s membership in the E.U.

Although there will be short-term changes and uncertainties in the way litigation involving the U.K. and the EU27 is resolved post-Brexit, we can take comfort that a number of things will not change. Parties can still benefit from designating English law to govern their relations, and the EU27 will still uphold parties’ rights to choose to have their disputes heard before English courts and thereby benefit from its world-class lawyers and judiciary and its deeply entrenched institutional culture of deference to the rule of law.

If the uncertainty of cross-border enforcement of judgments post-Brexit proves intolerable to some, arbitration will continue to provide a reliable and unaffected means to resolve disputes until the new legal landscape is fully formed.

Steven Mash is a partner in Fladgate LLP’s London, England, office. Victoria Prince is an associate of the firm, and Gerald Brent is a trainee solicitor for the firm.


Copyright © 2019, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).