Boddy Matthews
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Brexit means Brexit… but what does Brexit really mean for Cross Border Disputes?

 

1. Brexit Day looms

 

The United Kingdom (UK) is set to leave the European Union (EU) of which it was a founding Member State, as at 29 March 2019. The UK’s exit as a Member State from the EU follows a two year negotiation process which started when the government of the UK triggered Article 50 of the Treaty of the Functioning of the European Union (TFEU)1 on 29 March 2017. This action sought to implement and give effect to a majority vote in the 23 June 2016 public referendum in favour of the UK leaving the EU.

 

The phrase “Brexit” was coined during this process to designate the UK’s exit. “Brexit Day” is thus 29 March 2019.

 

The legal, financial and socio- economic consequences of the UK’s decision to leave the EU are wide ranging. No Member State has left the EU since becoming a Member State. This is unchartered territory for the parties.

 

2. Future Relations

 

In order to smooth the path for the UK and the remaining EU Member States towards a post Brexit climate, ongoing and complex talks and negotiations are currently being held. Given the enormity of the task for the withdrawal from EU membership, the UK government and the EU Commission are issuing future partnership papers setting out their respective visions as to how the relationship on all levels will work following withdrawal.

 

At the time of writing2 the UK government and EU Commission are considering whether a two year transition or implementation period can be agreed after the UK leaves on Brexit Day in order to minimise disruption and to finalise future relations and any future trade agreement between the UK and the rest of the EU Member States.

 

It is the UK government’s stated intention3 that current EU rules which apply until negotiations are finalised, may continue to apply on Brexit. For this to happen, EU law will need to be enshrined into UK law on the day the UK leaves the EU, ie Brexit Day unless extended. To effect this, the UK government has drafted a Great Repeal Bill now known as the European Union (Withdrawal) Bill4 which proposes to repeal the European Communities Act 1972 but adopt [much of] the current EU law. This is the subject of much UK parliamentarian debate before it can be passed as a statute in the UK. If all of the EU laws and rules are adopted as at Brexit Day, the UK government would still be able at a later date consider each aspect in turn and amend, adapt or repeal according to its legislative mandate.

 

3. Cross Border Disputes

 

This paper is a brief overview and the writer’s thoughts [despite possible shifts in position], on some of the issues affecting the legislative uncertainty of Brexit and the position on Brexit Day. It focuses on the potential impact on cross border contractual disputes and contents of dispute resolution clauses. In particular:

  1. The governing law of a contract;
  2. The jurisdiction or forum;
  3. The recognition and enforcement of judgments; and
  4. The use of Arbitration as an alternative dispute resolution method.

The anticipated framework for disputes is to some extent set out in the UK government’s vision published in its Future Partnership Paper regarding cross border civil judicial cooperation framework5 published on 22 August 2017 by the Department for Exiting the EU (The Judicial Future Partnership Paper). The need to address these issues stems from the infrastructure and harmonisation of the cross border legal systems created by membership of the EU, which the UK would be without unless adopted on Brexit Day.

 

Disputes between parties outside the EU, and where the subject matter of the dispute has no connection with an EU Member State will continue to follow the existing common law principles, statutes, case law, agreements and Conventions. They should not be affected by Brexit or the UK’s negotiations with the EU as at Brexit Day. This is highly relevant in circumstances where English law applies to a dispute for example a contract and its terms, and which Courts can hear the dispute. The contracting parties may have adopted specific dispute resolution clauses setting out the steps to take in the event of a dispute arising which would normally include a choice of governing law provision, choice of jurisdiction and whether Alternative forms of Dispute Resolution mechanisms (ADR) are agreed or available to the parties. Further, the jurisdiction or forum of the dispute will impact on the ease and method of enforcement by the parties of the ultimate judgment, decision or award.

 

4. The Governing Law of a Contract - General Choice of Law

 

Factors which may influence why contracting parties cross border would choose to apply English law to their contractual relationship and the framework of the English Legal System remain the same notwithstanding Brexit Day.

 

Examples of those factors include:

  • The principle of freedom of contract. This provides contracting parties with greater flexibility and scope to agree terms;
  • English law is based on common law and statute. This gives parties a higher degree of certainty.
  • English law is a highly sophisticated developed system of law and has enjoyed pre-eminence in international business relations.
  • English judges are known for their quality, impartiality, and independence.
  • English law is well respected nationally and internationally.
  • English law and its principle to respect freedom of contract has been at the cornerstone of the current EU framework. The Withdrawal Bill re-inforces this aspect.

Contracting commercial parties should always consider and be mindful of their respective particular circumstances when choosing what law should govern their contractual relations. Consideration must be given to industry specific circumstances, its regulation by that law, what causes of action may arise, what types of relief or compensation is available in addition to where the parties wish to hold any dispute or enforce any outcome. Brexit Day will not cause this approach by parties to change.

 

4.1 Pre-Brexit Day: USA and UK: Governing Law

 

A party in the United States in contractual dispute with a party in the UK relating to non EU connected subject matter will be conducted in the usual way. Whatever governing law has been chosen will apply. An express choice of governing law is recognised by most developed legal systems provided that the chosen law has some relationship with the parties or the transaction and was not made deliberately to avoid any mandatory provision of national law. Further that there would be no public policy reasons to disregard it.

 

In the absence of the parties’ choice of law, the existing conflict of laws and private international law rules will continue to prevail. For example the court will consider the intention of the parties including any jurisdiction identified and the system of law to which the transaction has the closet and real connection based on the surrounding circumstances. Those circumstances may include where the contract was made, the nature and subject matter of the contract, the language and form of the contract, the place of performance of the contract and domicile or residence of the parties.

 

4.2 Post-Brexit Day: USA and UK: Governing Law

 

The UK government has indicated its intentions in the Judicial Future Partnership Paper to adopt all existing EU law and legislate for it to be UK law as at Brexit Day.

 

There would be no change for the UK and rules applicable pre Brexit will apply.

 

4.3 Pre-Brexit Day: EU and UK: Governing Law

 

Only disputes where one party is based in the UK and the other based in an EU Member State, or where the subject matter of the dispute itself has some connection with an EU Member State will be affected by Brexit. This is because as set out above, the various rules and laws derived from the UK’s membership of the EU provide the legal framework underpinning certain elements of dispute resolution clauses.

 

Currently the EU Regulations Rome I 6 and Rome II7 harmonise the rules that determine which law applies to contractual and non contractual disputes so as to ensure EU Member States each apply the same rules.

 

Rome I Article 3 (1) provides that parties can specify which country’s law will apply to their contract and notably do not have to choose the law of another EU Member State [emphasis added]. 8 Where there is an absence of choice of law in the contract, Rome I Article 4 provides a mechanism for determining which country’s law will apply to the contract.9

 

It is generally the case in accordance with Rome I that EU Member States will respect the parties’ choice of law set out in the contract.

 

4.4 Post-Brexit Day: EU and UK: Governing Law

 

Given that EU law will continue to apply throughout the EU Member States but not the UK, Rome I will continue to apply to those EU Member States. Where parties have chosen English law to be the governing law of the contract, Brexit should not have any effect on this.

 

Indeed the English Courts have traditionally respected the parties’ choice of law and this is expected to continue.

 

What if there is no choice of law? The procedure set out under both Rome I and Rome II will no longer be applicable. Whilst membership of the EU is irrelevant for the rules that apply in the absence of a choice of law clause, there may be uncertainty where for example the English Courts need to determine which law will apply. The UK’s existing conflict of law rules would apply as set out at 4.1 above.

 

However, the Judicial Future Partnership Paper10 sets out that the UK government will take measures to incorporate Rome I and Rome II into UK domestic law so as to maintain certainty.

 

On the assumption that the European Union (Withdrawal) Bill becomes law in the UK on Brexit Day, there will be no change to the current position pre Brexit.

 

5. The Jurisdiction (or Forum) for a case

 

Certain factors which may influence why contracting parties cross border choose the English jurisdiction to hear their dispute remain the same notwithstanding Brexit Day.

 

Examples of those factors include:

  • Choice of English law. The English Courts are best placed to interpret and apply English law.
  • Enforcement of judgment in England
  • Anti suit proceedings or Court first seised issues.
  • Exclusivity of Jurisdiction and certainty
  • Avoids forum (non) conveniens issues
  • Ease of procedural service rules
  • Where the subject matter has sufficient connection
  • The contract or breach was made or committed in the jurisdiction
  • Damage sustained in the jurisdiction - An agent trades or resides in the jurisdiction

5.1 Pre-Brexit Day: USA and UK: Jurisdiction

 

Existing common law or traditional rules apply to jurisdiction including consideration of the above factors and other gateways to determine jurisdiction.

 

5.2 Post-Brexit Day: USA and UK: Jurisdiction

 

Existing common law or traditional rules apply to jurisdiction including consideration of the above factors and other gateways. This will not change on Brexit Day.

 

5.3 Pre-Brexit Day: EU and UK: Jurisdiction

 

The rules which determine which courts in the EU will have jurisdiction over a dispute are set out in the Recast Brussels Regulation.11

 

Under the Recast Brussels Regulation EU courts will generally give effect to the parties’ choice of jurisdiction. The Recast Brussels Regulation also sets out the procedure for determining which courts will have jurisdiction in the absence of a choice of jurisdiction by the parties or in other special circumstances. The general rule is that the courts in the country in which the defendant is domiciled will have jurisdiction. Exceptions or other special circumstances to this include cases involving real estate property, constitution of companies or employment for example.

 

Unlike Rome I and the choice of governing law provisions, the Recast Brussels Regulation provisions are only applicable as between EU Member States.

 

5.4 Post-Brexit Day: EU and UK; Jurisdiction

 

The Recast Brussels Regulation will no longer apply to the UK on Brexit Day.

 

Where there is a clear choice of jurisdiction exercised by the parties, it is anticipated that EU Member States will still respect an exclusive English jurisdiction clause given the requirements to give effect to the parties’ choice of jurisdiction as per the intentions of the Recast Brussels Regulation.

 

The UK government has indicated that it will seek to agree a similar arrangement replicating that of the Recast Brussels Regulation with the EU. Reciprocity is key however to jurisdiction and then enforcement – see below.

 

The UK may seek to participate in the 2007 Lugano Convention regarding jurisdiction to preserve much of the benefits similar to the Recast Brussels Regulation. For exclusive jurisdiction clauses the UK may seek to accede to the 2005 Hague Convention on Choice of Court Agreements as an independent signatory state which will recognise and respect an exclusive jurisdiction clause. The EU is a Signatory of the 2005 Hague Convention on Choice of Court Agreements.

 

6. Recognition and Enforcement of Judgements

 

The benefit of reciprocity in the recognition and enforcement of judgments is clear. This is an underlying principle behind the development of the EU framework on recognition and enforcement of local judgments.

 

6.1 Pre-Brexit Day: USA and UK: Recognition and Enforcement of Judgments

 

Existing common law or traditional rules apply to the recognition and enforcement of English Judgments. These depend on the jurisdiction in which the judgment is sought to be enforced.

 

6.2 Post-Brexit Day: USA and UK Recognition and Enforcement of Judgments

 

There will be no change to the existing common law or traditional rules applicable as before on Brexit Day.

 

6.3 Pre-Brexit Day: EU and UK: Recognition and Enforcement of Judgments

 

Currently the Brussels Recast Regulation provides a framework under which judgments given by courts in one EU Member State can be recognised and enforced in another EU Member State. This framework simplifies and reduces costs of enforcing judgements in another EU Member State.

 

6.4 Post-Brexit Day: EU and UK: Recognition and Enforcement of Judgments

 

The Brussels Recast Regulation will no longer apply to the UK post Brexit. English Judgments will still be enforceable in EU Member States under applicable national rules of the relevant EU Member State. However, this process is likely to be more costly and time consuming.

 

As mentioned above, the UK government will try and agree a similar mechanism to the Brussels Recast Regulation allowing for reciprocal cross-border judicial cooperation.12 This will of course depend on the type of Brexit arrangements agreed with the EU Commission. Alternatively, both the Hague Convention on Choice of Court and the Lugano Convention provide a means by which English Judgments can be enforced in other Member States and around the world. In the absence of reciprocal enforcement rules in the relevant country for enforcement, additional proceedings may be required.

 

7. The Rise of Alternative Dispute Resolution Procedure clauses - specifically cross border

 

Arbitration Arbitration as a method for private and confidential resolution of issues is popular in cross border disputes. The enforcement of cross border arbitral awards is not regulated by EU law and does not require membership of the EU.

 

Parties may choose the governing law, the arbitral rules and procedure, the arbitral panel, the seat and venue of the arbitration. Factors similar to the considerations for governing law and jurisdiction will be relevant including any rights of appeal, reference and scope of the arbitration, relief to be sought and the ability to recover litigation funding costs, all of which may not be available in court proceedings.

 

Post Brexit Day, the UK will remain a member of the New York Convention 1958 which provides for the enforcement and recognition of arbitral awards within its contracting states. Brexit will not affect enforcement under the New York Convention. Other methods of Alternative Dispute Resolution such as cross border Mediation, conciliation, preliminary issue determination, Med-Arb as examples are gaining momentum and, in some jurisdictions, judicial support.

 

8. Conclusion

 

Whatever the UK government is able to agree with the EU Commission and whatever its ongoing relationship with the remaining EU Member States, it is clear that all parties will benefit from continued cross border civil judicial cooperation. The need to ensure legal certainty and avoid disruption is paramount to those discussions to retain the integrity of the English judicial system which has been built up through the ages and its principles adopted worldwide.

 

Brexit Day is looming but is an opportunity to re-identify the foundations for ongoing successful cross border relations.

 

Kate Matthews
Partner
Boddy Matthews Solicitors
February 2018

 


 

1 Article 50 of the Treaty of the Functioning of the European Union (TFEU)
2 7 February 2018
3 Ibid
4 European Union (Withdrawal) Bill 2017-19

 
     
 

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