The Dispute Resolution Review: Brexit
On 23 June 2016, the people of the UK were asked whether they believed their country should remain a member of the European Union or leave. On a turnout of 72.2 per cent, a majority (51.9 per cent) voted to leave. The UK government announced that it would give effect to the referendum's result by following the procedure set out in Article 50 of the Treaty on European Union. Accordingly, on 29 March 2017, the Prime Minister, acting with the authority of Parliament, gave the European Council formal notice of the UK's intention to withdraw from the EU. That set in train a two-year period for the negotiation of terms for an orderly departure and a framework for a future relationship. The effect of Article 50 was that the UK would leave the EU at the expiry of those two years, whether or not a withdrawal agreement had been concluded. A draft agreement was reached in December 2018, but it was rejected by the UK Parliament. The Prime Minister resigned and her successor reopened negotiations with the EU (two extensions to the Article 50 deadline having been agreed in the meantime). The parties announced a revised agreement in October 2019 and a third extension of the Article 50 deadline, to 31 January 2020, was agreed shortly afterwards. Following the victory of the incumbent Conservative Party in the UK general election in December 2019, ratification of the revised withdrawal agreement by the UK Parliament now seems assured; the European Parliament is then expected to give the agreement its blessing. The UK will leave the EU at 11pm London time on 31 January 2020.
This special chapter is concerned with the impact of Brexit on the procedural law which underpins dispute resolution in England. Specifically, we consider how English courts:
- determine which law applies to contractual and non-contractual obligations;
- determine which country's courts have jurisdiction to hear disputes;
- recognise and enforce the judgments of other (and in particular European) states' courts; and
- support international arbitrations.
Much of this procedural law derives from the UK's membership of the EU. In principle, it should cease to apply when the UK ceases to be a Member State. In fact, it will not: a major function of the withdrawal agreement is to provide for the continued application of EU law to the UK during a time-limited transition period. Even after that time, EU law will continue to be binding in the UK in certain defined circumstances. And the government's stated ambition is to conclude a new relationship agreement with the EU which, in this field at least, would largely replicate the benefits of the pre-Brexit regime. In spite of all of this, it is an inevitable consequence of Brexit that, at some point, at least some of the current rules will change. This chapter seeks to assess the extent, nature and timing of that change.
II RELEVANT LEGAL CONSEQUENCES OF BREXIT – A SUMMARY
The foundation of the EU and its unique legal order are the various treaties entered into by the Member States. As a matter of international law, the UK is bound by these treaties for as long as it is a party to them. As a matter of domestic law, however, the treaties produce legal effects only if and to the extent Parliament legislates to that effect. The European Communities Act 1972 was the means by which the UK implemented the EU treaties in domestic law; the 1972 Act has been described as the 'conduit pipe' through which EU law flows into the UK's domestic legal order. The UK's notification under Article 50 set in train a process which will conclude with the UK ceasing to be bound at the international level by the treaties; subject to the terms of the withdrawal agreement, the flow of EU law will be cut off at its source. Reflecting this in domestic law and providing for its consequences requires Parliament to enact fresh legislation.
i Legislating for Brexit
A mass of primary and secondary legislation has been or will be enacted to deal with Brexit and its consequences. Two Acts of Parliament are of particular importance and are addressed briefly below.
THE EUROPEAN UNION (WITHDRAWAL) ACT 2018
The European Union (Withdrawal) Act 2018 became law in June 2018. Its purpose is twofold: it repeals the 1972 Act, dismantling the mechanism by which EU law is given automatic effect in the UK. At the same time, in order to avoid the legal vacuum which would otherwise result from the wholesale and sudden disapplication of EU law, the 2018 Act will convert into UK law all EU law as it applies the moment before exit. In and of itself this will not be enough to preserve the legal status quo. Some retained EU law will not function post-exit in the way it did pre-exit. In some cases, these problems can be remedied fairly easily by amending the retained law (for example to replace references to EU institutions with UK replacements or equivalents). In other cases, the problems will be more substantial and not capable of unilateral remedy. Laws that are premised on reciprocity as between Member States are an important example: once the UK has left the EU, it can make a unilateral choice to continue treating the remaining Member States favourably, but it cannot expect or require those states to do likewise. Domesticating laws of this kind would create a one-sided structure at odds with the purpose of the underlying EU regime. The 2018 Act accordingly provides ministers with powers to amend retained EU legislation or to revoke it entirely.
THE EUROPEAN UNION (WITHDRAWAL AGREEMENT) BILL
The withdrawal agreement sets out the terms for the UK's orderly departure from the EU. Among other provisions relating to citizens' rights, a settlement of the parties' financial obligations to each other, and the winding-down of issues and matters currently subject to EU law, the agreement provides for a transition period (sometimes referred to as an implementation period) after the UK formally leaves the EU on 31 January 2020. During the transition period, EU law will continue to apply in and to the UK, even though it has ceased to be a Member State. The European Union (Withdrawal Agreement) Bill is intended to give domestic legal effect to the rights and obligations conferred by the withdrawal agreement. The greater part of the Bill, which at the time of writing was expected to complete its passage through Parliament and become law in January 2020, is taken up with amendments to the 2018 Act. Notably, for present purposes, the Bill would postpone the domestication of EU law to the end of the transition period, prohibit any extension of the transition period beyond 31 December 2020, and empower ministers to consult on and make regulations providing for courts to depart from pre-exit CJEU jurisprudence in specified circumstances.
ii The withdrawal agreement and civil justice cooperation
The transition period provided for in the withdrawal agreement will mean that EU law continues to apply in and to the UK until 31 December 2020.2 This means that, subject to the fuller discussion below, the rules as they relate to governing law, jurisdiction and the enforcement of judgments will remain broadly as they are now until the end of 2020.
Even after the end of the transition period, certain elements of EU law will continue to apply in defined circumstances. For instance, legal proceedings instituted in the UK (and, where there is a UK element, in the EU27) before the end of the transition period will continue to be subject to EU rules on jurisdiction. Similarly, judgments in proceedings instituted before the end of the transition period will continue to be enforceable in the UK and in the EU27 in accordance with EU rules. The most significant omission from these grandfathering provisions is jurisdiction agreements with a UK element. Jurisdiction agreements in favour of a Member State court are accorded a special status by the EU regime and any Member State court other than that nominated must generally decline to hear proceedings subject to such an agreement. That can make obtaining redress simpler and quicker. After the end of the transition period, jurisdiction agreements in favour of the English courts, even where concluded before the end of transition, will not be upheld in accordance with EU rules in EU27 courts. That does not necessarily mean that such agreements will not be respected but, as discussed further at Section IV.ii, it introduces an element of uncertainty and the potential for delay.
iii Post-transition: a new relationship agreement?
If Brexit is seen as a process rather than an event, the UK ceasing to be a Member State on 31 January 2020 will constitute the end of the beginning. Attention will immediately shift to the negotiation of a new set of arrangements to replace, to a greater or lesser extent, those which currently govern trade and cooperation between the UK and its nearest neighbours. The 11-month transition period under the withdrawal agreement is intended to allow the parties the space to conclude these new arrangements. A political declaration on the framework for a future relationship was negotiated alongside the withdrawal agreement and is intended to guide the next stage of the process. It is notable that the political declaration includes no reference to continued cooperation in the sphere of civil justice. But even if it had done, the truncated timetable would likely have pushed perceived second order questions like civil justice in a later round of negotiations.
The upshot is that there is likely to be a space of time after the end of the transition period when there will be reduced cooperation and coordination between the UK and the EU27 in this field. As explained further below, that will not matter much for questions of governing law (because it is within the UK's power unilaterally to replicate the current arrangements and Brexit will not affect their operation in the remaining Member States). However in the area of jurisdiction and enforcement of judgments, any change will be felt more keenly. The Hague Convention on Choice of Court Agreements (see Section IV.i) is the only currently applicable element of the regime to which the UK will be able to re-accede. The rest of the European regime will be revoked in the UK. The Hague Convention provides valuable cross-border recognition and protection for exclusive jurisdiction clauses and the judgments in litigation based on those clauses. But as regards the EU, it is far less comprehensive than the current arrangements.
What might an eventual new agreement on civil justice cooperation look like? The UK government has said since the summer of 2017 that it wants in large part to replicate the effects of the current regime. The EU has, to date, been more guarded, expressing a hope for cooperation only in the fields of family and criminal law (both of which were mentioned in the political declaration). However, that does not mean that there is no prospect of an agreement. The Lugano Convention is a precedent for EU civil justice cooperation with third countries; the UK will seek to accede to the convention post-exit and, if successful, can be expected to use it as a basis for further and deeper cooperation with the EU.
III GOVERNING LAW
i The present position
Where the laws of different countries could govern a contract or a dispute relating to a non-contractual obligation, the properly applicable law is determined according to two different EU rules, as explained below.
The governing law of a contract is determined according to the provisions of Regulation (EC) No. 593/2008 (commonly known as the Rome I Regulation). As an EU regulation, Rome I has 'direct effect'; that means that it operates in and binds Member States (including the UK) automatically, without the need for Member States to pass their own implementing legislation.
Where a contract was entered into before 17 December 2009, Rome I's predecessor, the Rome Convention, applies in the determination of its governing law. The purpose and effect of the Convention are broadly similar to Rome I, but its legal character is different and it does not have direct effect. Instead it was implemented in the UK by means of the Contracts (Applicable Law) Act 1990.
The cornerstone of Rome I (and the Rome Convention) is party autonomy: counterparties are free to choose the law they wish to govern their contractual obligations. This default rule is subject to various overriding exceptions that are intended to protect the weaker party in certain types of contracts (for example, contracts for the carriage of passengers, consumer contracts, employment contracts and insurance contracts), to respect public policy imperatives in the law of the forum and to seek to restrain forum-shopping (such that, where the parties have chosen one country's law to govern their contract but all the other elements of the situation at the time they made that choice point to a different country, certain mandatory provisions of that country's law may be applicable).
Where the parties have not made an express choice of law in their contract, Rome I sets out how it should be determined. In addition and subject to the overriding rules described in the paragraph above, various other situations are catered for. For example, in a contract for the sale of goods, the governing law shall be that of the country where the seller has his habitual residence. And in a contract for the provision of services, the governing law shall be that of the country in which the service provider has his or her habitual residence.
Importantly (particularly in the context of Brexit), Rome I is of 'universal application': a Member State court is bound to apply whichever law Rome I dictates should apply in the particular circumstances; it is irrelevant whether that law is or is not the law of a Member State.
Regulation (EC) No. 864/2007 (known as the Rome II Regulation) provides for the determination of the governing law of non-contractual obligations. It has been in force across the EU since 11 January 2009 in respect of events giving rise to damage since that date; like Rome I, it has direct effect in the Member States.
Rome II allows parties to agree expressly on a law to govern their non-contractual obligations. That agreement can be made either before or after the happening of an event that gives rise to damage. In the absence of such agreement, the default rule – where the non-contractual obligation is tortious – is that the applicable law shall be that of the country where the damage occurred.
Like Rome I, a court must apply whichever law the application of Rome II specifies, whether or not that law is the law of a Member State.
ii The legal effect of Brexit
The Rome Regulations (or their substance) will continue to apply in the UK even after the end of the transition period and their application will produce the same results as before exit.
Where a contract is concluded before the end of the transition period, or an event giving rise to damage occurs before the end of the transition period, the withdrawal agreement expressly provides that English courts will, after the end of the transition period, continue to apply the Rome Regulations.3
For contracts concluded and events occurring after the end of the transition period, EU law will no longer apply, but the Rome Regulations will be transposed into domestic law by operation of Section 3 of the Withdrawal Act. Secondary legislation will make various, generally minor, amendments to the text of the Rome Regulations to facilitate their practical operation post-transition.
So Brexit will produce no immediate changes in the substantive rules relating to governing law. The nature of Brexit, however, creates the potential for future changes. The regulations are native to EU law, the ultimate arbiter of which is the CJEU. Member State courts are obliged to interpret EU law in line with the CJEU's jurisprudence. After the end of the transition period, however, the UK's courts will not be 'bound by any principles laid down, or any decisions made, on or after exit day by the European Court'.4 Those decisions will instead be merely a discretionary consideration. That opens up the possibility of a divergence between EU27 and UK courts in the interpretation of an otherwise shared set of laws.
The courts of remaining Member States will, throughout this time, continue to apply the Rome Regulations to situations with a UK element and the results produced by their application will not be affected by the UK ceasing to be a Member State.
iii Practical implications
An English choice of law clause in a contract will be not be affected by Brexit. Courts of the remaining Member States will continue to apply Rome I, which, as already noted, generally respects the choice of law made by the parties. Even where other rules in Rome I are engaged, they are blind to the country the laws of which their application prescribes. In short, whether the UK is inside or outside the EU will make no difference to the operation of Rome I.
Meanwhile, an English court is very likely to continue to uphold an English choice of law clause, because Rome I will become part of the UK's domestic law post-transition. Moreover, the reasons for choosing English law will remain powerful. It is a highly sophisticated, commercially aware, flexible system of laws used regularly in international business relations.
i The current position
THE RECAST BRUSSELS REGULATION AND THE LUGANO CONVENTION
EU law underpins the current position. The principal instrument relating to jurisdiction in civil and commercial matters (as well as the enforcement of resulting judgments) is the Recast Brussels Regulation (Brussels Recast). It applies to proceedings started on or after 10 January 2015 in EU Member States. Where proceedings began before that date (but after 1 March 2002), the original Brussels Regulation (Brussels I) applies. A near-duplicate of Brussels I, the Lugano Convention 2007, applies as between the EU and three of the EFTA states: Norway, Iceland and Switzerland.5
The basic rule under these instruments is that a defendant should be sued in the European state in which he or she is domiciled. This basic rule is subject to various exceptions, the most significant of which for present purposes is found only in Brussels Recast: where the parties have reached an agreement to confer jurisdiction on a specific Member State's courts, only those courts may entertain proceedings; any other Member State court in which proceedings are sought to be brought must decline to hear them.
Where the European regime does not apply (e.g., because the claim in question does not relate to a civil or commercial matter; is specifically excluded from its scope (arbitration is one notable example); or because the defendant is resident in a state not a party to the European regime), and nor does the Hague Convention on Choice of Court Agreements (see below), the common law rules apply. According to these rules, the jurisdiction of the English court is founded by service of process. If a person can be served (either as of right where a person is within the jurisdiction, or with the permission of the court where the person is outside the jurisdiction), then the court may (not must – in comparison with the European regime) hear a claim against them.
THE HAGUE CONVENTION ON CHOICE OF COURT AGREEMENTS
There is one other relevant instrument that takes effect in the UK as EU law: the Hague Convention on Choice of Court Agreements 2005. Under the terms of the convention, the courts of contracting states are bound to uphold qualifying exclusive jurisdiction agreements which nominate the courts of a contracting state. The judgments in the resulting cases are then reciprocally enforceable in contracting states. The EU acceded to the convention on behalf of the Member States. The other contracting states are Mexico, Singapore and Montenegro. Three other states have signed the convention but not yet ratified it: China, the United States and Ukraine. When or whether these states will ratify and accede to the convention is unclear.
Although the convention is a significant advance for cross-border civil judicial cooperation, there are a number of important points to be borne in mind:
- Most obviously, the convention applies only to exclusive jurisdiction agreements; these must have been concluded in civil and commercial matters (see (b) below) with a cross-border element. One-sided jurisdiction clauses (where one party is compelled to sue in one country's courts while the other party has the freedom to sue in any court which will entertain the case) are probably outside the scope of the convention (although the English court has expressed a contrary view (albeit in a non-binding context)6).
- The convention applies only to civil and commercial matters. That restriction also applies to Brussels Recast and the Lugano Convention, but the concept is more narrowly drawn in the convention; competition law claims, tort claims, consumer contracts and some insurance contracts are excluded from its scope.
- The convention applies only to agreements concluded after its entry into force in the state whose courts are, by the agreement, given exclusive jurisdiction. That is 1 October 2015 for Mexico and the 28 current Member States; 1 October 2016 for Singapore; and 1 August 2018 for Montenegro.
- Finally, the convention is a relatively new instrument and its provisions are, as yet, untested in the courts of contracting states.
INTERACTION BETWEEN THE BRUSSELS REGIME AND THE HAGUE CONVENTION
Where an exclusive jurisdiction agreement is concluded in favour of the courts of an EU Member State (including, for these purposes, the UK), which rules should the court apply to its interpretation? The Hague Convention, Brussels Recast and the Lugano Convention all contain potentially applicable provisions. To manage these conflicts, the Hague Convention contains 'give way' provisions, setting out the circumstances in which the Brussels regime takes priority. In broad overview, where at least one of the contracting parties to the jurisdiction agreement resides in Mexico, Singapore or Montenegro (in other words, the non-EU contracting states to the Hague Convention), the Hague Convention will apply in preference to the Brussels regime. Otherwise, the Brussels regime applies.
ii The legal effect of Brexit
For the duration of the transition period, the regime outlined above will continue to apply to and in the UK. Insofar as the regime binds only Member States, plus the UK, that is straightforward. The potential problem comes for those parts of the regime that involve third countries: the Lugano Convention and the Hague Convention. The UK will be bound to uphold those instruments by virtue of the withdrawal agreement but the contracting parties which are not also EU Member States will be under no such obligation (because they are not parties to the withdrawal agreement). Although the EU has said it will notify relevant third countries of the provisions of the withdrawal agreement, there remains a risk that those countries will decline to extend reciprocal treatment to the UK during the transition period.
After the end of the transition period, EU law as it relates to jurisdiction will continue to apply to legal proceedings already on foot in the UK and the EU27. This grandfathering arrangement does not extend to jurisdiction agreements concluded before the end of the transition period. Where they fall to be interpreted by UK or EU27 courts after the end of the transition period, no dispensation will be made for the fact that the UK was a Member State at the time they were signed; that means they will not automatically be upheld as they would likely have been while the UK was, or was treated as, a Member State. This does not necessarily mean that such agreements will not be upheld in the EU27 and the UK, simply that they will be the subject of a different legal analysis. This is considered further below.
The nature and extent of future EU–UK cooperation in civil justice will be a matter for negotiation between the parties after the UK formally leaves the EU on 31 January 2020. The UK's public position is that it wants a close relationship similar in substance to the current EU regime. The EU has not yet set out its view on the question, and the political declaration agreed by the parties in October 2019 was silent on the point. In these circumstances, it is possible, and perhaps probable, that after the end of the transition period there will be no formal agreement on civil justice cooperation in place between the UK and the EU.
The UK has developed contingency plans to deal with such a scenario. They involve the preservation of the one element of the current regime which exists outside the EU's structures – the Hague Convention on Choice of Court Agreements – and a reversion to the common law rules in other areas.
As explained in Section IV.i above, the UK is currently bound by the Hague Convention by virtue of its membership of the EU; it will cease to be bound by its terms once EU law no longer applies to the UK. The UK government has said since 2017 that it would take steps to ensure that the UK continues to participate in the convention after Brexit. To that end, the UK deposited its instrument of accession with the relevant authority on 31 December 2018 and the Hague Convention will enter into force for the UK in its own right on 1 January 2021 (in other words the day after the end of the transition period). The government has said it will ask Parliament to pass primary legislation to give domestic legal effect to the Convention.7 Secondary legislation has already been enacted that seeks to ensure legal certainty by providing that there be no difference in the treatment of jurisdiction agreements concluded during the two distinct periods of UK adherence to the Convention.8 However, there is no guarantee that the courts of other contracting states will adopt a similar approach (and the European Commission has asserted that once the UK re-accedes to the Convention, jurisdiction agreements made earlier should not be upheld in accordance with the Convention; the correctness or otherwise of this assertion will ultimately be a matter for the CJEU).9
Other elements of the EU regime on jurisdiction (and judgments) will be revoked after the end of the transition period. Because the EU rules are premised on reciprocity between Member States, the government has taken the view that unilateral domestication of the regime would create an unacceptably one-sided arrangement as between the UK and the EU27. In its place, English courts will be directed to apply the common law rules which currently apply to matters outside the scope of the EU regime.
At the time of writing, the EU has not indicated that it will adopt any unilateral measures to ease the potential cliff-edge of a no-deal after the end of the transition period. This is perhaps not surprising: as a matter of law, the operation of the EU rules on jurisdiction will not be affected by the departure of one Member State; the UK will become a third country and the rules will be applied to it (or not) accordingly.
As a final point, the UK government has said it will seek to continue to participate in the Lugano Convention, an international agreement between the EU and three of the four EFTA states (referred to in Section IV.i below). Accession would preserve the essentials of the current regime – in other words, a reciprocal arrangement under which English and other European courts would apply a common set of jurisdictional rules.
The Lugano Convention permits a non-EU, non-EFTA state to accede to the Convention but only where it has the unanimous consent of all the other contracting parties. Obtaining that consent could be easier said than done. Even if no objection was raised by another party, as a simple matter of logistics obtaining consents could take some time: the Convention provides that contracting parties should indicate their acceptance (or not) of a party's application for accession within one year of it being made; at the time of writing, it does not appear that any such application has been made.
Even were the UK ultimately to participate in the Lugano Convention as an independent state, it should be noted that from a substantive point of view the Convention is a less sophisticated instrument than Brussels Recast. This is because its terms mirror Brussels Recast's immediate predecessor, Brussels I. Most significantly, that means Lugano does not accord exclusive jurisdiction agreements the primacy they now enjoy under Brussels Recast. Under Brussels I and Lugano, the rule is that the court before which a claim is first brought has the right to rule on its own jurisdiction, even where the parties had agreed that they wanted another court to have jurisdiction. That rule facilitated a litigation tactic whereby one party could frustrate or delay the claims of their counterparty by issuing proceedings pre-emptively in a court in which cases are known to move slowly. That tactic was commonly referred to as the 'Italian torpedo'. The most reliable way to thwart it was to issue proceedings in the desired court before a would-be opponent had a chance to issue in a slower jurisdiction. One unfortunate side effect of this race between the parties to issue a claim in their preferred court was to limit the scope for alternative dispute resolution and early settlement.
iii Practical implications
WILL THE HAGUE CONVENTION PROTECT MY PRE-BREXIT ENGLISH EXCLUSIVE JURISDICTION AGREEMENT?
Yes, in many cases but not all. Providing a clear answer of general application is complicated by the effects of the UK's re-accession to the Hague Convention following the end of the transition period. A question arises of whether jurisdiction agreements concluded during the first period of UK adherence to the Convention (as a Member State and then during the transition period) should be treated differently to agreements concluded during the second period of UK adherence (as a contracting party in its own right). This is a question that will need to be resolved by the courts of each contracting state (meaning the CJEU in the case of the Member States).
In the UK, the government has sought to ensure legal continuity and consistency in the treatment of exclusive jurisdiction agreements falling within the scope of the Hague Convention. In broad terms, secondary legislation provides that the Convention is to be given the effect it had at the time the jurisdiction agreement in question was signed. For agreements post-dating the end of the transition period, the position is easily expressed: English courts will uphold qualifying jurisdiction clauses in favour of the English courts (or those of any other contracting state, which include the remaining Member States of the EU); English courts will also enforce judgments from the courts of contracting states in proceedings arising from in-scope jurisdiction agreements. The position is more complicated for agreements signed before the end of the transition period. Because the Convention is construed as if the UK were still a Member State, its provisions relating to conflicts with Brussels Recast continue to apply (see Section IV.i above). That means that where none of the parties to the jurisdiction agreement is resident in Mexico, Singapore or Montenegro (in other words, the vast majority of such agreements), the Convention will give way to Brussels Recast. But once the transition period is over, and assuming the UK and EU have not agreed a new relationship which effectively replicates the current arrangements, the UK will have revoked the Brussels regime (as discussed in Section IV.ii). The UK secondary legislation makes no provision for the grandfathering of pre-exit jurisdiction agreements. Instead the common law rules will be applied by the English court. Because the common law generally upholds parties' agreements on choice of forum, the result of this somewhat tortuous analysis is likely to be the same as if the Hague Convention had applied: the court will uphold the jurisdiction clause.
No other contracting state to the Hague Convention has passed legislation to deal with the effects of the UK's re-accession. As noted above, the European Commission has asserted that agreements in favour of the English courts concluded before the end of the transition period should not thereafter be upheld by EU27 courts in accordance with the Convention. Whether that is correct or not will be a matter for the courts of Member States (and ultimately the CJEU) to determine. Parties to agreements signed before the end of the transition period who consider that proceedings in an EU27 (or other Hague contracting state) are possible should consult with local lawyers to understand the national law that would apply in the event the Hague Convention does not.
SHOULD PARTIES STILL BE AGREEING ENGLISH JURISDICTION CLAUSES?
The purpose of a jurisdiction clause is to give parties certainty about which courts can or must hear disputes that arise between them; bound up in this is the need for resulting judgments to be enforceable in places where a party has material assets.
The current European regime provides a predictable and robust framework for the allocation of jurisdiction and the enforcement of judgments, but only within the states that are a party to it. Brexit poses a risk to the UK's continued participation in the current European regime, but it is important to appreciate that this risk is:
- relevant only to the extent parties have a potential nexus with other EU countries; and
- mitigated within the EU (and certain other states) by actions the UK has it within its sole power to take – notably accession to the Hague Convention on Choice of Court Agreements.
Accordingly, parties negotiating a jurisdiction clause should begin by considering what it is they want their clause to achieve and where they want it to have effect. Brexit per se should not be a reason to avoid or amend an English jurisdiction clause. The many benefits of bringing proceedings in England – not least an impartial and expert judiciary, a well-established and transparent system of court procedure, and the deep pool of talent in the legal and associated professions – will not be affected by Brexit.
IS THERE ANY BENEFIT IN ADOPTING A NON-EXCLUSIVE JURISDICTION CLAUSE?
One option for parties entering into contracts now is to consider giving the English court non-exclusive jurisdiction over disputes. That would allow each party the flexibility to choose at the appropriate time whether to sue in England or to try to sue in the courts of one of the continuing Member States of the EU. The ability to sue in an EU court instead of in England might, in theory, be useful in the event that the UK is not immediately able, post-Brexit, to secure a continuation of the current regime whereby English judgments are easily enforceable across the EU.
However, a non-exclusive jurisdiction agreement carries its own risks, which might negate its perceived benefits. Such a clause should be drafted carefully by reference to the circumstances of the case and a clear understanding of what each party wishes to achieve. Particular issues relevant in the context of the EU and Brexit, pending certainty on the shape of a post-Brexit arrangement, are as follows:
- First of all, a party can only sue in a Member State court if that court has jurisdiction under the EU rules. In other words, a jurisdiction clause that merely confers non-exclusive jurisdiction on the English courts does not, in and of itself, automatically confer a right to sue in another Member State court.
- Second, it is in the nature of a non-exclusive jurisdiction clause that parties have a choice where to start a claim. The result might be that a party is obliged to defend proceedings in a jurisdiction it might rather have avoided – the EU rules require Member State courts to defer (in the first instance, at least) to the court first seised. With the UK outside the EU, there might be greater potential to enlist the help of the English court in resisting litigation overseas, but that would also involve extra time and cost (with no guarantee of success).
- Third, in the event that a party chose to sue in England (or was unable to sue elsewhere), the fact of the non-exclusive jurisdiction clause might impair its ability easily to enforce the resulting English judgment in the EU27, Singapore, Mexico or Montenegro. These states (and the UK, post-exit) are parties to the Hague Convention by which the reciprocal enforcement of certain court judgments is facilitated; non-exclusive jurisdiction clauses fall outside the convention's scope.
In short, parties considering adopting a non-exclusive jurisdiction clause should consider carefully in which country the particular circumstances of their contract indicate they might need or be able to sue. Is the apparent flexibility enough to compensate for the risk of jurisdictional disputes and the possibility of not being able to sue in England (or another preferred jurisdiction)?
i Current position
EU law underpins the current position. The regime for enforcement is contained in the instruments relating to jurisdiction, which are considered in Section IV.
Under Brussels Recast, the judgments of Member State courts can be exported relatively quickly and easily to other Member States. Assuming certain basic conditions are met, Member State courts will recognise and enforce each other's judgments as if they had been made domestically.
The process for enforcing a Member State court judgment in another Member State is essentially administrative. A judgment creditor obtains a standard form certificate from the court that gave the judgment and then serves this certificate, along with the judgment itself and translations, on the judgment debtor in another Member State. The judgment creditor can then enforce his or her judgment using all the tools available to a domestic judgment creditor in the Member State of enforcement. The process is slightly more long-winded under the Lugano Convention, but nevertheless represents a considerable saving of time over the cross-border enforcement arrangements, such as they were, that existed before the relevant EU law.
ii The legal effect of Brexit
For the duration of the transition period, the current EU enforcement regime, as described above, will continue to apply in and to the UK. Judgments handed down after the end of the transition period will continue to be enforceable in UK and EU27 courts in accordance with EU law provided that the proceedings to which the judgment relates were commenced before the end of the transition period.
Under the European regime, reciprocal enforcement of judgments by the courts of participating states is a corollary to rules governing the allocation of jurisdiction. Brussels Recast, the Lugano Convention and the Hague Convention all adopt this approach. It follows that the post-transition considerations discussed in the context of jurisdiction at Section IV above apply equally to enforcement: in essence, the Hague Convention will survive Brexit, but unless a new arrangement can be negotiated with the EU over the course of 2020, other elements of the European regime will be revoked in the UK once the transition period is over, and EU27 courts will accord no special treatment to UK judgments under EU law.
In the twentieth century, the UK entered into bilateral treaties for the mutual recognition and enforcement of judgments with Austria, Belgium, France, Germany, Italy, the Netherlands and Norway. These treaties (and those with certain other non-European states, mostly Commonwealth territories) are given legal effect in the UK by the Foreign Judgments (Reciprocal Enforcement Act) 1933 (the 1933 Act) and related statutory instruments.
Insofar as it relates to the European countries listed above, the 1933 Act has been superseded and in effect disapplied for nearly all purposes by EU law. It continues to have a residual application in respect of judgments that fall outside the scope of the European regime (for instance, where a judgment is given in a claim that is not a civil or commercial matter). Might the treaties be fully resuscitated after the UK ceases to be bound by EU law?
In the UK, at least, a renewed wholesale reliance on the 1933 Act to enforce judgments from the European countries mentioned above should be feasible. However, ensuring reciprocal treatment of English judgments could be more problematic. The European regime was intended to supersede previous arrangements and it is not clear whether and how other European states would enforce those historic arrangements with the UK.
There are also considerable limitations to the scope and operation of the old bilateral arrangements. As well as applying only to seven of the 31 other EU and EFTA states, the regime only applies to money judgments. It is also less creditor-friendly: before a qualifying judgment can be enforced, it must first be registered in the enforcing state's courts. Even then, there is considerable scope for a judgment's registration and enforcement to be set aside, for instance on the ground that the foreign court did not, according to the rules of the enforcing court, have jurisdiction over the judgment debtor.
iii Practical implications
WILL EUROPEAN COURTS ENFORCE ENGLISH JUDGMENTS? WHAT STEPS CAN BE TAKEN TO REDUCE UNCERTAINTY?
If, as expected, the withdrawal agreement is ratified, judgments obtained in the English courts up until 31 December 2020 will be fully enforceable in accordance with the current European regime. In the event of a no-deal Brexit, or after the end of the transition period if there is a deal, there is considerable incentive for EU Member States to maintain the current regime, or a version of it, so that their local judgments continue to be easily enforceable in the UK. At the time of writing, accession by the UK to the Lugano Convention (which would require the consent of the EU, as well as Norway, Iceland and Switzerland) would go a long way towards achieving this objective.
Further and in any event, the Hague Convention, which the UK will become a party to independently of the EU on 1 April 2019, will provide another post-Brexit means by which English judgments in disputes arising from qualifying exclusive jurisdiction agreements will continue to be enforceable in Member States.
VI INTERNATIONAL ARBITRATION
i The current position
The legal framework governing international arbitrations seated in England is largely British or multilateral in origin; the role of EU law is small.
The procedural law that governs English-seated arbitrations is the Arbitration Act 1996 (the AA 1996). Section 30(1) AA 1996 provides that, unless the parties agree otherwise, an arbitral tribunal may rule on its own substantive jurisdiction.
There are three distinct areas in which governing law will fall to be determined:
- The law of the arbitration agreement. In most cases, unless the parties have expressly provided for a particular law to apply to the arbitration agreement, the governing law will be that of the contract containing the arbitration clause. Where the contract is silent on this, the law will be that of the jurisdiction most closely connected to the seat of the place where the arbitration is to be held. (The Rome I Regulation – although it might dictate the same result as the close connection test – does not apply to arbitration.)
- The law of the arbitral process. This will be the law of the seat, and where the parties have not expressly identified a seat the court will determine it on the basis of the parties' agreement and all the relevant circumstances.
- The law of the substance of the dispute. In most cases, this will be the law that the parties have by their contract selected to govern their obligations. Where the parties have adopted institutional rules for their arbitration, these will guide the tribunal in the event that there is no express choice of law. In the absence of a set of institutional rules or other agreement between the parties, Section 46 AA 1996 states that the tribunal shall apply the law determined by the conflicts of laws rules which it considers appropriate. This affords a tribunal a wide discretion, although in most cases where the seat is London it is likely that a tribunal will apply English rules. These are in the Rome I Regulation and can be applied by a tribunal in these circumstances notwithstanding the arbitration exclusion in Rome I.
Cross-border enforcement (including in all the current Member States of the EU) is effected pursuant to a multilateral agreement: the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The UK is a signatory to the New York Convention in its own right and provisions of the AA 1996 implement the Convention in UK law. Sections 101 and 102 AA 1996 provide that awards made in states that are a party to the New York Convention shall be recognised in the UK as binding on the parties and shall be enforceable by means of the mechanism set out at Section 66 AA 1996.
ii The effect of Brexit
The impact of Brexit on international arbitrations seated in England and London's position as a major international arbitration centre is likely to be minimal. The AA 1996 is a UK statute not dependent on or linked to the UK's EU membership. The New York Convention is a multilateral instrument not linked to the EU; the UK and the other Member States are signatories to the Convention in their own right. The European regime applicable to jurisdiction and enforcement expressly excludes arbitrations from its scope.
Some argue that the legislative uncertainty that could arise in some areas of the dispute resolution framework post-Brexit should make arbitration a more popular choice for commercial parties.
iii Practical implications
A RETURN OF THE ANTI-SUIT INJUNCTION IN EUROPE?
An anti-suit injunction is a device by which the English court can, on application, restrain a person over whom it has jurisdiction from bringing or continuing proceedings in a foreign court. It was classically used to prevent a party who had agreed to settle a dispute in England from breaking that promise by bringing proceedings in another country.
Anti-suit injunctions to restrain proceedings in another Member State (or signatory to the Lugano Convention) have been prohibited since 2004, when the CJEU ruled that they were inconsistent with the scheme and provisions of the Brussels Convention (the predecessor of today's Recast Brussels Regulation). Under the Convention, the CJEU explained, the courts of Member States owe each other obligations of trust; it is not for the English court to seek to deprive another state's court of its right to decide whether or not to accept jurisdiction over a claim. That is properly a decision for the courts of each state to make in accordance with the requirements of the Convention.
All other things being equal, when the UK ceases to be subject to EU law, decisions of the CJEU will cease to bind its courts. In theory, an English court could, where it had jurisdiction over a respondent, make an order restraining him from pursuing proceedings in a Member State where that would constitute a breach of some prior agreement.
However, in practice, there are several reasons why the English court may remain reluctant to grant this kind of relief:
- The UK has said it wishes to reach an agreement with the EU that substantially replicates the provisions of the European regime. It has also taken steps to accede in its own right to the Hague Convention on Choice of Court Agreements, and has signalled that it wishes to continue to participate in the Lugano Convention. Although it is unlikely that any new relationship agreement with the EU would place the UK under the direct jurisdiction of the CJEU, the exercise of the anti-suit jurisdiction would nevertheless be inconsistent with the tenor of a relationship along the lines envisaged by the UK. It might even place the UK in direct breach of any new agreement with the EU.
- The English court's jurisdiction to grant an anti-suit injunction is exercised in personam; that is to say, it is not technically a direct interference with a foreign court's process, but rather a restraint on a person who is already within the English court's jurisdiction. Where that person is abroad, jurisdiction might be contingent on obtaining permission from the English court to serve that person outside England. It may be difficult to persuade a court to exercise its discretion to permit service out in circumstances where that could be perceived by an EU court as an unwarranted interference with its jurisdiction. In other words, principles of comity might take the place of formerly applicable CJEU jurisprudence.
SHOULD ARBITRATION BE THE DEFAULT DISPUTE RESOLUTION CHOICE FOR CROSS-BORDER CONTRACTS AND TRANSACTIONS?
The regime governing cross-border enforcement of arbitral awards is not linked to the EU and will be unaffected by Brexit. In some circumstances, arbitration could offer a more certain and more appropriate dispute resolution process.
However, it is important to recognise that an arbitration clause is not a universal panacea. Parties thinking of incorporating an arbitration clause in contracts should still weigh up the relative pros and cons of choosing arbitration, both generally and for the type of disputes that may materialise under the specific contract in question. Relevant considerations might include the limited rights of appeal generally available in arbitrations, and the ability of parties to an arbitration agreement to obtain urgent relief. Parties should also consider carefully the different arbitral institutions and rules that are available to determine that may be appropriate for their circumstances.
SHOULD PARTIES CONSIDER INCLUDING HYBRID CLAUSES PROVIDING FOR ARBITRATION AS WELL AS LITIGATION IN THE ENGLISH COURTS?
A hybrid jurisdiction clause can provide for the English courts to have jurisdiction over disputes, while also giving one party the right to elect for arbitration. (Giving both parties such a right would be impracticable and would likely lead to further disputes.)
Although superficially attractive for their apparent flexibility, such clauses may in fact do little to mitigate the risks they are designed to guard against. This is because hybrid clauses are a type of one-sided jurisdiction clause: although the English courts have upheld such clauses, courts in certain EU Member States, most notably France, have found them to be unenforceable in some circumstances.
As a result, entering into such a clause creates not only the risk that the enforcement benefit of an arbitral award will be removed, as the clause underpinning the arbitration will itself be unenforceable, but also raises the prospect of additional challenges at the jurisdiction stage by competing tribunals within the EU. In the absence of a clear indication that the courts of all potentially relevant jurisdictions will uphold such a clause, they are unlikely to be suitable.
1 Damian Taylor is a partner and Robert Brittain is a professional support lawyer at Slaughter and May.
2 Article 132 of the withdrawal agreement permits the parties, acting by agreement in a joint committee, to extend the transition period for up to two years, provided such a decision is taken before 1 July 2020. The UK government has indicated (and expressly stated in the European Union (Withdrawal Agreement) Bill) that no such extension will be sought or agreed.
3 Article 66, withdrawal agreement.
4 Section 6, European Union (Withdrawal) Act 2018.
5 The Lugano Convention 2007 applies to legal proceedings instituted after its entry into force in the state in whose courts the proceedings are brought: the EU (including Denmark) and Norway on 1 January 2010, Switzerland on 1 January 2011 and Iceland on 1 May 2011.
6 Commerzbank AG v. Liquimar Tankers Management Inc  EWHC 161 (Comm).
7 The Private International Law (Implementation of Agreements) Bill was included in the Queen's Speech delivered on 19 December 2019.
8 Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) Regulations 2018.
9 European Commission, 'Questions and answers related to the United Kingdom's withdrawal from the European Union in the field of civil justice and private international law', 11 April 2019, Paragraph 3.3.