Dispute resolution after Brexit27 January 2021
The Trade and Cooperation Agreement, so long in the gestation and so long in the reading, was finally and perhaps belatedly released and quickly passed by the UK Parliament. It was popularly regarded as something of an achievement – and by both sides. Compromise had been reached. Few asked why compromise could not have been reached earlier, but let us leave that question to one side.
Lawyers from all disciplines scoured the text while digesting their Christmas cake and (like me) rushed to print their views on the bits of it that applied to their practice area. Newspapers picked up much of this news which then got into the public domain leading to a general sense of satisfaction all round.
Perhaps because the rules concerning choice of law, jurisdiction and enforcement of judgments are so complex and of little day to day significance to the average newspaper reader, they did not really get much or any coverage. However, what most people missed was that the deal struck amounts really to a no-deal Brexit for the area of civil jurisdiction, throwing us back on old rules and leading to potentially much uncertainty in the future.
What has changed?
This is typically a clause tucked away at the back of a commercial agreement providing that e.g. English Law will apply to that agreement. Note that this is not the same as saying that English courts have jurisdiction – that is a different clause and I will look at that in just a moment.
The Rome instruments governed the position – and for the continuing members of the EU, they still do. The basic rule (to which there were exceptions) is that the courts would apply a consistent set of rules to determine choice of law with primacy being given to any express choice of law. If the parties had expressly chosen English Law to apply, then the courts in the EU would uphold that choice (with some limited exceptions).
The UK has adopted the rules as set out in the Rome instruments and so they continue as part of UK law. The result is that the EU will continue to apply the Rome rules and so will the UK – for now. Of course, the final position on Rome will be decided by the ECJ for the EU member states whereas UK courts are not bound any longer by those decisions. In years to come, the two sets of rules may well diverge, but that time has not arrived yet.
What do I do now?
It is important to maintain current good practice. Especially with international contracts, it is essential to provide for a governing law.
In a sense, this is, if not good news, at least it is not bad news for the post-Brexit situation.
There are various reasons why parties choose arbitration for the resolution of disputes. It can help with international contracts where the parties do not wish disputes to go to the courts of the other party. Arbitration can offer privacy, which public court hearings do not. There are a lot of factors at play and arbitration is not necessarily a clear choice, not least because it can cost more and take longer. Arbitration may or may not come with a right to appeal – so if you think the arbitral tribunal got the law wrong, a right of appeal may have been excluded and you are stuck with the award (with limited exceptions)
The UK and all EU member states were members of the New York Convention providing for easy enforcement of arbitral awards as between member states. In fact, most countries in the world are signatories to the New York Convention making it easier in many cases to enforce an arbitral award abroad than a judgment.
Nothing has changed.
What do I do now?
There are some advantages to choosing arbitration over the courts simply because of ease of enforcement. Because of the problems considered in the next section, thought should be given now to choosing arbitration as the dispute resolution means of choice.
All EU member states (including the UK) benefited from the Brussels and Lugano Conventions, which set out detailed rules determining which courts of which country should hear a case. Just as with choice of law, primacy is given to the express choice of the parties so if e.g. the parties chose the English courts as having exclusive jurisdiction to determine a dispute under a commercial contract, then this would be respected (with very limited exceptions).
The UK is no longer part of these Conventions so we have to rely on another convention, the Hague Convention.
For a contract concluded after Brexit, the Hague Convention requires that the courts of the UK and EU member states will respect an express choice of jurisdiction. There are some exceptions, however and some points to note.
Firstly, the Hague Convention only applies to exclusive jurisdiction clauses, and does not apply where the parties have agreed a non-exclusive jurisdiction clause.
Secondly, if the parties have agreed what is called an asymmetrical jurisdiction clause, then opinions differ as to whether the Hague Convention will apply or not (the more prevalent view being that it probably does not). An “asymmetrical” jurisdiction clause is one where e.g. one party is forced to bring proceedings in one jurisdiction, but the other party reserves the right to bring proceedings in any jurisdiction.
Thirdly, the EU has indicated (though this is non-binding) that it would not regard the Hague Convention as applying to the UK PRIOR TO Brexit. This rather strange position is because it regards the UK as a member of the Hague Convention PRIOR TO Brexit as deriving only from its membership of the EU, and so retrospectively inapplicable now after Brexit. Whether this view is right or not remains to be tested in the courts – and the courts of the EU member states may well take different sides when the point comes up for decision.
This all means that the Hague Convention may or may not apply. All is not lost as parties are then thrown back on existing principles, but it does mean that the litigation warfare that the Brussels and Lugano Conventions were designed to get rid of are now back, with the potential for parties (and national courts) to be involved in unseemly scraps to make sure that cases are heard in one rather another jurisdiction.
What do I do now?
If arbitration is not for any reason an option, try to make sure that you come within the Hague Convention. Expressly provide for an exclusive jurisdiction clause which is identical for both parties.
As regards contracts PRIOR TO Brexit, it may be as well to review the jurisdiction clause and re-execute it so as to come with the Hague Convention and to circumvent any argument that the Hague Convention does not apply to pre-Brexit contracts (which is the position argued for by the EU).
Having got your judgment, you want to enforce it – get it paid. What if the losing side’s assets are out of the jurisdiction?
This was not a problem as the same Brussels and Lugano Conventions applied to enforcement as they did to jurisdiction (see above), making it in theory easy to enforce a judgment in a different EU member state.
The Brussels and Lugano Conventions do not apply to proceedings following Brexit. If the Hague Convention applies, then there are different rules enabling mutual enforcement of judgments but time will tell whether this is as cost-effective and efficient as the Brussels and Lugano Conventions. Many doubt that they will be.
If the Hague Convention does not apply, then it is up to the courts of each country to apply a foreign judgment according to its own legal provisions. In this country, the usual way to do this is to bring new proceedings based on the debt as demonstrated by the foreign judgment. This is a far cry from enforcement of an arbitral award under the New York Convention or enforcement of a foreign judgment under the Brussels and Lugano Conventions.
What do I do now?
It is fair to say that the UK has lost a valuble right here (and the EU member states have equally lost valuable rights in enforcing their judgments in the UK). The easiest way around this conundrum is to choose arbitration since enforcement of any arbitral award is easy under the New York Convention (which has nothing to do with the EU and is a totally separate regime). However, the choice of arbitration is not just about enforcement, important as that is, and careful thought should be given to all aspects of the question. It is not, at the moment, an easy question admitting of an easy answer.
While the Brussels Convention is a thing of the EU, it is possible for the UK to join the Lugano Convention and it has indeed applied to do so. This requires unanimous agreement from the existing members for the UK to be accepted and political considerations may well come to the fore. The current spat over vaccines is not likely to make the EU better disposed to the UK’s application to join the Lugano Convention, but only time will tell.
Richard Stephens 27 January 2021
This note is written as a general comment and updater and reliance should not be placed on any part of it without taking independent professional advice.