Brexit: Cross Border Disputes – What will change and ways to mitigate your risk

Brexit is most likely to affect disputes where one party is based in the UK and the other party is based in a remaining EU member state, or where the dispute itself has some connection to a remaining EU member state. Much depends on the specific facts of the dispute, where the proceedings are issued, and more importantly on the outcome of the negotiations between the UK government and the EU.

Practical Steps to take right now

Listed below are some of the practical steps you can take now to help reduce the risks that Brexit could give rise to in relation to cross border disputes: 

• Dispute resolution and governing law clauses should be drafted to make clear which courts are to have jurisdiction in the event of a dispute and which law is to govern the contract. English governing law clauses will be recognised by the courts of EU member states so there is little risk in keeping these clauses or inserting them into future contracts.
• We recommend you seek specific advice on your jurisdiction provisions. The issue of which courts are to have jurisdiction in the event of a dispute remains complex. The rules contained in the Recast Brussels Regulation will no longer apply to the UK in the event that a Future Relationship Agreement cannot be agreed by the end of the transition period (apart for some retained provisions in consumer and employee disputes). When negotiating contracts consider where any potential dispute may be located. If this is in England & Wales, or you would like any potential dispute between the parties to take place in the courts of England & Wales, we suggest selecting an exclusive jurisdiction clause in favour of the courts of England & Wales. Legal Advice should be sought to ensure this is the best option for the parties. There are greater risks of potential parallel proceedings if your contract includes a non-exclusive jurisdiction clause or an asymmetric jurisdiction clause.
• If your counter-party is domiciled outside of England & Wales but your contract contains a jurisdiction clause in favour of the courts of England & Wales, you should ensure that your contract contains a clause obliging your counter-party to appoint a process agent in this jurisdiction to accept legal proceedings. This will ensure you will be able to serve proceedings on them without any difficulty.
• Parties who are in possession of a UK court judgment which needs to be enforced in another EU state should take steps to enforce it as soon as possible, as enforcement may not be as simple after the end of the transition period. If this cannot be done, then seek specific advice as to how you might enforce a judgment in an EU member state where you have exposure (or may do, if you are concluding a contract with a party with no formal presence in England & Wales).
• If you have an ongoing dispute that will not conclude by the end of the transition period, it is advisable to seek specific advice as to whether it is vulnerable to any changes that may occur. Proceedings with an EU element which have already been issued will not be affected in the very short term as the relevant EU rules will continue to apply until the end of the transition period on 31 December 2020. There may, however, be increased uncertainty in relation to particular types of claims (for example, those based on the EU competition regime) which are constructed on rules which are part of the Future Relationship Agreement negotiations.
• Arbitration will be unaffected by the vote to leave and consideration should therefore also be given as to whether arbitration (if suitable) would provide greater certainty as a method of dispute resolution.

To what extent is EU Law relevant to disputes with a cross-border element?

In order to facilitate access to justice and judicial cooperation between member states, EU law has laid down rules which apply to parties in member states litigating disputes with cross-border elements. The four principal areas relevant to parties litigating disputes dealt with by EU rules concern:

• The courts which are to have jurisdiction over the dispute. These rules are largely contained in the Recast Brussels Regulation[1];
• The law which is to govern the parties' obligations (both contractual and non-contractual), set out in the Rome I[2] and Rome II[3] Regulations;
• The recognition and enforcement of court judgments. These rules are also largely contained in the Recast Brussels Regulation; and
• The service of court documents and the taking of evidence[4].

What will happen at the end of the transition period?

At the moment we simply don't know. The UK and the EU need to agree a framework for their future relationship. Without such agreement, EU law will cease to apply to the UK from 1 January 2021 and the position will be the same as if there had been a 'no deal' Brexit on 31 January 2020.

The Withdrawal Agreement, in Articles 66 to 69, provides some certainty regarding what will happen to on-going disputes with a cross-border EU/UK element at the end of the transition period. Current EU law will continue to apply to legal proceedings issued before the end of the transition period and to the recognition and enforcement of judgments given in legal proceedings before the end of the transition period (although, see the caveat below). Likewise, The Service Regulation and The Taking of Evidence Regulation will continue to apply at the end of transition period in circumstances where documents are received by the relevant body before the end of the transition period or requests are received before the end of the transition period[5].

On 8 April 2020 the UK deposited an application to accede to the Lugano Convention 2007 ("The Lugano Convention") as a party in its own right. Currently, it is a party by virtue of its membership with the EU.  Currently, it is a party by virtue of its membership with the EU. Accession would secure a reciprocal arrangement in the areas of jurisdiction and the recognition and enforcement of judgments on a broadly similar basis to that currently in operation between the UK and the EU and would be welcome. There are some potential stumbling blocks to the UK's accession; the main one is that all contracting states will need to consent to the UK's accession and although Switzerland, Norway and Iceland have indicated that they are supportive of the UK's intention to accede[6], the EU and Denmark will still need to agree.

What will happen if there is no Future Relationship Agreement?

In the event that the UK and the EU are unable to agree a Future Relationship Agreement the majority of EU legislation relating to cross-border disputes will disappear from the UK statute book. In its place, parties will rely on a mixture of common law rules, national rules of the remaining EU member states and various international Conventions.

Jurisdiction and the recognition and enforcement of judgments

The UK has been a party to The Hague Convention on Choice of Court Agreements 2005 ("The Hague Convention") as an EU Member State since 1 October 2015 and will continue to be so until the end of the transition period. At the end of the transition period the UK government has indicated that the UK will accede, in its own right, to The Hague Convention in the event that a Future Relationship Agreement is not agreed. Accession to The Hague Convention is an advantage for parties who choose the exclusive jurisdiction of the English courts, at least in new agreements entered into after the end of the transition period. Arguably, the position will be the same for contracts entered into after 1 October 2015, the date that the UK acceded as an EU Member State, although this is not certain at present. Parties who have entered into contracts with exclusive jurisdiction clauses in favour of either a court in the UK or in one of the remaining EU member states after this date should seek legal advice to assess whether those clauses will be enforceable under The Hague Convention or whether the common law or national rules will apply.

The Hague Convention provides a worldwide framework of rules in relation to exclusive jurisdiction clauses and the recognition and enforcement of those judgments based on such clauses. This is a very important mechanism in maintaining the enforceability of English court judgments in EU member states after the end of the transition period. The Convention only applies to agreements containing an exclusive jurisdiction clause in favour of the courts of those states that have ratified the Convention. At present, those states include the EU along with Denmark, Mexico, Montenegro and Singapore. In addition, the Convention does not apply to non-exclusive jurisdiction or asymmetric jurisdiction clauses even between states which have ratified it, or to employment and consumer contracts.

The Convention should apply to the enforcement of any judgment after Brexit if that judgment is obtained in respect of an exclusive jurisdiction clause that falls within the ambit of it. In matters where the Convention does not apply, parties to these disputes will rely on existing UK common law rules and statutes, and/or the national law of the relevant EU member state. Local legal advice will need to be sought in the relevant jurisdiction regarding the rules that will be applied, costs and time limits.

However, it should be noted, in relation to the recognition and enforcement of judgments, the UK and EC have taken different positions in relation to the enforcement of some judgments handed down prior to the end of the transition period[8]. The UK government has stated that the enforcement provisions within the Recast Brussels Regulation will remain in place for any judgment given prior to this date. In contrast, the EC has said that it will depend on what stage of the enforcement process the judgment has reached; for example, EU rules will only apply if the exequatur process has been completed. If you have a judgment that may be affected advice should be sought immediately.

Governing law

On the issue of the law governing parties' contractual and non-contractual obligations, Rome I and Rome II will be incorporated into domestic law. This will create certainty and continuity between the current EU and UK legal frameworks as these rules are not reliant on reciprocity.

The courts of member states will continue to apply the rules set out in Rome I and Rome II to disputes which may have a UK element. This means that if a Spanish court was considering the governing law of a contractual obligation, and determined – applying Rome I – that English law should apply to the parties’ relationship; English law would still be applied by the Spanish courts notwithstanding the UK’s status as a non-EU member state.

It is important to note that the EU rules on jurisdiction[9], governing law[10] and service do not extend to arbitration, and therefore, Brexit will have little immediate impact on this area of dispute resolution. This is also the case with regard to the enforcement of arbitration awards which is governed by the New York Convention and not by the Brussels Recast Regulation.

Service of documents and taking of evidence

The Regulations covering the service of documents and the taking of evidence will no longer apply to the UK. For service of documents, the UK will rely on The Hague Service Convention (the "Service Convention")[11]. If the Service Convention does not apply, existing UK common law rules and statutes, and/or the national law of the relevant EU member state will apply instead to the issue[12].

So far as taking of evidence is concerned the UK will rely on the Hague Convention on the Taking of Evidence Abroad (the "Taking of Evidence Convention"). In circumstances where the Taking of Evidence Convention will not apply, existing UK common law rules and statutes, and/or the national law of the relevant EU member state will apply instead[13].

Conclusion

If the UK and EU are able to agree a Future Relationship Agreement that will provide a framework for future disputes with a cross-border EU/UK element, then this will give some measure of certainty for parties involved in these types of disputes. If an agreement cannot be reached by the end of the transition period, then for parties who are involved in cross border disputes with an EU dimension, some aspects of that litigation may no longer be as simple as before, and local advice will need to be taken, increasing the time any dispute will take and of course, the costs involved.

Who to contact for further guidance

If you would like more information on the implications of Brexit on cross border disputes please contact Victoria Hobbs or Louise Lanzkron.

This article is part of our Brexit series