Meeting the challenges posed by Brexit for cross-border disputes

This article was originally published by ICLG.com on 22nd March 2021 (see here). The article was written by Bird & Bird International Dispute Resolution team Jeremy Sharman and Rachel Glass, with EU insight from Evelyn Tjon-En-Fa, Djazia Tiourtite, Philipp Egler, László Nanyista and Alfonso Carrillo.

SOME PRACTICAL STEPS

While the full impact of Brexit on disputes has yet to be seen, there are some practical steps that businesses can take to mitigate the consequences of the UK’s departure:

There will be benefits to having exclusive jurisdiction clauses in contracts, where appropriate, so it is likely to be helpful to undertake a review of jurisdiction provisions, particularly in standard templates. Consideration should also be given to changing non-exclusive or asymmetric jurisdiction provisions to exclusive jurisdiction clauses where it is appropriate to do so, and it is likely to be advisable to seek advice when considering such a change (asymmetric jurisdiction clauses typically require one party to bring proceedings in one jurisdiction only while the other party is free to bring proceedings in other jurisdictions). There may also be a benefit to seeking to amend or re-state jurisdiction clauses in existing contracts, if your counterparty will agree, but again it would be sensible to seek advice before doing so.

Service of court documents will be less straightforward. Consideration should be given to amending standard contract templates to provide for a process (service) agent in England where your counterparty is in an EU state. Such arrangements will allow for service of proceedings with relative ease.
Arbitration could be considered in place of litigation as it may offer a more straightforward means of enforcing an award than a court judgment. However, there may well be other considerations in addition to enforcement; and if arbitration was not the best choice before Brexit, it may not be now.

Parties will need to seek specific, specialist advice from relevant jurisdictions for new or ongoing disputes where proceedings have not yet begun and factor it into their strategy.

Watch this space. The UK has applied to accede to the 2007 Lugano Convention, which could provide a means to resolve important issues regarding the recognition and enforcement of judgments. It is hoped that there will be a response to the application later this year.

We explain the reasons for these steps below.

WHAT’S CHANGED…?

Jurisdiction and enforcement: The pre-Brexit EU regime required the reciprocal recognition of parties’ choice of jurisdiction. That principle remains in place for those parties who instituted proceedings on or before 31 December 2020, as part of a set of transitional arrangements. For later proceedings, a new set of rules are in play. These depend on whether the parties agreed an exclusive jurisdiction provision and, if so, when they signed it.

Parties whose contracts contain an exclusive jurisdiction clause in favour of the English courts can expect that clause to be upheld by EU and English courts under the Hague Convention. The Hague Convention has been entered into by the UK and all EU states except Denmark. The UK initially acceded on 1 October 2015 as an EU state, but became a signatory in its own right on 1 January 2021. If the contract was entered into on or after 1 January 2021, the Hague Convention will apply to its jurisdiction and enforcement. If the contract was executed between 1 October 2015 but before 1 January 2021, the UK has stated that it considers the Hague Convention to apply. However, the EU considers that the relevant date is that on which the UK acceded in its own right.

For contracts with a non-exclusive or asymmetric jurisdiction clause the Hague Convention is unlikely to apply and judicial or statutory clarification will be needed. The position will then depend on English common law, international conventions and/or the individual rules of EU member states. If the contract contains an exclusive jurisdiction clause but pre-dates 1 October 2015, it is likely that the parties will be in the same position.

As regards enforcement, the EU regime similarly gave parties certainty prior to Brexit that an English court judgment would be readily enforceable in an EU member state (and vice versa). If the parties have not signed an exclusive jurisdiction provision which brings them within the ambit of the Hague Convention, the parties will be forced to fall back on English common law, international conventions and the rules of EU individual member states.

Service: The English courts require parties to obtain permission to serve proceedings on defendants in certain other jurisdictions. The Civil Procedure Rules (CPR) previously provided that no permission was needed where the court had jurisdiction over the claim by virtue of the EU regime. From 6 April 2021 any jurisdiction clause conferring jurisdiction on the English courts (whether or not that jurisdiction is exclusive) will exempt the claimant from seeking permission.

A party wishing to serve English proceedings previously did so under the EU Service Regulation. This is no longer available (subject to transitional rules). Claimants are now able only to rely on the Hague Service Convention in relation to EU states. Where it does not apply, they will need to fall back on common law rules and the laws of the EU member state in question.

Injunctive relief in support of foreign proceedings: The English courts have discretion to award interim relief in support of proceedings which are taking place (or about to be commenced) outside the jurisdiction. This ability previously extended to proceedings in states subject to the EU regime. It now extends only to proceedings in a Hague Convention state and applies only where the parties’ jurisdiction provision and dispute fall within the scope of the Hague Convention.

Security for costs: Under the pre-Brexit version of the CPR an English court could order security for costs where the claimant was resident outside the jurisdiction and not resident in a state subject to the EU regime. Since 1 January 2021 such relief can be granted if the claimant is outside the jurisdiction but not in a Hague Convention state. The new rule does not, however, require the jurisdiction provision in the parties’ agreement to be an exclusive jurisdiction clause.

…& WHAT’S STAYED THE SAME?

Governing law: The Rome I and Rome II Regulations and Rome Convention require the courts of EU member states to recognise the governing law of a contract chosen by the parties, and contain rules which govern the law applicable to non-contractual obligations. These rules have been incorporated into domestic English law with only minor revisions. Therefore a choice of English law in a cross-border contract will continue to be respected by the courts of EU member states, and the English courts will continue to respect the choice of law of an EU member state under the version of that legislation retained in English law.

Transitional enforcement arrangements: Proceedings instituted in England on or before 31 December 2020 are subject to transitional rules permitting them to be enforced under the pre-existing EU regime.

Enforcement of Arbitration Awards: Brexit has no effect on the enforcement of arbitral awards as between the UK and EU states, a process governed by the 1958 New York Convention.Enforcement of an EU judgment in England:

What will happen if you wish to enforce a judgment of an EU member state court handed down on or after 1 January 2021?

If the judgment results from proceedings instituted on or before 31 December 2020, enforcement is unaffected by Brexit due to the transitional arrangements in place.

If the judgment results from later proceedings, enforcement could take three possible forms:

Under the Hague Convention. If the judgment relates to a contract containing an exclusive jurisdiction clause and relates to a matter falling within the ambit of that convention, enforcement may be possible under the Hague Convention. Registration and enforcement is by application to the court.

Under statutory regimes for recognition and enforcement. These statutes will only apply to judgments of certain EU states and may not capture judgments of all courts in the relevant country or non-monetary awards. Registration and enforcement is by application to the court.

At common law. The common law process requires fresh proceedings to be started in England to sue on the foreign judgment as a debt. The judgment must be “final and conclusive”, made on the merits, and for a sum of money (although certain types of money judgments are excluded).

Enforcement of an English judgment in an EU member state:

Proceedings started on or after 1 January 2021, enforcement processes will vary by country. For example:

France: Enforcement may take place under the Hague Convention where the judgment falls within its ambit; or alternatively under the French rules of private international law. Under the latter, the judgment must satisfy a number of requirements, including that the English court had jurisdiction under French rules on jurisdiction, and that there has been no fraudulent forum shopping. Although no fresh claim is needed, an application to the court followed by a hearing is still required, meaning that the time and cost consequences are more significant than under the European regime.

Germany: Enforcement may be possible under the Hague Convention, in a process requiring a declaration from the appropriate German court. Alternatively, an historic bilateral convention exists between the UK and Germany which may permit enforcement where the judgment relates to a specified sum; however, there are doubts about its validity and whether a German court would apply it. Finally, German statutory law may offer a means of enforcement. A number of conditions are attached to this including that there must be reciprocity of enforcement in the UK, which is presently unclear. Both the bilateral convention and German statutory law require fresh proceedings to be commenced.

Hungary: The enforcement process is now regulated by a statute which imposes certain conditions, including that either there must be reciprocity between the UK and Hungary in relation to enforcement of judgments; or the jurisdiction of the Hungarian courts must be excluded; or the jurisdiction of the English court must be founded on an agreement which is compliant with Hungarian law (which may be an agreement compliant with the Hague Convention). There is currently no recognised reciprocity arrangement. Although the process for enforcement is not likely to be significantly different, it is anticipated that it may be longer.

The Netherlands: Enforcement may be under the Hague Convention if judgment falls within its scope. Enforcement of other judgments may be possible under a bilateral convention between the UK and the Netherlands, but this provides only for enforcement of monetary claims. For non-monetary judgments falling outside the Hague Convention, the enforcing party will need to rely on Dutch rules of private international law; while in principle this means that a the case will have to be judged again on its merits, this does not necessarily lead to a full retrial if certain criteria regarding the English judgment have been met. The regime is more cumbersome and likely to be lengthier than the previous EU regime.

Spain: The enforcement process in Spain for English judgments is now regulated by a statute which closely follows the previous European regime. It is not anticipated that the process will become significantly more complex.