Brexit: What is the position in relation to Cross Border Disputes now that the transition period has ended?

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. The UK exited the EU on 31st January 2020. The transition period in the Withdrawal Agreement ended on 31st December 2020. Existing EU Treaties, EU free movement rights and the general principles of EU law now no longer apply in relation to the UK. EU regulations only continue to apply in UK domestic law (by virtue of the European Union (Withdrawal) Act 2018) to the extent that they are not modified or revoked by regulations under that Act.

The EU and the UK negotiating teams have agreed the terms of a detailed post-Brexit Trade and Cooperation Agreement (“the TCA”) which has been given effect from 1st January 2021. The TCA does not consider the area of cross-border disputes and therefore this area is not impacted by it. If you would like to know more about the previous system for cross-border disputes you can access our note setting out the details here.

The new regime - practical steps to consider

Listed below are some of the practical steps you should be considering now that the UK is no longer a part of the EU system 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. 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.
  
  
• The Law Society has suggested that parties to agreements which contain exclusive jurisdiction clauses signed prior to 1 January 2021 (which may not be covered by the Hague Convention) produce a side letter re-confirming the jurisdiction position as applying from 1 January 2021. This advice may not be practical for every situation, but it may be worth including a restatement of jurisdiction when any side letters or variations to pre-1 January 2021 agreements are signed.
  
  
• Arbitration will be unaffected, and consideration should therefore also be given as to whether arbitration (if suitable) would provide greater certainty as a method of dispute resolution.

What is the position in relation to on-going disputes and requests ‘instituted’ before the end of the transition period?

The Withdrawal Agreement, in Articles 66 to 69, sets out what will happen to on-going disputes with a cross-border EU/UK element at the end of the transition period. EU law will continue to apply to legal proceedings ‘instituted’ 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. English case law has held that a claim is ‘instituted’ before the English courts when a claim form is issued. 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 [1].

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. Prior to the end of the transition period the UK was a party by virtue of its membership with the EU. Accession will secure a reciprocal arrangement in the areas of jurisdiction and the recognition and enforcement of judgments on a broadly similar basis to the previous system 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 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 [2], the EU and Denmark still need to agree. The EU and Denmark have not provided their consent following the signature of the TCA, which many commentators had expected would be forthcoming following the signing of this Agreement.

What is the position in relation to cross-border proceedings and requests ‘instituted’ after the end of the transition period?

As mentioned above, the majority of EU legislation relating to cross-border disputes has now disappeared 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 now acceded to The Hague Convention on Choice of Court Agreements 2005 ("The Hague Convention"). This Accession will now advantage parties from signatory countries who choose the exclusive jurisdiction of the English courts, or the exclusive jurisdiction of the court from another signatory state, by providing a reciprocal recognition and enforcement system [3].

The UK government has said that the Hague Convention will apply to contracts entered into after 1 October 2015, the date that the UK acceded to the Convention as an EU Member State. The EU takes a different position, stating that the Hague Convention will only apply to contracts entered into from 1 January 2021, the date the UK acceded to the Hague Convention in its own right. 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 1 October 2015 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. If you would like to know more about the operation of the Hague Convention click here to read a previous article on the topic.

The Convention should apply to the enforcement of any judgment after the end of the transition period 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.

For example, the enforcement of a judgment, from an EU member state court, in an English court in a situation where the Convention does not apply, will depend on a mixture of English common law and statutory rules depending on the country in question. The type of judgments which can be enforced is narrower under the statutory regime, whilst under the common law a judgment debtor must first issue new proceedings to enforce the judgment as a debt.

Governing law

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

The courts of EU 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 is considering the governing law of a contractual obligation, and determines – applying Rome I – that English law should apply to the parties’ relationship; English law will still be applied by the Spanish courts notwithstanding the UK’s status as a non-EU member state.

Service of documents and taking of evidence

The Regulations covering the service of documents and the taking of evidence no longer apply to the UK. For service of documents, the UK will now use The Hague Service Convention (the "Service Convention") [4]. 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 [5].

So far as taking of evidence is concerned the UK will now use 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 [6].

The effect on Arbitration

It is important to note that the EU rules on jurisdiction [7], governing law [8]  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.

Conclusion

Although the UK government and the EU did agree a future relationship agreement in the form of the TCA, that agreement made no provision for those involved in cross-border disputes with a UK/EU element. For parties who will be involved in cross border disputes with an EU dimension, some aspects of that litigation will 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. It is hoped that the EU will consent to the UK becoming a party to the Lugano Convention, resulting in a simpler, faster and less costly reciprocal regime between the UK and its biggest trading partner.

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 is part of our Brexit series.

For further disputes related know-how, Click here to access to Disputes+ Bird & Bird's dedicated DR know-how portal.

[1] Article 68 of the Withdrawal Agreement October 2019

[2] Support for the UK’s intent to accede to the Lugano Convention 2007 (28 January 2020)

[3] The EU is a signatory to The Hague Convention but the EFTA countries are not.

[4] Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters

[5] The Service of Documents and Taking of Evidence in Civil and Commercial Matters (Revocation and Saving provisions) (EU Exit) Regulations 2018 (SI 2018/1257)

[6] Ibid.

[7] Article 1(2)(d) and Recital 12 of the Recast Brussels Regulation

[8] Article 1(2)(e) of Rome I