The Impact of Brexit on Litigation

The potential impact of Brexit on cross-border litigation and dispute resolution in the UK is varied. 

2/27/2019 12:00:00 AM

If there is no deal, there could be a significant impact on both cross-border civil and commercial litigation. 

The key areas that will be most affected appear to be:

  1. Jurisdiction;
  2. Enforcement;
  3. and choice of governing law.

There are fall back options in the case of an increasingly likely no deal/ hard Brexit scenario, such as:

  • implementing EU law into UK national law (such as with the Rome I and II Regulations);
  • acceding to conventions the UK belonged to under its EU membership (such as the 2005 Hague Convention and 2007 Lugano Convention); and
  • relying on the UK's own domestic common law.

The European Commission published a notice outlining the impact of a no-deal Brexit on enforcement and recognition of UK judgments in the EU on 18 January 2019. Despite the UK stating that it will enforce EU judgments where the proceedings commenced before Brexit, the EU will only enforce UK judgments where they have been declared enforceable by the EU country where they are to be enforced, prior to  Brexit.

Jurisdiction and Enforcement of Judgments – the Brussels Regime (Brussels I/Brussels Recast Regulations)

The Brussels Regime governs the rules regulating which courts have jurisdiction in civil and commercial disputes between individuals and businesses resident in EU member states. It also allows for an affordable and effective process for recognition and enforcement of intra-EU judgments. It requires reciprocity between EU member states and will no longer apply to the UK after 29 March 2019. Ideally, the UK will be able to negotiate a similar agreement with the EU in order to ensure the Brussels Regime can be maintained. Alternatively, bilateral agreements with each member state could be negotiated.

Another option, which the UK has now proceeded with, is to ratify the 2005 Hague Convention on Choice of Court Agreements. It is intended that the 2005 Convention will enter into force on 1 April 2019 (the first working day after Brexit). This only gives effect to exclusive jurisdiction clauses and the enforcement of any resulting judgment and does not resolve issues with non-exclusive jurisdiction clauses or asymmetric jurisdiction clauses. The 2005 Convention will also cover Service of Documents and Taking of Evidence.

The UK also intends to seek to comply with the 2007 Lugano Convention which promotes recognition of jurisdiction clauses within and outside of the EU. However, this does not require EU member states to stay proceedings which have commenced in breach of a jurisdiction clause. Issuing proceedings relying on an English jurisdiction clause will become far more urgent in order to avoid any obstruction of the claim by the opponent.

Both of these options also require a declaration of enforceability from the enforcing court.

Otherwise, the enforcement of English judgments will be a matter for the national law of the enforcing state and this will be the default for enforcing English judgments across the EU. Enforcing foreign judgments in England (which will include EU judgments if the UK proceeds without a reciprocal deal) will require issuing a claim against the debtor using the foreign judgment as the cause of action. This is a slower process, but is not impossible.

Choice of Governing Law – Rome I and II Regulations

The Rome I Regulations apply to contractual disputes and II Regulations apply to non-contractual disputes, neither require reciprocity. The Rome I Regulation stipulates that governing law clauses must be given effect regardless of whether the laws of a non-member state have been specified. Nevertheless, the UK has confirmed that the Regulations will be incorporated into domestic law under the Withdrawal Bill and so the position regarding the choice of governing law will not change. Regarding procedure, Rome I largely mirrors the Contracts (Applicable Law) Act 1990 and so will be relatively straightforward to incorporate. However, Rome II does not easily mirror previous legislation and will be time consuming to implement into English law.

English law has historically been a popular choice in international contracts and the English court system is well respected in terms of the development of specialist courts with specialist judges, flexible court procedures, costs budgeting, pre-action protocols and fast track litigation. The appeal system is also well established and the separation between judiciary and government is extremely attractive. But there are concern as to the extent to which that will remain the position, at least in the short to medium term and especially if the UK exits the EU in a disorderly fashion.

Contracts and Termination

Force majeure and material adverse change (MAC) clauses pose a certain level of risk. For force majeure clauses the risk is not so much in relation to a change in economic circumstances but with government or regulatory change. MAC clauses could relate to an "external" event (e.g. change in interest rates) or an "internal" event (e.g. change in credit rating of a company) and it will be the internal event that poses the highest risk and likelihood of being able to terminate the contract. This is something that businesses and organisations should closely consider, either with current contracts or negotiations going forward.

International Arbitration

Arbitration has become hugely popular due to its flexibility, privacy, neutrality, finality and ease of enforcement and it is arguably the most preferred method of dispute resolution in cross-border disputes. Arbitration remains unaffected by Brexit as it operates under the New York Convention 1958 and the awards are capable of being recognised in over 150 countries, including all EU member states. As London is already the most preferred arbitration centre in the world (and is way ahead of its nearest competitor, Singapore), there is nothing to suggest that this will change. Businesses and organisations should consider using arbitration as an alternative dispute resolution method in contracts going forward; at least until the position regarding cross-border litigation is made clearer.

It remains to be seen what will happen to cross-border civil and commercial litigation between the UK and the EU, and with the Brexit deadline looming the legal industry should not have too long to wait. Watch this space and prepare accordingly.

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