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Brexit: the impact on disputes

Posted: 07/09/2016

Will Brexit impact upon ongoing disputes with parties domiciled in one of the other 27 EU member states?

Any proceedings already on foot will continue to be governed by the existing rules throughout the Article 50 negotiation period (which has yet to be triggered in any event). Nothing much is likely to change in the short term, so existing disputes should proceed as planned. We would however advise against delaying matters: better to press on and try and get matters resolved or judgment awarded while the legal framework is still clear to all concerned.

As negotiations progress, it may become clear that the UK will accede to the Lugano Convention (or equivalent). This would resolve much of the uncertainty we currently face as to how cross border litigation might be run in the future. Alternatively, if no such certainty is forthcoming, there may end up being a particular date by which you should commence any proceedings or enforce any judgments in order to enjoy the benefits of the existing regime.

How will leaving the EU affect choice of jurisdiction?

Commercial parties value the ability to agree between themselves where and how any disputes arising between them should be resolved. A clearly drafted clause that specifies English law and the jurisdiction of the English courts is likely to be upheld by the English courts post Brexit. For an analysis of the commercial impact of Brexit, please click here.

One area of EU law which has provided greater clarity for all concerned is the Recast Brussels Regulation. For EU member states, the general rule is that the courts where the defendant is domiciled have jurisdiction. What will happen when we leave the EU?

There are a couple of options. If we are not able to adopt the provisions of the Brussels Regulation under another name, the most likely option would be to accede to the 2007 Lugano Convention. This is similar to the current EU regime, so in practice, little would change. In particular, courts of EEA member states would generally be obliged to recognise a choice of jurisdiction in favour of the English courts (and vice versa). 

Another option would be for the UK to accede to the Hague Convention on Choice of Court Agreements. This also provides a similar, if more restricted regime: it only governs the validity and effectiveness of exclusive jurisdiction agreements in civil and commercial matters. It also promotes the enforcement of resulting judgments as between contracting states.

If no international agreement is negotiated with the EU, the English courts are still likely to respect contractual provisions which confer jurisdiction by agreement on the English courts. The question then will be how such clauses will be treated by EU member states. Will the courts of a counterparty domiciled in another EU member state refuse to cede jurisdiction to the English courts, even if that is what the parties agreed?

Will it be harder to avoid or prevent parallel proceedings once we have left the EU?

Where parties to a contract are based in different countries, there is a risk of parallel proceedings (that is, where proceedings concerning the same subject matter are commenced in more than one country's courts at the same time).The risks of conflicting judgments, along with the extra costs and effort associated with such parallel proceedings, militate firmly against such a course.

Under EU law the position is quite simple: the courts of the member state first seised of the dispute decide the question of jurisdiction. This means that the country where the claim was issued first in time takes the lead.

However, where there is an exclusive jurisdiction clause, the courts of that named member state can determine the question of their jurisdiction even if parallel proceedings are already on foot in the courts of another EU member state. This rule was introduced to prevent parties deliberately issuing proceedings in a jurisdiction where the judicial process is relatively slow and complicated as a strategic or tactical move, known as the “Italian torpedo”.

If the UK accedes to the Lugano Convention, the prohibition against parallel proceedings will remain. However, exclusive jurisdiction clauses will not be given precedence, and the Italian torpedo will be rearmed.

If the UK does not accede to the Lugano Convention, there will be no bar on parallel proceedings, provided that the courts in the countries in question are prepared to take jurisdiction over the dispute under their own rules of private international law. This will lead to great uncertainty and a high likelihood of conflicting judgments between jurisdictions.

Will it be harder to recognise and enforce a UK judgment in the EU post Brexit? 

Obtaining a judgment in the UK may prove to be a pyrrhic victory if it is hard to enforce in an overseas jurisdiction. 

At the moment, the Brussels Regulation provides a streamlined method of recognising and enforcing judgments in civil and commercial matters within the EU. Judgments by member states’ courts will generally be recognised unless they are contrary to public policy.

The Lugano Convention contains a similar regime for the states it binds. If we accede to the Lugano Convention (or similar), it will be pretty much business as usual.

If we don’t sign up to any international agreement on jurisdiction and enforcement, the enforceability of UK judgments within the EU would depend on the laws of each member state. This will cause great uncertainty, and lead to an increased need for international legal advice. Parties would need to think carefully about the prospects of enforceability of any English judgment before the courts of another jurisdiction, when agreeing to an English jurisdiction clause.

How will Brexit impact on arbitration?

It seems likely that arbitration will be largely unaffected by Brexit, at least from a legal perspective. The legal framework supporting arbitration will remain unchanged, and the separate enforcement mechanisms available for arbitration (contained in the New York Convention) may offer greater certainty / advantage in comparison to litigation.

In fact, post Brexit, the UK courts may be able to issue anti-suit injunctions in respect of proceedings commenced in EU member state courts in breach of an arbitration clause. This is something which is presently prohibited following the European Court ruling in Allianz SpA v West Tankers Inc. Some arbitration users may see this as a useful weapon to have restored to the armoury. 

What practical steps can we take to protect our position in respect of current or potential proceedings?

  • Parties negotiating contracts should:
    • consider appointing an agent for service of process;
    • think carefully about potential enforcement issues;
    • consider adopting a "conditional" dispute resolution clause that allows a degree of flexibility as the UK's position becomes clearer.
  • If you have a cross-border dispute where settlement looks unlikely, you should consider issuing proceedings sooner rather than later to take advantage of the existing reciprocal arrangements.
  • Keep current litigation moving; try not to allow delays or stays.
  • If you currently have or obtain a judgment which is enforceable in one of the other 27 EU states, you should enforce it as soon as possible before the enforcement regime changes.
  • Think about arbitration as an alternative! 

For advice on how Brexit may impact on any actual or potential dispute, and how best to protect your position, please contact John Doherty.

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Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

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