Disputes arising out of the UK’s decision to leave the EU are on the increase, notwithstanding the fact that the country remains, for now, a full member of the EU. The most high profile concerns the Government’s intention to invoke Article 50 of the Lisbon Treaty in March 2017 which will start the formal two year withdrawal process leading to ‘Brexit’ in 2019. At the time of writing the Government’s plan to invoke Article 50 is subject to a decision from the Supreme Court which may follow the Court of Appeal’s earlier ruling that the Article 50 process should be subject to Parliamentary scrutiny and support. This may set the process back, possibly resulting in a general election.
Businesses are now having to navigate a very uncertain commercial environment. Uncertainty gives rise to disputes. Many businesses are seeking to re-position themselves by, for instance, seeking to terminate current contracts (rightly or wrongly) on the basis of force majeure or frustration. There have not been any indications yet from the Government as to what framework post-Brexit litigation will be conducted within.
The implications of Brexit for the disputes sector will be determined by whatever new arrangement the Government negotiates with the EU. Existing EU legislation will – in all probability – continue to form part of English law post Brexit and will remain in force until such point as they are replaced.
However, there are a number of areas relevant to commercial contracts and the disputes sector which will require attention, most obviously in relation to choice of law and jurisdiction clauses and procedural issues arising from cross-border litigation.
The current EU laws applicable to contractual and non-contractual obligations are set out in the Rome I Regulation which relates to contractual claims and Rome II which deals with non-contractual or tortious claims (eg claims in negligence). Unless the UK agrees similar provisions to Rome I the English Court will, so far as contractual claims are concerned, probably apply the Contracts (Applicable Law) Act 1990 (which implemented the Rome Convention, the predecessor to Rome I).
The Act is similar to Rome I and accordingly there is likely to be little disruption arising from Brexit on choice of law clauses for contract claims. There may be considerations relating to enforcement following Brexit which will need to be considered at the drafting stage (see below).
In relation to non-contractual claims, unless similar terms to Rome II are agreed, the UK will probably apply the Private International Law (Miscellaneous Provisions) Act 1995. Under the 1995 Act the parties are not given an express right to choose the law applicable to non-contractual relations which is a significant difference to the position under Rome II. The applicable law under the 1995 Act will be the law of the country in which the tort occurred or the country in which the most significant event occurred.
Questions as to jurisdiction (ie the country in which your dispute takes place) are currently governed by the Recast Brussels Regulation which gives party autonomy to the choice of jurisdiction (excluding arbitration, insurance, insolvency, consumer or employment matters). It is possible the UK will agree to continue to apply the Recast Brussels regime. Alternatively, the UK may decide to join and apply the rules of, for example, the Lugano Convention (which operates a similar recognition and enforcement regime to the Recast Brussels regime but as between member states and members of the European Free Trade Association (eg Switzerland, Norway). If no convention applies English Courts will apply the rules currently in place for determining jurisdiction in cases involving non-EU states, namely the forum conveniens principles, which consider the extent of the connection with this jurisdiction and whether the proceedings were first to be issued.
A key step in litigation concerns the service of proceedings issued in England. This process is particularly important when the Defendant is outside of the jurisdiction. Complying with governing rules and procedure in relation to service is critical. Service of proceedings may well, on Brexit, become more complicated. In the absence of any agreement for reciprocal service or the UK becoming a signatory to a similar regime (eg the 2007 Lugano Convention) it is likely that Claimants will need to apply for permission to the Court to serve proceedings within the EU. This is likely to add considerably to the Court’s workload, will increase costs and cause delay. The worst case scenario would involve the UK having to negotiate numerous agreements with individual member states in respect of service of claim forms and other documents. It may be that in the event individual states would insist on stricter or more administratively burdensome procedures than others which will increase the cost of litigation.
Enforcement of judgments is another area which may be subject to change in light of Brexit. There currently exist reciprocal arrangements in place between the UK and EU. Unless there is an agreement to continue with the existing arrangements (which of course would be in the interests of EU member states who would wish to continue to be able to enforce judgments secured in their own Courts in the UK) the English Court will revert to the common law position which requires determination of the substantive dispute. In those circumstances, member states will similarly require a re-determination of the case. Alternatively they may seek to interpret enforceability of the judgment applying their own laws. This will only add to the uncertainty of litigation.
There is also considerable uncertainty about the extent to which relief granted by the English Courts would be recognised by the courts of member states particularly in relation to claims for declarations, specific performance and injunctions.
If the Recast Brussels regime no longer applies it would be possible for parties subject to arbitration with an English seat to protect their proceedings using an anti-suit injunction which is currently not possible under the Recast Brussels rules. Otherwise arbitration is likely to be largely outside of the issues created by Brexit. In particular, enforcement of awards takes place under the New Court Convention 1958 and will continue to apply to member states post-Brexit.
Much is clearly going to turn on precisely what arrangements the UK Government replaces the existing regimes with. It is anticipated that wherever possible it will be in the common interest for the UK to have more or less the same jurisdiction, applicable law and enforcement regimes as currently prevailing.
We will continue to update clients as further information is made available as to the likely changes.
If you would like to further dicuss any of the information detailed above, please contact Senior Associate, James Cradick, from our Dispute Resolution department on 01322 422542 or email at firstname.lastname@example.org.