Commercial disputes often have an international element. That means Brexit, and a potential no deal outcome, could have a major impact on litigation.
We’ve looked at a range of issues, including where claims can be issued in the event of no deal, how judgments will be enforced and whether Brexit will increase the risk of litigation.
It’s important that you understand the impact of Brexit on your business, your contracts and any claims you’re involved in. We've highlighted the three major issues that we're speaking to clients about but also given a wider overview of things you should consider as the end of the transition period approaches.
Will Brexit change where we can issue claims?
During the Implementation Period:
During the Implementation Period (31 January 2020 to 31 December 2020) the following protections are in place that govern where claims can be issued:
- The Brussels regime (including Regulation (EU) 1215/2012, Brussels I (recast) (“Recast Regulations”)
- the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2007 (“Lugano Convention”)
- and the Hague Convention on Choice of Court Agreements 2005 (“Hague Convention”).
You can find out more about the impact on each of these protections below.
Under the Recast Regulations, if there is no exclusive jurisdiction clause, the general rule is that you should issue claims in the courts of the EU Member State in which the defendant is domiciled.
However, there are some circumstances where the general rule may not apply, including:
- contract claims can be brought in the jurisdiction where the obligation in question should have been performed
- tort claims can be brought in the jurisdiction where the harm occurred
- claims against an agent or branch of a defendant can be brought in the jurisdiction where that agent or branch is located.
The Recast Regulations will continue to apply for legal proceedings started before the end of the Implementation Period.
The Lugano Convention largely reflects the rules contained in the Recast Regulations. The purpose of the Lugano Convention is to extend those rules to the members of the European Free Trade Association who are not members of the EU.
The Hague Convention applies to exclusive jurisdiction agreements in international civil or commercial matters. The general rule is that courts of a contracting state designated in an exclusive jurisdiction agreement have jurisdiction to decide a dispute to which the agreement applies. During the Implementation Period, the UK is bound to the Hague Convention as a Member State of the EU.
After the Implementation Period:
We don’t yet know what will happen after the Implementation Period. There are a few possible outcomes:
- The UK and the EU may reach a specific agreement on how jurisdiction on cross border matters will be determined. If the two parties do reach an agreement, it’s unlikely to be as broad as the current regime.
- If the UK and EU don’t reach an agreement, this is essentially “no deal” and the Recast Regulations will not apply. The UK has formally applied to become an independent contracting party to the Lugano Convention. If this application is accepted, we’re likely to see minimal change from the current system as the Lugano Convention largely reflects the current Recast Regulations. However, jurisdiction agreements are only supported where at least one of the parties is domiciled in a state that is signed up to the Lugano Convention. Another disadvantage of the Lugano Convention is that it allows parties to avoid litigation in a certain jurisdiction (at least in the short term) by first issuing proceedings in another Lugano state.
- If the UK leaves the EU without a deal, the Hague Convention may continue to apply as the UK is committed to continuing the UK’s participation in it. However, the UK government is yet to confirm this and the position is complicated by the fact that the UK can’t become a contracting party of the Hague Convention while still a member of the EU or bound as a result of the Withdrawal Agreement. If the UK becomes a contracting party to the Hague Convention, exclusive jurisdiction clauses between parties in the UK and EU would be upheld after the Implementation Period.
If you’re concerned about issuing claims and/or enforcing judgments obtained within UK jurisdictions in EU member states, you should start legal proceedings before 31 December 2020 if possible.
Will Brexit change which countries are most favourable for us to bring claims in?
England and Wales
Many factors that make the law and jurisdiction of England and Wales a good choice will remain unchanged by Brexit. The factors include:
- Language - English is one of the most widely spoken languages in the world. That means claims brought here are accessible for most businesses and there’s often no need for translators.
- Transparent and predictable - English law has developed from a combination of statute and publicly decided cases. English law gives guidance on almost every issue, which means you can predict, with greater certainty than in many civil law systems, whether a proposed course of action is likely to be lawful or unlawful.
- Flexibility - English law is based on the principle of freedom of contract which is more flexible than many civil law systems, which rely on a more rigid and prescriptive civil code.
- Quality - The judiciary in the UK are respected worldwide for their impartiality and their experience and skill in dealing with complex cases.
- Procedure - The disclosure process within the UK legal system means parties get access to all relevant, non-privileged documents, including those of their adversary. Privilege means discussions with lawyers are confidential. Case management rules create a duty to actively manage cases and judges seek to monitor cases through to trial. In contrast to other international jurisdictions, the English commercial courts have also adapted well to virtual hearings during the Covid19 pandemic.
- Costs - Used as a deterrent against bringing frivolous claims.
- Choice of law - English courts can hear claims involving contracts with foreign law applying to them. This gives you the flexibility to choose foreign law but use English courts.
EU
There are some factors that may mean it’s better for you to bring your claim in an EU state:
- Enforcement – if the Brussels I Regulation and European Enforcement Order are repealed at the end of the Implementation Period then it may be it may be more difficult to enforce a judgment obtained in a UK jurisdiction within the EU.
- Court of Justice of the European Union (CJEU) precedence – UK courts will not be bound by CJEU decisions after the end of the Implementation Period. You should bear this in mind if you’re seeking to rely on a CJEU decision.
- Travel – Restrictions on travel may make it more difficult for international clients to enter the UK for hearings. This risk is mitigated somewhat by the rise in remote hearings which the English Courts have embraced well during the Covid19 pandemic.
Will Brexit change how we need to serve court documents?
As of August 2020, there are no saving provisions to retain the EU Service Regulation (EC No 1393/2007) in UK law. Procedures for service of documents between the UK and the EU will largely depend on whether the relevant states are, like the UK, contracting states to the Hague Service Convention.
All EU Member States other than Austria are contracting states to the Hague Service Convention. Each contracting state has its own central authority for the purpose of transmitting documents for service. This authority, or a judicial officer competent under the law of the originating state, will forward documents to the central authority of the receiving state. What comprises a ‘judicial officer’ for these purposes varies from state to state, but a private person can’t send a request for service directly to the central authority of the state in which that person wants service to be effected. The central authority then arranges for the documents to be served by an appropriate method.
Will Brexit change the law that applies to our contracts?
As of August 2020, the Rome I and Rome II Regulations will become retained EU law and will continue to be used to determine applicable law in the UK.
For certainty, you should include properly drafted choice of law and jurisdiction clauses in your contracts. These will generally be upheld and allow the parties to select with certainty which law they want to apply to the contract.
Will Brexit change how we can enforce a judgment?
The enforcement of a judgment which was obtained in one Member State in another Member State is controlled by the provisions of the Recast Regulations. This means a person or business wishing to enforce a judgment in another Member State must get a certificate from the Court of Origin of the judgment which certifies that the judgment is enforceable and which contains details of the judgment, plus information about interest and costs. This certificate must then be served alongside the judgment on the judgment debtor (with a translation if requested), before the judgment can be enforced.
As a result of the Withdrawal Agreement (which came into effect on 31 January 2020), this process of enforcement will remain applicable to UK judgments during the Implementation Period.
It’s unclear how the enforcement of EU judgments will be conducted and under which regulations they will be controlled post the Implementation Period. The UK has a number of available options including:
- Negotiating the implementation of the Recast Regulations (with any appropriate amendments)
- Considering entering into a specific agreement with the EU in relation to the enforcement of these judgments
- Considering acceding to the Lugano Convention.
In the event that the Recast Regulations no longer apply, the UK would face a change in how these judgments are enforced.
If you’re concerned about issuing claims and/or enforcing judgments obtained within the different UK jurisdictions in EU member states, you should start legal proceedings before 31 December 2020 if possible.
Can the Courts enforce a Judgment which was obtained prior to Brexit in another EU Member state in the UK following Brexit?
Because of the Recast Regulations, which apply throughout the implementation period, any judgments made prior to 31 January 2020 and any judgments made during the Implementation Period, can be enforced in the UK.
Will Brexit change the evidence that we can use in the courts of England and Wales?
The current regulations around the service of documents and the collection of evidence in EU cases will no longer apply to the UK once the Implementation Period ends.
From 1 January 2021 the taking of evidence in UK matters will be governed by the Taking of Evidence Abroad Convention. If this convention does not apply, for example if one country has not signed up to the Hague Convention or where there is no bilateral treaty, UK common law rules and statutes, and/or the national law of the relevant EU member state will apply.
Will Brexit change the court structure in the UK?
Before the end of the Implementation Period, the CJEU will continue to have jurisdiction in relation to the UK.
After the end of the Implementation Period, the UK courts will continue to be bound by decisions laid down by the CJEU before the end of Implementation Period, where it concerns EU law retained in UK domestic law. The Supreme Court may depart from retained CJEU case law where it considers it appropriate to do so.
UK courts will not be bound by decisions laid down by the CJEU after the Implementation Period ends, however, they may ‘have regard’ to those decisions if they consider it ‘appropriate’ to do so.
Will Brexit increase the risk of litigation?
As with a lot of the discussion surrounding Brexit, we’re unlikely to know the full effect on litigation until after the end of the transition period. Our clients across a variety of sectors and service lines are considering the impact that Brexit will have on their business, including clients who:
- Sell or buy high volumes of goods or services to/from the EU
- Have highly integrated UK-EU supply chains, particularly those that operate 'just in time production'
- Are heavily reliant on the EU for staff – whether temporary or permanent
- Operate in highly regulated areas, whether services (e.g. financial, legal) or goods (e.g. chemicals, pharma)
- Sell or buy goods or services to one of the 50+ countries with which the EU has a Free Trade Agreement (FTAs)
- Benefit from EU Research and Development (R&D) grants and other funds
- Invest in UK based assets.
If this applies to you, then you may experience disputes relating to:
- Supply chain - real risk of increased costs and delay to supply chains. Claims may arise due to breaches of contractual timeframes for the delivery of goods/services.
- Customs/border tariffs - importers and exporters must understand the potential customs implications for their businesses. Claims may arise if businesses fail to pay the correct rates.
- Workforce – businesses must understand the implications on using workers from the EU. Claims may arise if businesses fail to meet the correct visa requirements. Claims may also arise if supply chains are delayed due to a lack of staff following UK restrictions on the free movement of workers.
- Regulation - the UK largely works to European-wide standards and UK regulation may differ from those standards after the end of the Implementation Period. Businesses must understand changes in regulation. Claims may arise if businesses fail to comply with new UK regulations.
To manage the risk, you should:
- Start mapping supply chains and identify where there is the most exposure to Brexit
- Build up stocks in the UK
- Liaise with critical suppliers/ customers in the EU to identify potential issues and solutions in advance of Brexit
- Look at the UK's proposed tariffs and prepare to obtain relevant data and licences
- With new contracts, map out how the impact of Brexit will be managed
Will Brexit mean we can terminate contracts early?
Force majeure
A force majeure clause can provide some protection (e.g. suspending the contract) if something happens which was outside of your control and couldn’t be reasonably be anticipated. “Force majeure events” often include acts of government, restriction, suspension or withdrawal of any licenses, changes in the law or changes to regulations. It’s possible that Brexit may lead to a force majeure event.
Higher costs are not usually enough to trigger a force majeure clause, so the court is highly unlikely to allow you to terminate a contract and grant you force majeure remedies on the basis that Brexit has caused costs to increase. If you entered into a contract after the Brexit referendum, it will be hard to prove that the event could not reasonably be anticipated. It may even be difficult to prove this for contracts entered into before the referendum, as Brexit was foreshadowed in the Conservative Party's 2010 manifesto.
Frustration
You will face an uphill struggle when trying to prove that your contract has been frustrated due to Brexit. You must show that, as a result of Brexit, you would be deprived of substantially all of the benefit of a contract. Canary Wharf v European Medicines Agency [2019] EWHC 335 (Ch) demonstrated the difficulty in proving this. Here, a party was deprived (due to Brexit) of what they intended the benefit of the contract to be (their UK headquarters). However, the Court found that they weren’t deprived of all the benefit of the contract because they still had the benefit of the premises, just not for their headquarters.
How can we manage risks arising from the uncertainty surrounding Brexit and litigation?
Jurisdiction and choice of law clauses - The UK intends to become a contracting party to the Hague Convention, which covers both jurisdiction and enforcement. However, its application is only relevant where there is an exclusive jurisdiction agreement. Therefore, it’s sensible to consider whether an agreement contains an exclusive jurisdiction agreement and/or a choice of law clause (and what those provisions say). If there is no exclusive jurisdiction or choice of law agreement (or one that is no longer suitable), it would be a good idea to enter into negotiations with the other party aimed at agreeing to vary the contract appropriately. If you want to vary a contract, you should ensure you follow the contractual provisions for evidencing the variation.
The UK has formally applied to sign up to the Lugano Convention 2007. The Convention allows an element of certainty to those jurisdictions which can hear cross border disputes and ensures enforcement of any judgment made. If the UK’s application is accepted, we’re likely to see minimal change from the current system and the effect of Brexit on litigation would be less substantial.
Early commencement and enforcement – We’re unlikely to know the full effect of Brexit on litigation until after the end of the transition period. To reduce this uncertainty, and if you are able to, it may be worth starting proceedings or enforcing judgments prior to 31 December 2020.
Arbitration clauses - If you’re in the process of drafting contracts, you should consider incorporating arbitration agreements into contracts as many observers believe that Brexit will have less of an impact on arbitration.
Will Brexit impact alternative methods of dispute resolution?
Arbitration – It’s widely believed that Brexit will have little impact on arbitration. This is because the Arbitration Act 1996 is independent of European law. We may even see a rise in the uptake of arbitration, as parties agree to arbitrate their disputes rather than litigate, with arbitration clauses within a contract seen as a safer choice whilst uncertainty surrounding European legislation exists. Contractual arbitration clauses will remain valid and enforceable following exit day and enforcement of international arbitration awards in Europe will be unaffected due to the UK’s commitment to the New York Convention which governs this.
Mediation - The position with mediation is not quite as simple, although experts believe the impact of Brexit on mediation will be negligible. Mediation is well established in the English legal system. Cross-border mediations, where we expect to see the most changes, only make up a small proportion of mediations within England and Wales.
After the end of the Implementation Period, the relevant EU directive will no longer apply to cross-border mediations which take place in the UK. However, the UK government recently published a policy statement which discusses an intention to join the UN Convention on International Settlement Agreements Resulting from Mediation (Convention). This Convention opened for signature in 2019 and has been ratified by three countries so far, including Singapore. The Convention provides an international framework for enforcement of settlements following mediation. If the UK does join the Convention, this could reduce some of the risks of enforcement of mediation settlements following the UK’s departure from Europe and repeal of subsequent legislation.
See our Commercial Litigation and Dispute Resolution section for more information about how our lawyers can help you with the issues raised on this page.
