The Brexit Implementation Period ended at 11pm 31 December 2020 and the Trade and Cooperation Agreement (“TCA”) announced on 24 December 2020 and enacted in the UK under the European Union (Future Relationship) Act 2020 came into force.
As a general comment, after 31 December 2020 the UK courts are unable to apply EU law except in specific circumstances set out in the Withdrawal Agreement and where other domestic legislation allows. However, there are a number of areas of uncertainty for civil and commercial cross-border disputes that we explore in further detail below.
While the TCA makes extensive provision for judicial and law enforcement cooperation in criminal matters, it was silent on the mutual recognition of the courts between the UK and the remaining 27 EU countries in commercial and civil cross-border disputes. This means that the position in relation to jurisdiction and enforcement and recognition of court judgments between the UK and the EU is less certain now the Implementation Period has come to an end.
Court proceedings – where can I issue a cross-border dispute?
If you started court proceedings before the end of the Implementation Period, the Withdrawal Agreement (that governs the Implementation Period) continues to apply.
As a reminder, during the Implementation Period (which expired on 31 December 2020) the following protections were in place to govern where claims could 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”)
- 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. The Recast Regulations stated that if there is no exclusive jurisdiction clause, the general rule was that you should issue claims in the courts of the EU Member State in which the defendant is domiciled.
However, there were some circumstances where the general rule did 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 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 Lugano Convention also includes Iceland, Norway and Switzerland on top of the 27 remaining EU member states.
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 was bound to the Hague Convention as a Member State of the EU.
After the expiry of the Implementation Period and as a result of the TCA, the provisions within the Recast Regulations will not apply. The UK has formally applied to become an independent contracting party to the Lugano Convention however this application has not yet been successful or approved and it could be many months before a decision on this is received.
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. Within the Withdrawal Agreement, provision was made in domestic legislation for the provisions of the Lugano Convention to continue to apply to all claims which were issued before the Implementation Period expired.
While the UK has left the EU without a deal on the point of mutual recognition, the Hague Convention continues to apply as the UK became a member in its own right with effect from 1 January 2021. Because the UK has become a contracting party to the Hague Convention, exclusive jurisdiction clauses between parties in the UK and EU would be upheld.
Applicable Law
The only way to be certain what law applies to any dispute is to ensure that your contracts clearly state what law applies to it, and to be specific within any arbitration clause what the applicable law is to determine a dispute. If you concluded your contract before 31 December 2020 and stated your choice of law within the terms of that contract then that law will continue to apply.
Enforcement of Judgments
Because the TCA was silent in respect of mutual recognition, there is no provision in respect of enforcement of judgements now that the Implementation Period has expired. This means that there is no certainty on the ability to enforce any judgments cross-border and no certainty can be given until attempts are made to enforce such judgments and rulings made which establish the interpretation of the new legal position.
Where the position was clear during the Implementation Period as a result of the Withdrawal Agreement, we are now in a significantly worse position.
Other considerations
We’ve considered a range of issues you may be facing following the end of the Implementation Period below.
Why should I issue my claim 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.
Points to note
There are some factors that may mean it’s better for you to bring your claim in an EU state.
- Enforcement – as there is no mention of the enforcement of judgments within the TCA it is likely it will 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 are not be bound by CJEU decisions now the Implementation Period has ended. 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?
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. The UK is a contracting member to the Hague Convention in its own right and hence this will continue to apply despite Brexit.
Will Brexit change the law that applies to our contracts?
The Rome I and Rome II Regulations have 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?
It’s unclear how the enforcement of EU judgments will be conducted and under which regulations they will be controlled post the Implementation Period as the TCA is silent on this point. The UK has a number of available options including:
- Considering entering into a specific agreement with the EU in relation to the enforcement of these judgments
- Considering acceding to the Lugano Convention.
As the Recast Regulations no longer apply, the UK faces a change in how these judgments are enforced.
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 up until 31 December 2020 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 no longer apply to the UK.
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?
UK courts are no longer bound by decisions laid down by the Court of Justice of the European Union (“CJEU”) after the Implementation Period has ended, however, they may ‘have regard’ to those decisions if they consider it ‘appropriate’ to do so.
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.
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 at this stage, particularly given the silence in relation to jurisdiction and enforcement in the TCA. Our clients across a variety of sectors and service lines are only now able to realise 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.
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 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. We’re not likely to know whether the UK’s application has been successful for a number of months.
Arbitration clauses - If you’re in the process of drafting contracts, you should incorporate arbitration agreements into contracts. These should clearly state the agreed choice of law for arbitration. Many observers believe that Brexit will have less of an impact on arbitration but we will have to wait and see how this plays out.
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.
Conclusion
The present position is uncertain and unclear given the lack of any mention of cross-border jurisdiction in the TCA. It is a case of wait and see how matters are progressed within the UK and EU courts and indeed whether the UK accedes to the Lugano Convention. If you have any queries about dispute resolution, please contact our specialist solicitors online who can provide you with more specific advice, or call us on 0370 1500 100.
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.
