The consequences of 'Brexit' on international dispute resolution

As a current Member State of the EU, the UK participates in the comprehensive system of private international law that applies to all Member States. The leading instruments are:

1. Recast Brussels Regulation6 on jurisdiction and recognition and enforcement of judgments in civil and commercial matters (the “Recast Brussels Regulation”).

2. Rome I Regulation7 on the applicable law to contractual obligations (“Rome I Regulation”).

3. Rome II Regulation8 on the applicable law to non-contractual obligations (“Rome II Regulation”).

4. Service Regulation9 on the service in Member States of judicial and extrajudicial documents in civil or commercial matters (“Service Regulation”).

5. Taking of Evidence Regulation10 on the cooperation between the courts of the Members States on the taking of evidence in civil and commercial matters (“Taking of Evidence Regulation”).

Post-Brexit, the above EU rules will no longer apply to the UK. So what takes their place?

That is the million-dollar question. At the time of writing, there is no agreed Brexit deal and it is questionable as to whether there will be one. The UK Government has presented three draft withdrawal agreements to Parliament for approval, all of which have been rejected. We do not, therefore, speculate as to what a final deal may look like (although in the event of a deal, the current proposal is that there will be a transition period during which the present position will remain until the end of 2020). The current Prime Minister, however, appears to be prepared for a ‘no deal’ Brexit. The general consensus from the business community is that a ‘no deal’ Brexit is the worst possible outcome. So, let’s analyse this – it is always good to hope for the best but prepare for the worst.

In the event of a ‘no deal’ Brexit, the European Union (Withdrawal) Act 2018 (“EUWA”) will convert all existing direct EU legislation into UK law upon what is referred to as ‘exit day’ (currently 31 October 2019). The UK government can then decide which of those laws it wants to keep, change or remove; indeed, it has already begun to do this (see below). As for the case law of the Court of Justice of the EU (“CJEU”), the EUWA provides that on or after ‘exit day’, the UK will not be bound by any principles or decisions of the CJEU and cannot refer any matter to the CJEU, but can have regard to anything done by the CJEU insofar as it is relevant (subject to certain limitations).

In terms of jurisdiction, the UK cannot continue to use the Recast Brussels Regulation because it requires reciprocity. The government has, therefore, drawn up the draft Civil Jurisdiction and Judgment Regulations (Amendment) (EU Exit) Regulation 2019 (“CJJR”). Pursuant to the CJJR, the Recast Brussels Regulation will be repealed. For proceedings pending before a UK or EU Member State court on ‘exit day’, the EU rules on jurisdiction will continue to apply. For proceedings commenced in the UK or an EU Member State on or after ‘exit day’, jurisdiction is expected to be determined by the national law of the UK or the EU Member State seized. In the UK, the courts will fall back upon the common law regime where jurisdiction over foreign defendants is based upon the court granting permission to serve initiating process outside of the jurisdiction. This requires the court to consider what the connecting factors to the jurisdiction are and exercise a discretion based on forum conveniens (the most appropriate forum) considerations. The usual concerns as to forum non conveniens arguments and the risk of parallel proceedings arise here, but one would hope that comity will continue to play its traditional part in resolving such issues. The common law regime is also one that has long been in existence and already applies in respect of litigation between UK and non-EU parties, such that it may present no particular difficulty for those global players who are already familiar with it.

As to recognition and enforcement, on or after ‘exit day’, handed down judgments and pending enforcement proceedings will no longer be mutually respected. The exception is where a UK judgment has been exequatured in an EU Member State before ‘exit day’. Businesses should, therefore, consider whether it is in their interests and, if so, possible to secure the automatic recognition and enforcement of a judgment under the Recast Brussels Regulation before Brexit takes effect. Post ‘exit day’, recognition and enforcement will be determined by reference to the national law of the UK or EU Member State in which recognition and enforcement is sought.

More likely than not, however, the UK will accede to the Hague Convention on Choice of Court Agreements 2005 (the “Hague Convention on Choice of Court Agreements”) or the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 (the “Lugano Convention”). Both Conventions provide a stable basis upon which to determine jurisdiction, recognition and enforcement between the contracting states.

The UK currently participates in the Hague Convention on Choice of Court Agreements by virtue of it presently being a Member of the EU, but upon ‘exit day’ it intends to re-join this Convention in its own right. It does not need the EU Member States’ consent to do so. In preparation, on 28 December 2018 the UK deposited an Instrument of Accession to the Hague Convention with the Netherlands’ Ministry of Foreign Affairs. Accession is presently suspended until 1 November 2019; being the day after the current scheduled ‘exit day’. It should be noted, however, that by comparison to the Recast Brussels Regulation, there are limitations to this Convention including:

1. It applies only to exclusive choice of court agreements in civil and commercial matters and recognition of judgments based on such agreements.

2. It does not apply to certain types of matters i.e. contracts of employment, the carriage of passengers and goods, certain maritime claims, etc.

3. It does not provide for the recognition and enforcement of interim measures of protection.

4. It applies only to exclusive choice of court agreements entered into after the Convention’s entry into force for the State of the chosen court. The Convention entered into force in the EU (including the UK, as a Member State of the EU) on 1 October 2015, such that it does not apply to exclusive jurisdiction agreements entered into before this date. It is currently unclear whether the UK’s accession will start the clock running again from the date of the Convention’s entry into force independently for the UK.

The alternative is to adopt the Lugano Convention, which the government also accepts is more limited in scope than the Recast Brussels Regulation. This would require the agreement of its existing signatories, however, which includes the EU Member States and so this option may prove more difficult to achieve.

Whichever option prevails (and it is more likely to be the Hague Convention on Choice of Court Agreements in the first instance), businesses should remember that should the UK not accede to the Hague Convention on Choice of Court Agreements or the Lugano Convention, or they do not apply, the national laws of the UK and the EU Member States on jurisdiction and recognition and enforcement apply. Again, those laws are the same laws that already apply to determining jurisdiction and the recognition and enforcement of judgments and interim measures in respect of nonEU (including UK) countries.

As to the applicable law, on and after ‘exit day’, Rome I and Rome II (subject to minor amendment) should be retained in UK law by virtue of the draft Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2018 (“LACONCO”). This is achievable because these regulations do not require reciprocity. One will have to wait to see whether and, if so, how far the interpretation and application of these rules will differ between the UK and EU Member State courts going forward.

In respect of service and evidence, on or after ‘exit day’, the Service Regulation and the Taking of Evidence Regulation will be revoked pursuant to The Service of Documents and Taking of Evidence in Civil and Commercial Matters (Revocation and Saving Provisions) (EU Exit) Regulations 2018. Parties to litigation will instead look to the Hague Service Convention and the Hague Convention on the Taking of Evidence Abroad. These Conventions provide slightly more cumbersome processes than the Service Regulation and the Taking of Evidence Regulation, but they do provide adequate alternative arrangements. A quick fix in terms of service would be to include in your contracts a clause stipulating an agent for service of process, where this is practical and achievable.

So, what does the above mean for businesses in a ‘no deal’ scenario? At a minimum, make sure that you put exclusive jurisdiction clauses into your contracts and take advice on the position as to jurisdiction, recognition and enforcement (whether for interim measures or judgments) under the national law of the jurisdiction in which recognition or enforcement is sought. From ‘exit day’, the process for recognition and enforcement is expected to become more difficult, time-consuming and costly. The position as to the applicable law, service and the taking of evidence is not expected to change much, but businesses would be best advised to insert a clause providing for an agent for service of process when possible.

By comparison with litigation, the situation with regards to arbitration is much clearer and the general consensus appears to be that Brexit will have little direct impact. Why is this?

Generally, the UK’s substantive law on contract and tort is unlikely to be affected by Brexit.

As a seat of arbitration, its procedural law, contained within the English Arbitration Act 1996, will remain unaffected by Brexit.

By its own terms, the Recast Brussels Regulation does not apply to arbitration, such that any difficulties with regard to jurisdiction and the recognition and enforcement of court judgments will not affect the position in arbitration. Indeed, the recognition and enforceability of arbitration awards is independently secured via the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”). The UK and EU Member States currently are, and post-Brexit will remain, parties to the New York Convention. As a result, Brexit will have no impact upon the current state of play regarding the recognition and enforceability of arbitration awards as between the UK and EU Member States.

While the direct impact of Brexit on arbitration is limited, there are some areas that may foreseeably be impacted. One of these areas is anti-suit injunctions where such impact may be more positive than negative. Anti-suit injunctions are injunctions preventing a party from commencing or continuing proceedings in breach of the contractually agreed forum (in this context an agreement to arbitrate). They are one of a number of powerful forms of ancillary relief that the English courts can grant in support of arbitration and are a very useful tool in a practitioner’s toolkit. As matters currently stand, the English court has broad discretion to grant such relief in respect of non-EU proceedings. It is not, however, able to issue an anti-suit injunction restraining the commencement or continuation of proceedings in breach of an arbitration agreement before the court of another EU Member State. This follows from the case of West Tankers Inc. v Allianz SpA in which the European Court of Justice ruled that it was incompatible with the old Brussels Regulation for a court of one Member State to make an order to restrain a person from commencing or continuing proceedings in another Member State on the ground that such proceedings would be contrary to an arbitration agreement. The Recast Brussels Regulation did not change that position. In the case of Nori Holding Ltd v PJSC Bank Otkritie Financial Corporation, the English High Court held that West Tankers was still good law. In that case, the court prohibited the Bank from continuing Russian court proceedings, but refused to grant an injunction restraining Cypriot court proceedings in breach of the arbitration agreements.

Post-Brexit, anti-suit injunctions to restrain proceedings in EU Member States may see a revival. Of course, if that is the case, the question will become one of recognition and enforceability under the national laws of each EU Member State so do be careful to check this before incurring the cost.
 

Given the above, perhaps the broader question is whether, and if so how, Brexit will impact upon the choice of the UK as an international dispute resolution centre.

The UK is one of the world’s most renowned centres for international dispute resolution. Its position as such was established long before the establishment of the EU; it is not conditional or contingent upon the UK’s membership of the EU.

The core reasons for choosing English law and jurisdiction, or London arbitration, have also not changed. English law is one of the world’s most established, developed and flexible systems of law. The English courts (whether for litigation or exercising a supervisory jurisdiction over London arbitration) are supported by a highly experienced judiciary known for ensuring the highest standards of due process and natural justice (including fairness and impartiality) and with a reputation for ensuring an independent and commercial approach to dispute resolution. The system as a whole is further underpinned by institutions and educational facilities producing prominent legal practitioners (including counsel and arbitrators).

So what are the real threats? As we see it, they include:

1. Brexit Uncertainty including as to Enforcement

One can see the loss of attraction in the choice of the UK courts for international dispute resolution when one is faced with the present Brexit uncertainty, particularly as to enforceability of UK court judgments. A Thomson Reuters/Practical Law survey showed that 35% of respondents considered that Brexit had affected their approach to the selection of jurisdiction and choice of law clauses (including arbitration). Of the 65% of respondents whose approach was unaffected, 39% considered that if there was no significant progress in the UK/EU negotiations relating to jurisdiction and governing law, they would review such clauses in their contracts (and no doubt some have since done so). One of the reasons behind these statistics was a concern as to enforcement of court judgments. The uncertainty, of course, is temporary and it is to be hoped that an appropriate agreement as to enforcement for the benefit of both the UK and the EU countries can be agreed, but if not, enforcement should be secured under the Hague Convention on Choice of Court Agreements or the Lugano Convention. No doubt for the reasons set out above, one solution (either temporarily or permanently) has been to replace UK jurisdiction clauses with arbitration clauses. Of the 35% of respondents identified above, 10% were including arbitration clauses (mostly favouring arbitration in England and Wales) instead of court litigation clauses. There are obvious benefits in doing so to avoid the Brexit uncertainty and potential enforcement difficulties of court judgments, but there can be no naivety that such a change takes time to implement and one should be careful to consider the potential ramifications of such a move, i.e. where interim measures are key.

2. Perception

Across the EU and perhaps beyond, the UK has been perceived as xenophobic. The uncertainty caused by Brexit affects the perception of the UK (and indeed the EU) as a place to do business and manage disputes. The media has not assisted by scaremongering and fuelling speculation as to the Brexit effect. Impressions that all is not well – even if mistaken – can take their toll.

3. Competition

The UK is no stranger to competition. It existed both pre- and post-Brexit. But what Brexit has done is given the UK’s competitors (and indeed the EU’s competitors) an opportunity to play upon the uncertainty and pitch themselves as the ‘go to’ alternative in both litigation and arbitration. Today, there are plentiful alternative forums and since the Referendum, there has been a flurry of marketing activity. But while Brexit has reinvigorated the debate as to what is the appropriate place for international dispute resolution, businesses still have to carefully balance the factors that make one or another forum the most suitable for it.

4. Practicalities

he most obvious practical issue concerns whether there will be a need for EU citizens or UK nationals to obtain visas for travel, say to an interlocutory or final hearing. At present, EU citizens and UK nationals can travel freely with a passport or identity card. After ‘exit day’, the European Commission has offered visa free travel for UK nationals entering the EU for short stays of up to 90 days, provided the UK reciprocates. Of course, technology (telephone and video conference calls) can assist to remove any inconvenience caused by this issue. The UK court and arbitration forums are both looking to capitalise on digitalisation.

In due course, the EU plans to adopt the European Travel Information and Authorisation System, an electronic platform to keep track of individuals who do not need a visa to enter the Schengen Zone (which includes most EU countries). If adopted, British nationals may be expected to pay €7.00 (approximately £6.30) every three years to travel to EU countries.

The above issues are of only minor cost and possible inconvenience. Of greater concern may be the UK’s future immigration practice, but it is likely that the UK government will take a sensible position on this so as not to interrupt business.

The starting point is to note that Brexit impacts the dispute resolution framework as between the UK and EU Member States. This is only one part of a much larger international dispute resolution stage, the balance of which remains unaffected.

At the present time, no one knows what (if any) ultimate deal will be reached and so businesses are best advised to prepare for what is considered to be the worst case scenario – the ‘no deal’ Brexit. The critical issues for litigation between parties in the UK and EU Member States under a ‘no deal’ scenario boil down to (i) jurisdiction – make sure you put exclusive jurisdiction clauses into your contracts (this is age-old advice regardless of Brexit), and (ii) recognition and enforcement – your judgment or interim measure is worthless if it cannot be enforced so make sure to check the position on enforcement under the national law of the UK or the EU Member State in which enforcement is sought. To make life simpler, add into your contracts a clause providing for an agent for service of process to address service issues.

Given the issues arising in litigation, businesses have good cause to question whether their disputes would be better resolved (in the short or long term) in arbitration. With this, businesses achieve greater certainty over the potential effect of Brexit, particularly with regard to enforcement. In England, they may even secure gains with the possible revival of anti-suit injunctions. Once greater certainty as to Brexit is achieved, businesses can revert back to litigation if they so desire.

Either way, the general consensus is that England has not lost its attraction as a centre for dispute resolution. The changes presented by Brexit can be managed and the problems at present are essentially ones of uncertainty and perception, although one should not underestimate the competition. There are no grounds for complacency in the current climate.