Examining the effectiveness of the boiler plate clauses in your commercial agreements is probably the last thing on your 'let's get ready for Brexit' to do list, yet just spending a few moments thinking about these aspects of your commercial arrangements could save you time and more importantly money in the long term.
Brexit is affecting the negotiation and drafting of commercial contracts in a number of ways. Standard provisions that may have to be reconsidered include clauses dealing with Territory, Payment provisions or intellectual property rights. But the effects of Brexit also extend to the boiler plate or 'midnight' clauses usually found at the end of a long contract.
If poorly drafted, these clauses can have a very significant effect on both the outcome of any subsequent dispute and also on the process and costs incurred in seeking to resolve the same. They should be carefully considered.
A good place to begin is your contract's governing law clause and jurisdiction clauses. If a contract will have commercial or operational ties to both the UK and the EU it is important that these clauses are drafted with the effects of Brexit in mind even if, at this late stage, we are still unsure as to what these will be.
Expressly stipulating a governing law avoids wasting time and money on initial determination, or potential satellite litigation, concerning the often complex question of which "default" governing law applies. The clause also goes to the heart of the validity and interpretation of all of the other terms contained within the contract. Being clear on your choice of governing law provides certainty for the parties and clarity (as far as is possible) to the terms that have been agreed.
English law is widely adopted as a suitable law to govern international contractual arrangements and their interpretation and this will not change on Brexit as the courts of remaining EU member states will have to recognise the validity of English governing law clauses in accordance with current EU legislation in this area. In addition, the UK government and UK Parliament have approved legislation incorporating these rules into UK law on ‘exit day’, the day the UK leaves the EU. As a result, there is no need to change from English governing law to a different EU Member State governing law.
A poorly drafted jurisdiction clause can also create unnecessary and costly satellite litigation. In addition, failing to select an appropriate jurisdiction can open the door for parties to seek to start proceedings anywhere in the world, at which point you could be at the mercy of unpredictable local courts and their own rules of private international law.
Choose the wrong jurisdiction and you may run up against problems on enforcement especially if you are the party most likely to be in the position to bring an action. It is against this background that it may be appropriate to consider whether litigation is the right dispute resolution method for the contract, or perhaps an alternative, such as arbitration may give the parties greater certainty.
Following Brexit, exclusive jurisdiction clauses in favour of the English courts should be upheld by the English courts and by the courts of EU Member States because the UK has said it will accede to the Hague Convention on Choice of Court Agreements 2005 (the “Hague Convention”). This international treaty, already ratified and signed by the EU is due to enter into force in the UK on the day the UK actually leaves the EU. However, the Hague Convention has limitations and does not apply to non-exclusive jurisdiction or asymmetric jurisdiction clauses even amongst those jurisdictions who are signatories to it.
In situations where a dispute may involve challenging the jurisdiction of either the UK courts or the courts of an EU member state, those parties who do not have an exclusive jurisdiction clause in their commercial agreement/s will need to rely on the national law of that particular EU member state or jurisdiction within the UK. This is because the Recast Brussels Regulation, which governs the law in this area, does not contain obligatory principles of reciprocity in favour of non-EU Member States (which the UK will of course be post-Brexit). This is in contrast to the position in relation to governing law discussed above.
Parties should consider where their counterparty's assets are located. If they are in an EU Member State an exclusive jurisdiction clause in favour of the English courts will mean that, following Brexit and as a result of the UK’s accession to the Hague Convention, the party should be able to enforce a judgment of an English court in the courts of an EU Member State and vice a versa. As stated above, this will not be the case in situations where the parties do not have the benefit of an exclusive jurisdiction clause. Depending on whether you are more likely to sue than be sued you may wish to consider arbitration as a preferred dispute resolution mechanism because arbitration will not be affected by Brexit, provided that your dispute is suitable for resolution using this process.
If your counter-party is based in another jurisdiction you may want to tailor the notice provisions to nominate a process server in England to enable you to serve English court proceedings on them. This is particularly important in the light of Brexit when the Service Regulation will no longer apply between the UK and the remaining EU 27 member states. The Service Regulation contains the procedure for service of judicial and extra-judicial documents between Member States. By nominating an agent to accept service for both parties any litigation procedure will proceed more quickly and smoothly and will be less costly.
What this means for you?
Although we are still unclear at this very late stage when Brexit will take place businesses need to plan for the new commercial and legal landscape. Considering existing and new agreements and the boiler plate clauses within them is one important aspect of this. We suggest you conduct an audit of your commercial agreements to map any operational, legal and commercial issues surrounding Brexit. Considering your governing law and jurisdiction clauses is just the beginning.
If you would like to know more please visit the Brexit page on our website and you may also find our briefing ‘Brexit: February 2019 – What we now know about the implications for Cross-Border Disputes’ helpful as it considers the issues above in more detail.
Bios for Victoria Hobbs and Louise Lanzkron
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