Brexit: What will happen to Cross Border Disputes on 1 January 2021?

By Victoria Hobbs, Louise Lanzkron

09-2020

The prospect of the UK failing to agree a deal on its future relationship with the EU increasingly appears to be on the horizon.  If agreement is not reached, and there is no Future Relationship Agreement, then EU law will cease to apply from the end of the transition period – 31 December 2020. This note looks at the changes that will occur to UK law at the end of the transition period in this area, and what you can do to prepare for them. 

Brexit is most likely to affect disputes where one party is based in the UK and the other party is based in a remaining EU member state, or where the dispute itself has some connection to a remaining EU member state. If you would like to know more about the current system for cross-border disputes you can access our previous note here.  

Practical Steps to take right now 

Listed below are some of the practical steps you can take now to help reduce the risks that a ‘no-deal’  will give rise to in relation to cross border disputes:  

  • Dispute resolution and governing law clauses should be drafted to make clear which courts are to have jurisdiction in the event of a dispute and which law is to govern the contract. English governing law clauses will be recognised by the courts of EU member states so there is little risk in keeping these clauses or inserting them into future contracts.
  • We recommend you seek specific advice on your jurisdiction provisions. The issue of which courts are to have jurisdiction in the event of a dispute remains complex. When negotiating contracts consider where any potential dispute may be located. If this is in England & Wales, or you would like any potential dispute between the parties to take place in the courts of England & Wales, we suggest selecting an exclusive jurisdiction clause in favour of the courts of England & Wales. Legal Advice should be sought to ensure this is the best option for the parties. There are greater risks of potential parallel proceedings if your contract includes a non-exclusive jurisdiction clause or an asymmetric jurisdiction clause. 
  • If your counter-party is domiciled outside of England & Wales but your contract contains a jurisdiction clause in favour of the courts of England & Wales, you should ensure that your contract contains a clause obliging your counter-party to appoint a process agent in this jurisdiction to accept legal proceedings. This will ensure you will be able to serve proceedings on them without any difficulty. 
  • Parties who are in possession of a UK court judgment which needs to be enforced in another EU state should take steps to enforce it now, as enforcement will not be as simple in the event of a no-deal.  If this cannot be done, then seek specific advice as to how you might enforce a judgment in an EU member state where you have exposure (or may do, if you are concluding a contract with a party with no formal presence in England & Wales). 
  • If you have an ongoing dispute that will not conclude by the end of the transition period, it is advisable to seek specific advice as to whether it is vulnerable to any changes that may occur. Proceedings with an EU element which have already been issued will not be affected in the very short term as the relevant EU rules will continue to apply until the end of the transition period on 31 December 2020. 
  • Arbitration will be unaffected and consideration should therefore also be given as to whether arbitration (if suitable) would provide greater certainty as a method of dispute resolution. 

What will happen at the end of the transition period?

At the moment we simply don't know. The UK and the EU still need to agree a framework for their future relationship in this area.  

The Withdrawal Agreement, in Articles 66 to 69, provides some certainty regarding what will happen to on-going disputes with a cross-border EU/UK element at the end of the transition period. Current EU law will continue to apply to legal proceedings issued before the end of the transition period and to the recognition and enforcement of judgments given in legal proceedings before the end of the transition period (although, see the caveat below). Likewise, The Service Regulation and The Taking of Evidence Regulation will continue to apply at the end of transition period in circumstances where documents are received by the relevant body before the end of the transition period or requests are received before the end of the transition period [1]

On 8 April 2020 the UK deposited an application to accede to the Lugano Convention 2007 ("The Lugano Convention") as a party in its own right. Currently, it is a party by virtue of its membership with the EU. Accession would secure a reciprocal arrangement in the areas of jurisdiction and the recognition and enforcement of judgments on a broadly similar basis to that currently in operation between the UK and the EU and would be welcome. There are some potential stumbling blocks to the UK's accession; the main one is that all contracting states will need to consent to the UK's accession and although Switzerland, Norway and Iceland have indicated that they are supportive of the UK's intention to accede [2], the EU  and Denmark will still need to agree. It is uncertain whether the EU and Denmark will provide their consent prior to the end of the transition period.

What will happen if there is no Future Relationship Agreement?  

In the event that the UK and the EU are unable to agree a Future Relationship Agreement the majority of EU legislation relating to cross-border disputes will disappear from the UK statute book. In its place, parties will rely on a mixture of common law rules, national rules of the remaining EU member states and various international Conventions. 

Jurisdiction and the recognition and enforcement of judgments

The UK has been a party to The Hague Convention on Choice of Court Agreements 2005 ("The Hague Convention") as an EU Member State since 1 October 2015 and will continue to be so until the end of the transition period. At the end of the transition period the UK government has indicated that the UK will accede, in its own right, to The Hague Convention in the event that a Future Relationship Agreement is not agreed [3]. Accession to The Hague Convention is an advantage for parties who choose the exclusive jurisdiction of the English courts.  

The UK government has said that  the Hague Convention will apply to  contracts entered into after 1 October 2015, the date that the UK acceded to the Convention as an EU Member State. The EU takes a different position, stating that the Hague Convention will only apply to contracts entered into from 1 January 2021, the date the UK will accede to the Hague Convention in its own right. Parties who have entered into contracts with exclusive jurisdiction clauses in favour of either a court in the UK or in one of the remaining EU member states after 1 October 2015 should seek legal advice to assess whether those clauses will be enforceable under The Hague Convention or whether the common law or national rules will apply. If you would like to know more about the operation of the Hague Convention click here to read a previous article on the topic. 

The Convention should apply to the enforcement of any judgment after Brexit if that judgment is obtained in respect of an exclusive jurisdiction clause that falls within the ambit of it.  In matters where the Convention does not apply, parties to these disputes will rely on existing UK common law rules and statutes, and/or the national law of the relevant EU member state. Local legal advice will need to be sought in the relevant jurisdiction regarding the rules that will be applied, costs and time limits. 

However, it should be noted, in relation to the recognition and enforcement of judgments, the UK and EC have also taken different positions in relation to the enforcement of some judgments handed down prior to the end of the transition period [4]. The UK government has stated that the current enforcement provisions will remain in place for any judgment given prior to this date.  In contrast, the EC has said that it will depend on what stage of the enforcement process the judgment has reached; for example, EU rules will only apply if the exequatur process has been completed. If you have a judgment that may be affected advice should be sought immediately.

Governing law

On the issue of the law governing parties' contractual and non-contractual obligations, Rome I and Rome II will be incorporated into domestic law. This will create certainty and continuity between the current EU and UK legal frameworks as these rules are not reliant on reciprocity.

The courts of member states will continue to apply the rules set out in Rome I and Rome II to disputes which may have a UK element. This means that if a Spanish court was considering the governing law of a contractual obligation, and determined – applying Rome I – that English law should apply to the parties’ relationship; English law would still be applied by the Spanish courts notwithstanding the UK’s status as a non-EU member state.

Service of documents and taking of evidence

The Regulations covering the service of documents and the taking of evidence will no longer apply to the UK. For service of documents, the UK will rely on The Hague Service Convention (the "Service Convention") [5]. If the Service Convention does not apply, existing UK common law rules and statutes, and/or the national law of the relevant EU member state will apply instead to the issue [6].

So far as taking of evidence is concerned the UK will rely on the Hague Convention on the Taking of Evidence Abroad (the "Taking of Evidence Convention"). In circumstances where the Taking of Evidence Convention will not apply, existing UK common law rules and statutes, and/or the national law of the relevant EU member state will apply instead [7].

The effect on Arbitration

It is important to note that the EU rules on jurisdiction [8], governing law [9] and service do not extend to arbitration, and therefore, Brexit will have little immediate impact on this area of dispute resolution. This is also the case with regard to the enforcement of arbitration awards which is governed by the New York Convention and not by the Brussels Recast Regulation.

Conclusion

If the UK and EU are able to agree a Future Relationship Agreement that will provide a framework for future disputes with a cross-border EU/UK element, and it will give some measure of certainty for parties involved in these types of disputes. If an agreement cannot be reached by the end of the transition period, then for parties who are involved in cross border disputes with an EU dimension, some aspects of that litigation may no longer be as simple as before, and local advice will need to be taken, increasing the time any dispute will take and of course, the costs involved.

Who to contact for further guidance

If you would like more information on the implications of Brexit on cross border disputes please contact Victoria Hobbs or Louise Lanzkron.

This is part of our Brexit series.

For further disputes related know-how, Click here to access to Disputes+ Bird & Bird's dedicated DR know-how portal. 


 

[1] Article 68 of the Withdrawal Agreement October 2019

[2] Support for the UK’s intent to accede to the Lugano Convention 2007 (28 January 2020)

[3] The Private International Law (Implementation of Agreements) Bill 2020 introduced to Parliament on 27 February 2020

[4] The Civil Jurisdiction and Judgments (Amendment)(EU Exit) Regulations 2019 and European Commission Notice to Stakeholders: Withdrawal of the UK and EU rules in the field of Civil justice and private international law -18 January 2019 ("Notice to Stakeholders").

[5] Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters 

[6] The Service of Documents and Taking of Evidence in Civil and Commercial Matters (Revocation and Saving provisions) (EU Exit) Regulations 2018 (SI 2018/1257)

[7] Ibid.

[8] Article 1(2)(d) and Recital 12 of the Recast Brussels Regulation

[9] Article 1(2)(e) of Rome I