In terms of the parties choice of governing law, even after the implementation period ends on 31st December 2020, the parties ability to rely on applicable/ governing law clauses is unlikely to be significantly affected because the Rome I and II Regulations do not rely on reciprocity. The Regulations will continue to apply in EU states and the UK government is incorporating the regulations into national law.
Cross border disputes – choice of jurisdiction
It has long been common practice for parties to international contracts to agree that they should be governed by the law of England and Wales. This is because case law has given rise to well-established precedents which tend toward predictability of outcome, the quality of the judiciary is recognised, as is the Court’s respect for freedom of contract.
Pending Brexit, there has been speculation as to whether the UK leaving the EU will deter parties from agreeing that international disputes should be governed by law of England and Wales and that its Courts should have jurisdiction to resolve disputes.
Currently, under the Recast Brussels Regulation English Court jurisdiction clauses are enforceable in the EU member states (and vice versa) and this prevents parties pursuing litigation in an alternative jurisdiction. If the transition period ends on 31 December 2020 without an agreement to the contrary, then (unlike in respect of applicable law above) the UK will no longer be afforded rights under the Recast Brussels Regulation (because it requires reciprocity) and English Court jurisdiction clauses will not be automatically enforceable in the EU.
The Lugano Convention 2007 governs jurisdiction between the European Free Trade Association countries and the EU Members States and the UK has applied to join, in its own right. If it is not possible to form a new agreement replicating the Recast Brussels Regulation then acceding to the Lugano Convention is considered the next best option. To date, however, the UK’s application has not been approved by the EU member states.
However, on 1st January 2021 the UK will join the Hague 2005 Convention in its own right, then in certain circumstances after 31st December 2020, jurisdiction clauses can be upheld by EU member states. The Hague Convention will give effect to agreements where parties have chosen to include an exclusive jurisdiction clause (not non-exclusive or asymmetrical clauses) but seems likely only to apply provided the clause was entered into after the UK has joined the convention.
As the exclusive jurisdiction clause will need to have been concluded after the UK joined the convention, the Hague Convention is not currently a fully effective solution and will not assist where there is not an exclusive jurisdiction clause (or where there is such a clause but it was concluded prior to 31 December 2020). In that case, enforceability will depend on local rules.
For this reason, parties may wish to consider whether commercial agreements with cross border elements have appropriate exclusive jurisdiction clauses and even where they do, whether those agreements should be reissued and re-signed from 1st January 2021.
It remains to be seen whether Brexit will have a detrimental impact on willingness to choose the English Courts to resolve disputes however, it is considered that any impact will be minimal given the long established stability and expertise offered by the English courts.
Cross-Border disputes – enforcement
The same legislation which governs recognition of jurisdiction clauses will apply to the recognition and enforcement of judgments. From 1st January 2021, in order to enforce judgments in the EU, parties will need to rely on the Hague Convention and again, an exclusive jurisdiction clause is required. If the conditions are met, then the contracting states must then recognise and enforce the judgments of one another’s courts but overall it is likely to be more complicated to enforce English court judgments in the EU.
A new Hague Convention which goes further than Hague 2005 and does not require an exclusive jurisdiction clause for enforcement purposes has been prepared but requires EU ratification.
Cross border disputes – service
Currently a claimant can serve documents on a defendant overseas without the permission of the Court if the Court has jurisdiction to do so via the EU regime or under the Hague Convention.
As above, the Hague Convention will apply after 31st December 2020 but currently only where the agreement includes an enforceable exclusive jurisdiction clause. If the contract falls outside of the Hague Convention, then parties will need the Court’s permission to serve documents overseas.
Arbitration – recognition and enforcement
Whilst there is uncertainty about the enforcement of English Court judgments in EU member states after Brexit, by contrast, the position in relation to the enforcement of arbitral awards is clearer.
This is because arbitration is governed by an entirely different treaty, the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which the UK is already a party to. Therefore, enforcement of arbitration awards will not be affected by Brexit in the same way that the English Court’s Judgments are likely to be.
It is expected that arbitration awards will continue to be enforced throughout the EU, whether or not a deal with the UK is reached. Bearing in mind the uncertainty about enforcement it might be anticipated that international contracts increasingly provide that disputes are to be resolved through arbitration because London is already a trusted and popular seat for arbitrations.