The UK's exit from the EU has created potential problems for parties that find themselves involved in cross-border civil disputes. Fieldfisher dispute resolution specialists Donna Goldsworthy, Nicola Sewell and Rebecca Smith consider the position.
Prior to 31 December 2020, individuals and businesses based in England and Wales benefited from the UK's membership of the EU – a status that encompassed reciprocal service, jurisdiction and enforcement regulations in civil litigation with EU counterparties.
This meant that, following potentially lengthy and expensive court proceedings, the claimant knew they could take their UK judgment and (fairly) quickly and easily enforce it in another EU country without getting bogged down in further red tape.
Up until 24 December 2020, many of us were waiting, with bated breath, to find out what, if any, measures would be agreed affecting service, jurisdiction and the enforcement of civil proceedings following the UK's exit from the EU.
Would there be new legislation to facilitate a co-judicial and harmonious approach with EU countries? The answer is: unfortunately not.
The EU legislation has not been replicated as part of the EU-UK Trade and Cooperation Agreement (TCA).
Brexit and dispute resolution
Given the lack of a new agreement on reciprocal service, jurisdiction and enforcement, UK parties to disputes (and their legal representatives) must (at least for now) fall back on regimes that have, in recent memory, only been applicable in litigation with non-EU parties.
Factors to consider in this post-Brexit dispute resolution context include:
Service of civil proceedings and documents
The EU Service Regulation is no longer applicable. Therefore, going forward parties will need to consider whether the counter-party to the litigation is based within a state signed up to the Hague Service Convention or to any other bilateral treaty/convention on service.
It is likely that parties will utilise the procedure under the Hague Service Convention – the UK has acceded to this convention (in its own right) and all 27 EU Member States are signatories to the convention.
The Recast Brussels Regulation is no longer applicable. The 2007 Lugano Convention has a similar regime to the Recast Brussels Regulation and the UK applied to join in April 2020. The UK's accession to the Lugano Convention requires unanimous support and the EU has yet to accede to the UK's application to join.
The Convention sets out that contracting states should "endeavour" to approve (or reject) applications to join the Lugano Convention within one year, so it remains to be seen what further developments occur over the next couple of months.
To enforce judgments in the meantime, parties will need to check whether they can utilise the procedure set out in the 2005 Hague Convention on Choice of Court Agreements (this will depend on the dispute being commercial and arising from a contract with an exclusive jurisdiction clause) – otherwise, parties will need to refer to the domestic law of the EU country of where they wish to enforce the judgment.
The 2005 Hague Convention is much more limited in scope than the Recast Brussels and Lugano Convention regimes. For example, it only applies to contractual disputes where there is an exclusive jurisdiction clause and excludes a number of areas such as consumer, employment and insurance matters.
Although the landscape may yet change, we have set out below the key considerations regarding disputes provisions when drafting contracts.
Key points to consider
- Governing Law: Some good news, governing law clauses in favour of the laws of England and Wales are still a sensible choice. The instruments that currently determine governing law will continue to apply and an express choice of English law will be upheld in EU member states.
- Service of proceedings: Drafting tip – Many of the issues associated with the service of documents on overseas parties (whether in the EU or not) can be avoided if the parties agree a service on a UK agent clause. This can easily be included in your key new contracts or can be renegotiated moving forward.
- Jurisdiction: "One size" no longer fits all when it comes to drafting and agreeing jurisdiction clauses, and these should be given greater consideration. In major contracts, the location of counterparties (and their assets) should be identified before choosing a jurisdiction. The type of clause, and its impact on future proceedings, should also be considered (i.e. exclusive, non-exclusive, unilateral or asymmetric clauses will be treated differently). As a business, have you revisited your litigation strategy since Brexit?
- Arbitration: One way to avoid the additional hurdles presented by the UK no longer being a part of the EU enforcement and jurisdiction regimes is to agree an arbitration clause in your contract. Brexit does not affect the rules on arbitration and enforceability of arbitration awards under the New York Convention. However, arbitration may not be appropriate for all types of dispute; hence the recommendation that you review your business' needs and litigation strategy and carefully consider what type of jurisdiction clauses) would best suit you.
Contract checker: When drafting or reviewing a contract, ask yourself the following questions:
- What are the reasons for choosing the governing law of the contract and how does it fit with your dispute resolution clause and litigation strategy?
- What are the commercial issues in play in the drafting of the clause and/or do you have the bargaining power to lead with choices of governing law and jurisdiction?
- Thinking ahead to the worst case scenario, where would the best place be for your business to litigate, taking into account the parties' locations, strengths, weaknesses and location of assets? Remember you need to consider this from the point of view of your business being both the claimant and defendant.
- Would arbitration work better as an alternative or could a hybrid clause be appropriate (i.e. arbitration for some types or values of dispute and litigation for others)?
We can assist you with any queries regarding the impact of Brexit on your business, including an audit of your dispute resolution clauses to ensure these are fit for purpose post-Brexit.
Fieldfisher also has a multi-disciplinary Brexit taskforce that can help with any aspect of your business transition.
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