Beyond Brexit: Position On Cross-border Commercial Disputes?

Have the UK and EU entered into a new agreement on cross-border civil litigation? In short, no. The EU–UK Trade and Cooperation Agreement is silent on future cooperation in this area. In this briefing, we consider the rules that apply to existing legal cases, and new cases from 1 January 2021, and the implications for commercial parties.

Background

When the UK was an EU member state it was party to a streamlined framework of EU rules on cross-border civil litigation. This framework of rules provides legal certainty and predictability for cross-border trade. It sets out the rules that courts in EU member states must apply in order to determine their jurisdiction to decide a dispute and the law governing the dispute. It also provides the procedure for serving court proceedings on parties in different member states and the mechanism for enforcing court judgments across the EU.

EU-UK Trade Deal

Unfortunately, the EU-UK Trade and Cooperation Agreement (TCA), which applies provisionally from 1 January 2021 pending full ratification, does not provide for a new framework of rules on cross-border civil litigation. This means that the rules that would have applied in the event of a “no deal” Brexit will now apply. These rules are summarised below.

It is possible that further agreements may be concluded in the aftermath of the TCA. In particular, the UK may accede to the Lugano Convention in its own right. If the UK is able to accede to the Convention in its own right, little will change in relation to cross border litigation between UK and EU commercial parties. However, a decision on the UK’s accession is still pending on the EU side. Even if the EU were to agree accession tomorrow, there will be a gap of several months from 1 January 2021 until the Convention will be in force again and this will complicate matters in the meantime.

Court Proceedings Issued Before 1 January 2021

The good news is that the framework of EU rules will continue to apply to proceedings which were issued before the end of the transition period. These provisions apply in both directions, so that, for example, the English and Welsh courts will continue to apply the framework of EU rules to enforce French judgments where the proceedings leading to that judgment were issued on or before 31 December 2020, and the French courts will do likewise in respect of English & Welsh judgments where the proceedings were issued on or before that date.

Court Proceedings Issued From 1 January 2021

Governing law

Again, the good news is that very little has changed in relation to this issue. The EU instruments concerning contractual and non-contractual obligations are the Rome I and Rome II Regulations. Both of these Regulations have now been incorporated into UK domestic law in broadly the same form. This means that EU member state courts will continue to apply Rome I and II so will give effect to a choice of English and Welsh law to the same extent as before, and the English and Welsh courts will apply the domestic law equivalent of the Regulations so will give effect to a choice of foreign law.

Jurisdiction and the enforcement of judgments

Unfortunately, the position is less straightforward in relation to issues of jurisdiction (which country’s courts will decide a dispute) and whether the resulting judgment will be enforceable in the country where the assets are located. The framework of EU rules (the Recast Brussels Regulation and the Lugano Convention primarily) ceased to apply between the UK and the EU at the end of the transition period on 31 December 2020. The rules that now apply are the Hague Convention on Choice of Court Agreements 2005 or the common law rules.

Hague Convention on Choice of Court Agreements 2005

The Hague Convention provides a framework of rules relating to jurisdiction and the enforcement of judgments where there is an exclusive jurisdiction clause in the contract. The EU acceded to the Hague Convention on behalf of its member states on 1 October 2015 and the UK acceded in its own right from 1 January 2021.

The Hague Convention provides parties with some certainty that courts in England and Wales and in the EU will respect their choice of court to decide any dispute and that the resulting judgment will be enforceable. However, it does have some significant limitations:

• It only applies where there is an exclusive jurisdiction clause in favour of one of the contracting states. It is unlikely to apply where another type of jurisdiction clause has been agreed or in the absence of party choice.
• It only applies where the exclusive jurisdiction clause was entered into after the Hague Convention entered into force for the country of the chosen court. There is some uncertainty as to whether EU member states will treat the date of entry into force for the UK as 1 October 2015, when it became party to the Hague Convention by virtue of its EU membership, or 1 January 2021, when it acceded in its own right. The European Commission has taken the view that it is the latter, but that view will not be binding on the courts that will decide this question in future, and arguably the better view is that the Hague Convention should apply to contracts entered into from 1 October 2015 as it unquestionably entered into force for the UK on that date.In view of this uncertainty, there is a risk that the Hague Convention may only apply to contracts entered into from 1 January 2021 which contain exclusive English and Welsh jurisdiction clauses, and not to contracts concluded before that date.

Common law rules

If the Hague Convention does not apply, the courts in England and Wales and in the EU will apply their own national rules to determine whether they have jurisdiction to decide a dispute. This increases the risk of parallel proceedings (where proceedings concerning the same dispute are commenced in more than one country’s courts at the same time), leading to greater uncertainty and a likelihood of conflicting judgments between jurisdictions.

So far as the enforceability of judgments is concerned, the courts of most EU member states will enforce a judgment of the English and Welsh courts, even without a specific reciprocal regime, although the type of judgment enforced may be more limited and the procedures may be more cumbersome and more expensive. The English and Welsh courts will do likewise in respect of most EU member state judgments.

How Can We Help?

The Hague Convention and the common law rules have more limitations and uncertainties than the EU framework of rules. This is likely to impact the risk, time and cost of litigation between UK and EU commercial parties, at least in the short term.

Early advice and an effective dispute resolution strategy will be key. Arbitration is not affected by any of the uncertainty surrounding Brexit. Arbitration awards can be easily enforced under the New York Convention, which now has 166 signatory states – over 80% of the countries in the world, and there are only limited grounds on which to challenge an arbitral award. Arbitration may therefore provide greater certainty as a method of dispute resolution. Negotiation, mediation and other forms of alternative dispute resolution can also assist parties to achieve a swift and cost-effective out of court settlement. We would be happy to discuss the options with you.

If you would like advice on cross-border commercial disputes and litigation, please speak to a member of the team below.