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The UK-EU Trade & Co-Operation Agreement is now in place and, although hailed by both sides a success, the deal does not specifically address important matters of civil judicial co-operation. The impact for civil disputes is therefore, effectively, a no deal Brexit in which the UK has lost many of the civil judicial co-operation benefits that it enjoyed as a member of the EU.
This will remain the case unless there is a subsequent subsidiary agreement on the various issues and whether the EU will permit the UK to accede to the Lugano Convention.
Three key areas to consider are governing law, choice of forum and enforcement of judgment.
GOVERNING OR APPLICABLE LAW
The governing or applicable law is the law that governs the contractual or non-contractual relationship between the parties, which will be applied in determining any dispute arising out of their relations. The applicable law will govern matters including the existence, terms and breach of a contract, and the remedies available for any breach.
Prior to Brexit, as a member of the EU, the UK applied the Rome Instruments. This is the the hierarchy of rules that determine which countries’ laws govern the parties’ relationship, giving parties a high degree of confidence, as an express choice of governing law would be respected across the EU, and that the Courts would apply consistent rules in determining the governing law in the absence of an express choice. If the parties have made an express choice of law, the Rome Instruments set out limited reasons that the Courts could override that express choice.
Following Brexit, the UK has transposed the Rome rules into domestic law and they have become Retained EU Law. So, at least for now, the UK and Europe will continue to apply broadly the same rules to determine governing law and the parties’ express choice of governing law should be respected and upheld.
The UK, however, may depart from the EU’s Rome Rules in the future and would no longer be bound by the decisions of the European Court of Justice.
The forum for a dispute refers to the venue for ultimate resolution of disputes and each jurisdiction or arbitral institute may have different rules and procedures, which may impact on how a dispute is heard, what evidence is available etc.
There are several factors influencing the choice of forum i.e. whether to resolve disputes by litigation in national Courts, arbitration or some other form of alternative dispute resolution.
Prior to Brexit, as a member of the EU, the UK benefitted from the Brussels and Lugano regimes, which laid out rules to determine which countries Courts had jurisdiction to hear disputes. Those rules respected any choice of Court the parties had already made. In the absence of party choice or for non-contract and tort claims other provisions then came into place to determine which Courts should decide a dispute but these rules provided certainty in cross border disputes involving EU parties.
The position now is that, although there are transitional provisions to maintain prior rules for legal proceedings which were commenced before the 1 January 2021, for proceedings commenced after this date, the UK no longer enjoys the benefits of the Brussels and Lugano regimes leading to more uncertainty.
The position may be governed by the Hague Convention 2005 or by national laws.
If a contract concluded on or after the 1 January 2021 contains an exclusive jurisdiction clause, that choice should be respected under the rules of the Hague Convention between the UK and all Courts in Europe.
There are, however, important limitations on the application of the Hague Convention:-
- it does not apply to certain categories of dispute for example consumer claims, employment claims, intellectual property or claims relating to rights in REM in immoveable property;.
- it applies only to exclusive jurisdiction clauses. If the parties have agreed a non-exclusive jurisdiction clause or where the Courts of two or more different countries may hear a dispute then the Hague Convention does not apply. In the case of asymmetric clauses i.e. where one party can only bring proceedings in one country but another party has a choice where to bring the proceedings there is considerable uncertainty;
- there is uncertainty whether the EU Courts will respect even an exclusive jurisdiction clause entered into before the 1 January 2021. This is because the European Commission has expressed the view that the UK only acceded to the Hague Convention in its own right on the 1 January 2021 and the EU is ignoring the period from 2015 when the UK was a member by virtue of its EU membership;
- the Hague Convention is untested.
If for any reasons the Hague Convention does not apply then questions of jurisdiction fall to be decided by National Courts applying national laws, which gives rise to uncertainty and procedures around jurisdiction across the EU are likely to be less uniform.
Arbitration is not directly affected by Brexit in the same way and the arbitral tribunal’s powers are contained in the parties agreement to arbitrate and in any arbitration rules. Most countries are also members of the New York Convention in relation to arbitration.
Enforcement is the process of realising a Court judgment or arbitral award.
In the Courts, prior to Brexit, the Brussels and Lugano Instrument, which determines jurisdiction, also contained provisions for reciprocal enforcement of Court judgments within the EU.
Since Brexit, although there are transitional provisions that relate to judgments in proceedings which were commenced before the 1 January 2021, the Brussels and Lugano Conventions no longer apply to proceedings after that date. This means that the UK has lost valuable reciprocal arrangements with the EU for enforcement of one another’s judgments.
If the Hague Convention applies, judgments given by the Courts of one signatory will be enforceable in the Courts of another but this is subject to the limitations on the applicability of the Hague Convention. It is also expected to be costly and more time consuming than the process under the Brussels and Lugano rules.
Where the Hague Convention does not apply then enforcement is subject to national law in the country where enforcement is sought.
Whilst the process may be more difficult, there are some pre-1973 bilateral treaties with some of the EU 27 states that may be still be valid and relied upon.
In the case of arbitration, as noted above, the UK and all members of the EU have acceded to the New York Convention on the Recognition and Enforcement of Forum Arbitral Awards 1958.
HOW CAN THE RISK BE MITIGATED
Parties can use express and exclusive jurisdiction clauses in order to engage the Hague Convention and parties to contracts concluded between the 10 October 2015 and the 1 January 2021 may want to consider restating their exclusive jurisdiction agreement to ensure the application of the Hague.
Alternatively, parties may consider submitting disputes to arbitration or some other method of alternative dispute resolution.
Parties, however, should consider all of the aspects of litigation and arbitration before proceeding along those roads.
The UK has formally requested to accede to the Lugano Convention in its own right and that accession request is still to be processed but there will be a time lag as there is a three month period between accession being approved and the convention coming into force.
Consideration should also be given to the question of service of proceedings and requiring any non-UK party to nominate an agent within the UK for the purposes of services.
Service of proceedings in the EU following Brexit may be less straightforward because the EU Service Regulation no longer applies in the UK and service may be less than straightforward. For that reason service on an agent in the UK may be preferable.
In addition, the EU Taking of Evidence Regulation no longer applies in the UK, however, the 1970 Hague Evidence Convention may, apply which gives an alternative route for taking of evidence.