The implications of Brexit â€¨for UK commercial disputes
Andy McGregor and Sarah Shaul consider the possible effects of withdrawal from the EU on the use of English governing law and jurisdiction clauses in commercial contracts
Andy McGregor and Sarah Shaul consider the possible effects of withdrawal from the
EU on the use of English governing law and jurisdiction clauses in commercial contracts
English law is renowned for being a safe pair of hands. The courts strive to give effect to the commercial intentions of the parties, judges are respected for their expertise and independence, and English governing law clauses are highly popular in cross-border commercial contracts, often considered part of the contractual boilerplate.
Despite Brexit, there is little
to suggest this will change. Reasons for picking English
law as the governing law for commercial contracts are unrelated to the UK's position within the EU. Although there may be some uncertainty with respect to the application of more precise legal obligations, English law as applied to general commercial contracts will remain unaffected by Brexit. Indeed, substantive English law as applied to general commercial contracts has been relatively unaffected by EU law.
Currently, member states apply the same set of rules to determine the governing law of contractual and non-contractual obligations, namely the Rome I and Rome II Regulations. These regulations stipulate that member state courts must respect the parties' choice on governing law, whether or not that is the law of a member state. This means an English governing law clause will continue to be upheld. It is worth checking whether commercial contracts refer to European legislation,
use European legal concepts,
or refer to territory in terms of the EU. Such clauses may need
to be revised.
English jurisdiction clauses
Currently, judgments handed down by English courts are enforceable in all EU member states under the Brussels I Regulation and the Recast Brussels I Regulation (the Recast). Upon leaving the
EU, English judgments will be enforceable according only to the individual rules applicable
to non-EU judgments in the different member states. It is imperative that the UK is quick
to negotiate an agreement which extends across the EU.
Additionally, the Recast stipulates that where a contract contains a jurisdiction clause in favour of a member state, that court will take jurisdiction over the proceedings, and the courts of the other member states are obliged to respect that agreement and decline to
hear those proceedings. In the absence of the harmonising effect of the Brussels regime, there are a few potential options:
The UK tries to remain part of the Brussels regime. Unlikely. There would no longer be the reciprocity inherent
in the Recast with other member states and, as the UK would no longer be subject to the jurisdiction
of the European Court of Justice, there would be no guarantee that the terms
of the Recast would be applied consistently;
The Brussels Convention will apply. This is the predecessor to the Recast, which the UK acceded to upon entry into the EU;
The UK joins the Lugano Convention 2007. This currently applies between the EU, Norway, Switzerland, and Iceland and is broadly the same as the Brussels I Regulation. However, it
omits some improvements incorporated into the Recast (particularly the defusing
of torpedo actions);
The UK joins the Hague Convention on Choice of Court Agreements 2005. This applies between the EU and Mexico (as well as Singapore from 1 October 2016). However, the reciprocity stipulated by this legislation only applies where there is an exclusive jurisdiction agreement in favour of the court giving judgment; or
The UK enters into a bespoke arrangement with the EU. Again unlikely given the many other contractual arrangements which need
to be renegotiated.
There is, as yet, no reason to believe member states will refuse to enforce English judgments or disregard English jurisdiction clauses even without a formal regime being in place.
There are some practical considerations. If the Lugano Convention or the old Brussels Convention were to apply, proceedings would need to
be commenced quickly in the chosen court. This is because there is a helpful provision
in the Recast (absent from
the Lugano and Brussels Conventions) which permits a court chosen in an exclusive jurisdiction clause to continue to hear proceedings, even when a second is seized. Absent a formal reciprocal regime, jurisdiction is likely to be determined according to
forum conveniens principles.Alternatively, anti-suit relief may be available to protect exclusive jurisdiction clauses. Commercial parties should continue to include jurisdiction clauses in contracts to reduce uncertainty, preferably exclusive English jurisdiction clauses which would guarantee enforcement under the Hague Convention.
Andy McGregor is a London Solicitors Litigation Association committee member and a partner at RPC. Sarah Shaul is an associate at RPC www.lsla.co.uk