What Does a ‘No Deal’ Brexit Mean for International Litigation?

This week Lawyer Monthly hears from David Vaughan, international dispute resolution partner, and Sneha Nainwal, international dispute resolution associate at Shakespeare Martineau, on the prospects of a ‘no deal’ Brexit on the litigation process cross-border.

On 18 January 2019, the European Commission circulated a note to the 27 European Union Member States, urging them to take advantage of “the opportunities of Brexit” and undermine the UK’s predominance in international civil litigation within Europe.

This appears to have been somewhat of a threat to the UK courts, with the Commission instructing the EU countries involved in Brexit negotiations to refrain from progressing any further with pending judicial cooperation procedures involving the UK, and to halt the launch of any new judicial cooperation procedures involving the UK.

This follows the UK Government’s technical guidance note on handling civil legal cases that involve EU countries if there is no Brexit deal, which attempted to outline how the rules for cases involving EU countries would change in the event of the UK exiting the EU with no deal.

If the UK were to leave in March 2019 with no deal, the justice system would no longer be part of the EU’s civil judicial cooperation framework. This would, therefore, affect choice of law and jurisdiction clauses involving parties based in the EU, or where the losing parties’ assets, for the purposes of enforcement of judgments, are in the EU.

Any international litigation involves the determination of issues such as, which country’s courts will hear the case (jurisdiction), which country’s law will apply to determine merits (applicable law), which country’s law will determine the procedure governing the legal proceedings (procedural law) and how judgments obtained in one country will be recognised and enforced in other countries (recognition and enforcement of judgments).

Currently, these issues are determined in accordance with the rules set out in various International Conventions and EU Regulations, which apply to the UK either because it is a signatory or by virtue of its EU membership.

However, in the event of a ‘no-deal’ Brexit, the EU Regulations that operate strictly on the basis of reciprocity will cease to apply to the UK. Furthermore, the International Conventions, which currently only apply to the UK because of its EU membership, will cease until the UK becomes a signatory in its own right and re-joins the Convention.

In this scenario, the key Conventions and Regulations and the relevant consequences of a ‘no deal’ Brexit, are:

• The Rome I and Rome II Regulations, which deal with the choice of law provisions in international disputes, will be retained by the UK as they do not rely on reciprocity to operate. The parties will continue to be able to elect the law that governs their disputes, both contractual and non-contractual.
• The Recast Brussels Regulation, which deals with rules governing jurisdiction and the recognition and enforcement of judgments within the EU, would be repealed by the UK as it requires reciprocity to operate. However, in the absence of the Recast Brussels Regulation, the common law rules on enforcement of judgments will apply.
• The Lugano Convention, which forms the basis of the civil judicial relationship with Iceland, Norway and Switzerland, will no longer apply to the UK as it is not a signatory to the Lugano Convention in its own right but only enjoys the benefit as an EU member. Although, this does not prevent the UK from re-joining the Lugano Convention in its own right, with the UK Government indicating that it will seek to agree a similar convention with these countries from 1 April 2019.
• The 2005 Hague Convention governs choice of court agreements and its signatories include the EU member states, Singapore and Mexico. This will cease to apply to the UK following March 2019, as the UK is not a signatory to the Convention in its own right, only enjoying the benefit as an EU member. However, the guidance paper states that the Government will ratify the Hague Convention on behalf of the UK from 1 April 2019, making the UK a member in its own right.

There is also a suggestion that the bilateral enforcement treaties, concluded between the UK and various EU member states including France, Germany, Austria, Italy and Netherlands during the period of 1934 to 1969, could potentially be revived to provide an alternative mechanism for recognition and enforcement.

Parties are advised to include clearly structured choice of law and choice of jurisdiction clauses in their contracts to provide more certainty. Where possible, parties should opt for exclusive jurisdiction clauses, as the 2005 Hague Convention does not apply to jurisdiction agreements that are non-exclusive or asymmetric.

The EU rules on recognition and enforcement of judgments under the Recast Brussels Regulation do not extend to arbitration. Arbitration, therefore, is likely to emerge as a preferred choice for many, as the New York Convention 1958, to which over 150 countries – including the EU member states – are signatories, will continue to apply to the UK even following a ‘no-deal’ Brexit. Parties should, where possible, consider this option for resolving disputes and include arbitration clauses in contracts.

If, however, contracts do not allow for arbitration, then parties are advised to commence proceedings before 29 March 2019.

Meanwhile, parties with existing or imminent litigation against EU parties may also wish to accelerate any litigation or enforcement of any interim remedies or final judgments, in order to take advantage of the automatic recognition and enforcement mechanism currently available under the Recast Brussels Regulation.

It is possible that the current uncertainty regarding the position with respect to recognition and enforcement of judgments could make England a less desirable forum for litigation in the short term.

However, Brexit is unlikely to detract from the primary reasons commercial parties choose the English courts. London has been a favoured centre for a number of years and ultimately, the reputation of its High Courts for quality, consistency, honesty, transparency and technical knowledge, as well as its status as a global financial centre, ensure that London will continue to stand head and shoulders above other European countries despite the uncertainty ahead.