Into the unknown - The future for European cross border disputes post-Brexit

• United Kingdom

• Competition, EU and Trade - Brexit
• Litigation and dispute management

21-06-2016

With the EU Referendum just days away, the UK is waiting with baited breath to find out what its future holds. Aside from the intense debate over sovereignty, Brexit (if it happens) holds some interesting questions about the future for those engaged in existing cross border disputes or pending litigation with a pan-European aspect. The consequences of Brexit for dispute resolution will, to some extent, depend on the terms of the UK’s exit from the EU that will now need to be negotiated. Not even the key Leave campaigners have been able to state with any certainty the basis upon which the UK will attempt to negotiate its exit.

Under Article 50(3) of the Treaty on European Union, the UK will have two years from the date it gives notice of its intention to withdraw from the EU to put in place an alternative framework (or at least to indicate what the resolution is likely to be) to relevant EU legislation. This will include legislation which governs jurisdiction and the mutual recognition and enforcement of EU member state judgments, currently the Recast Brussels Regulation (1215/2015/EU), and which has been enshrined in UK law for almost thirty years.

Failure by the UK to agree a suitable legal model within this time period will, under Article 288 of the Treaty on the Functioning of the European Union 2007, lead to the Recast Brussels Regulation automatically ceasing to apply. So what would replace it? We set out below four possible alternatives below:

1: Maintain the status quo

The UK could seek to maintain the applicability of the Recast Brussels Regulation by agreement (with the EU) or to agree an equivalent, or slightly modified, instrument similar to the current Danish model. This option would have the benefit of minimising uncertainty (and associated litigation) as to the applicable regime and avoids the need for a complete overhaul of our current domestic legislation, including parts of the Civil Procedure Rules and the Civil Jurisdiction and Judgments Act 1982, which are underpinned by EU legislation. It would also afford UK parties the continued protection against EU parallel proceedings. However, the Brussels Regime requires reciprocity, and so whether this option is likely, or indeed possible, will depend to a large extent on the political will of the remaining EU Member States.

2: The UK accedes to the 2007 Lugano Convention

One of the most commonly cited models for Brexit has been the ‘Norwegian Model’, which would require the UK to become a member of the EEA, pursuant to which it could then seek to accede to the Lugano Convention 2007. The Lugano Convention is currently in force between the EU Member States, Switzerland, Norway and Iceland, and effectively provides for the original Brussels Regulation to apply in those states. Importantly, however, the Lugano Convention does not incorporate the Recast Brussels Regulation and so the greater benefits and clarity for commercial parties that have been incorporated in that would be lost under this approach. Further, under this option, the UK would have little say in the future development or content of the law but, like Norway, would nonetheless be subject to the jurisdiction of the EFTA court.

3: The UK ratifies the Hague Convention on Choice of Court Agreements 2005 or a new multilateral framework

The ‘Canadian Model’ and ‘WTO Model’ have been alternative commonly cited models of Brexit. Without joining the EEA, the UK may still seek to enter into a multilateral framework which would give reciprocity of enforceability of judgments and certainty as to the validity and effectiveness of jurisdiction agreements between the contracting states. However the Canadian Model illustrates the considerable difficulties involved in negotiating such a treaty, having taken more than seven years to agree a treaty with the EU.

An easier approach might be for the UK to become a contracting state to the Hague Convention, which is currently in force between the EU and Mexico (and extending to Singapore from 1 October 2016). The US has also signed the Hague Convention, although it has yet to ratify it. This option has the benefit of having already been acceded to by the EU, and implemented in UK law, although it should be noted that it only applies to agreements containing exclusive jurisdiction clauses.

4: The Brussels Convention and/or UK common law

The most likely fall back position, in the event of no alternative agreement, is the Brussels Convention. The UK is already a party to this in its own right, albeit that the Convention itself has largely been forgotten since the accession of Austria, Finland and Sweden to the EU and the introduction of the Brussels Regulation in 2001. Nevertheless, the Convention remains in force and would still operate as a matter of international law even in the event that the Brussels Regulation and Recast Brussels Regulation ceased to apply.

The Brussels Convention represents a significantly easier option than the worst case scenario of a return to English and Welsh common law. This would represent a significantly different landscape to the Brussels regime, and the indication from the English commercial courts is that a return to the vagaries of the common law would not be welcome.

Practical Steps

• If enforcement of any decision within EU countries is expected to be required, international arbitration is likely to present a much more reliable option to achieve this, as parties will be able to rely on the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (more commonly known as the “New York Convention”). The New York Convention currently has 156 signatories, including all of the EU Member States, and thus if disputes are referred to arbitration and the seat of arbitration were, for example, to be designated as London, any ensuing arbitral award could then be enforced across (and outside of) the EU. Businesses could thus seek to minimise the risk surrounding the uncertainty of how enforcement of court judgments between the UK and EU countries will operate post Brexit by agreeing, either in their contracts or upon a dispute arising, to refer disputes to arbitration.
   
• For parties engaged in existing litigation or contemplating pending litigation, securing a judgment or settlement prior to the end of the two-year negotiation period will be increasingly important.
   
• Parties may wish to take advantage of current High Court pilot schemes for shorter and flexible trials, which are designed to expedite judgment.
   
• Alternatively parties may look at ADR as a means to bring forward the conclusion of existing disputes so that they can take advantage of the recognition and enforcement mechanism under the Brussels Regime whilst it still remains in place.
   
• The impact on future litigation, as yet uncontemplated, is unclear. Businesses can try to protect themselves by agreeing law and jurisdiction upfront in new contracts. A review of current and standard form contracts should also be kept under constant review in light of evolving policy statements as the UK negotiates its withdrawal from Europe to ensure that rights with respect to jurisdiction and enforcement are not prejudiced. This may involve the need for transitional provisions to deal with existing contractual obligations. Disputes lawyers have a key role to play in the re-drafting of any jurisdiction provisions.