What does Brexit mean for Jurisdiction clauses

• Europe
• United Kingdom

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

25-07-2016

This briefing represents Eversheds' view at the time of publication and some of its content is now out of date. We continue to monitor our legal briefings to ensure our content remains up to date. For our latest views on this topic please see our Brexit Hub.

Overview

Whether the English and Welsh courts have jurisdiction in a civil or commercial dispute involving subject matter giving jurisdiction to an EU court or concerning a party domiciled in the EU is currently governed by the Recast Brussels Regulation (Regulation 1215/2012). Applying to disputes commenced on or after 10 January 2015, the regulation provides a comprehensive regime on jurisdiction and seeks to avoid the risk of parallel proceedings across the courts of the EU. The Recast Brussels Regulation applies to all EU Member States, except Denmark.

What will change?

Following the UK’s exit from the EU, and absent any express agreement to the contrary, the Recast Brussels Regulation will cease to apply to the UK. There are alternative frameworks which the UK may opt into, including the previous EU Judgments Regulation of 2001 and the 2007 Lugano Convention. The latter covers jurisdiction and the enforcement of judgments in civil and commercial matters within the European Free Trade Association (EFTA) countries, Switzerland, Norway and Iceland. The Lugano Convention does not include the changes introduced by the Recast Brussels Regulation in January 2015.

The Brussels Convention could also possibly apply, which the UK acceded to in its own right after it joined the EEC.

The other option is the Hague Convention on Choice of Court Agreements (currently in force between the EU, Mexico and, from October 2016, Singapore). The Hague Convention only deals with the validity and effectiveness of exclusive jurisdiction agreements (and enforcement of judgments made in such cases) so would not provide a means of ascertaining the relevant jurisdiction in the absence of an express agreement between the parties.

Should I be worried?

The main benefit of the Recast Brussels Regulation is the additional safeguard to protect against the so-called “Italian torpedo” – a tactical jurisdiction move. The Recast Brussels Regulation provides that if a court, which is not the first court involved, has jurisdiction pursuant to an exclusive jurisdiction clause, that court may continue to hear the matter. In contrast, the Lugano Convention provides for a mandatory stay of proceedings on a second involved court if proceedings on the same subject matter and with the same parties have already been issued elsewhere in a Lugano Convention state. There could then be a significant delay, depending on the jurisdiction, while the first court involved determines whether it has jurisdiction.

If the UK accedes to the Lugano Convention, it will be necessary for parties to move quickly to issue proceedings to avoid a potential ‘torpedo’ action. As the 2005 Hague Convention does not contain the same provision as Lugano regarding courts first involved, the need to issue quickly under that regime is reduced.

In the absence of opting into any alternative regime, there would be an increased risk of parallel proceedings in English/Welsh and EU Member State courts, together with the added risk of conflicting judgments.

Eversheds’ expert prediction

Despite the uncertainties surrounding jurisdiction following the UK leaving the EU, we do not believe there is a need to amend substantially English and Welsh jurisdiction clauses. If the English and Welsh courts are the preferred forum for disputes, it would be prudent to ensure that there is an exclusive jurisdiction clause in their favour.

Further safeguards to recognise the jurisdiction of the English and Welsh courts are ensuring consistency across agreements, recognising that service of process must be in England and Wales and where appropriate binding parent and subsidiary companies. In addition, clauses can require parties not to challenge the jurisdiction clause and agree that the courts of England and Wales are the appropriate courts to settle disputes.

It may also be necessary to consider applications for anti-suit injunctions where proceedings are commenced within the courts of the EU. Anti-suit injunctions have, since a decision of the Court of Justice of the EU in 2004, been declared contrary to the principles of mutual trust between EU Member States. Following the UK’s exit from the EU, English and Welsh courts may be persuaded to issue an anti-suit injunction where another party commences proceedings in the courts of an EU Member State in breach of an exclusive jurisdiction clause in favour of the English or Welsh courts.