Civil dispute resolution in the event of a no-deal Brexit

Theresa May’s deal, an extension of Article 50 (with or without a general election), a second referendum; the permutations for the UK’s future relationship with the EU are various and the outcome is uncertain. If the deal put forward by the Prime Minister is rejected, the prospect of a no-deal Brexit on 29 March will come into sharp focus. Debate resumes on Wednesday 09 January.

In September 2018 the UK government published a guidance note discussing the impact of a no-deal Brexit scenario on civil court proceedings involving other EU countries¹. The government has confirmed that it will “repeal most of the existing civil judicial cooperation rules and instead use the domestic rules which each UK legal system currently applies in relation to non-EU countries” (including repealing the Brussels Regulation and the Lugano Convention, see below).

Under Rome I and Rome II² (“the Rome Regulations”) EU member states are bound to (1) observe freely negotiated “choice of law” clauses and (2) abide by the principle that the applicable law in respect of a claim arising out of tort is that of the county were the alleged damage occurred. The Rome Regulations’ rules on governing law apply to EU member states whether or not the applicable law is that of another member state. The UK government has confirmed that, in the event of a no-deal Brexit, it would retain the Rome Regulations. As such it is anticipated that following Brexit both the UK and EU member states will continue to observe the Rome Regulations’ rules relating to governing law in civil deputes.

The same cannot be said of contractual “governing jurisdiction” clauses. Under the Brussels Regulation³ and the Lugano Convention⁴, EU member states (as well as Denmark, Iceland, Norway and Switzerland) are required to recognise governing jurisdiction clauses in favour of fellow participating states. The requirement does not extend to governing jurisdiction clauses in favour of countries not participating in either of the treaties. As such, in the event of a no-deal Brexit, participating states will no longer be bound to observe freely negotiated governing jurisdiction clauses in favour of the UK.

Similar to the Brussels Regulation, the 2005 Hague Convention⁵ (“the 2005 Convention”) provides for the recognition of (certain) contractual governing jurisdiction clauses and the recognition and enforcement of judgments of participating states’ courts. The EU is a signatory to the 2005 Convention, meaning all member states are bound to observe the convention rules. As of 29 March 2019 the UK will no longer be a de facto signatory to the 2005 Convention. The UK government has however stated that it intends to ratify the 2005 Convention in its own right after the UK leaves the EU and that the convention will come in to force across the UK by 01 April 2019 (being the first business day after 29 March 2019).

Whilst the 2005 Convention will limit the impact of a no-deal Brexit on cross-jurisdictional civil proceedings, it is not a complete solution for the loss of the benefit of the Brussels Regulation and Lugano Convention. The 2005 Convention does not come into force until the “first day of the month following the expiration of three months after the deposit of the second instrument of ratification, acceptance, approval or accession [by a participating state]”⁶. As such it appears that the 2005 Convention may (in fact) not come into full force in the UK until at least 01 July 2019.

Signatories to the 2005 Convention are only required to observe governing jurisdiction clauses in favour of fellow participating states concluded after the convention comes into force in that state. This then raises real prospect that EU member states will not be bound to recognise governing jurisdiction clauses in favour of the UK concluded before (at least) 01 July 2019. Neither (it seems) will EU member states be bound to register UK court judgments handed down between 29 March 2019 and (at least) 01 July 2019. Further, the Brussels Regulation and Lugano Convention apply equally to excusive and non-exclusive governing jurisdiction clauses, whereas the 2005 Convention only applies to exclusive governing jurisdiction clauses concluded after the convention came into force (on 01 October 2015).

As such, in the event of a no-deal Brexit, parties to cross-jurisdictional dealings will no longer necessarily enjoy the same certainty that (1) the UK courts will have jurisdiction over disputes arising out of their contracts or (2) any judgment of a UK court will be registerable and enforceable against assets based elsewhere in Europe.

When negotiating new contracts, especially in cross-jurisdictional business involving other European countries, parties would be well advised to give careful consideration to (1) where court proceedings relating to any disputes might ensue and (2) where any judgments might need to be enforced. Insofar as the parties intend for any disputes to be decided by the UK courts, governing jurisdiction clauses will need to be carefully drafted to ensure (so far as possible) that they come within the scope of the 2005 Convention. Further, parties to ongoing cross-jurisdictional contracts would be well advised to review their dispute resolution clauses (including governing law and jurisdiction clauses) and, so far as possible, vary the same to ensure that protection is afforded in the event of a no-deal Brexit.

Another option is for parties to elect for international arbitration as the agreed forum for resolving any disputes arising out of cross-jurisdictional contracts. The New York Convention⁷ relating to international arbitration effectively prevents national courts from reviewing the merits of arbitral awards and requires national courts to enforce such awards, subject to certain procedural criteria.

Paul Fuller

Solicitor Advocate

Paul Fuller is a Solicitor Advocate at Hadfield Bull & Bull.

Please contact 0208 301 0808 or email enquiries@hbbsolicitors.co.uk to discuss any commercial or civil matters with Paul.

https://www.gov.uk/government/publications/handling-civil-legal-cases-that-involve-eu-countries-if-theres-no-brexit-deal/handling-civil-legal-cases-that-involve-eu-countries-if-theres-no-brexit-deal
Regulation (EC) No 593/2008 and Regulation (EC) No 864/2007 respectively
Regulation (EC) 44/2001 and Regulation (EU) 1215/2012
2007 Lugano Convention (L339/3)
Hague Convention of 30 June 2005 on Choice of Court Agreements
, Article 35
United Nations Convention on the Recognitionand Enforcement of Foreign Arbitral Awards (1958)