EU cross-border litigation following Brexit – what it means in practice and steps to mitigate risk
In light of the current political uncertainty around Brexit, businesses need to carefully consider the impact of the UK leaving the EU on 31 October 2019, with or without a deal.
The UK's exit from the EU will clearly have ramifications for parties involved in EU cross-border litigation. We have discussed in this article what the UK's departure is likely to mean in practice for parties involved in litigation, and suggested some steps that can be taken now to mitigate any concerns and risks that might arise.
Whilst the UK remains a member of the EU, it is part of a harmonised EU legal system that includes cross-border frameworks in the areas of civil justice and judicial co-operation. The relevant Regulations set out the rules which the courts in EU Member States must apply in relation to governing law, jurisdiction, the service of legal proceedings, the taking of evidence and the enforcement of judgments. The Regulations operate so that the rules applicable in EU cross-border litigation are clear and the process is relatively straightforward and certain – parties know where to start a case, which law will apply and that judgments will be enforceable throughout Member States. According to the EU itself, the various frameworks are designed to "simplify and speed up cross-border cases, as well as making it easier to enforce a claim against a Defendant in another Member State".
As well as the EU regulatory framework, the UK is also party to the 2005 Hague Convention on Choice of Court Agreements (the Hague Convention). Whilst this Convention is currently little used, it is likely to become much more relevant following a no-deal Brexit (discussed below).
Although the existing EU framework will continue to apply until the UK leaves the EU, what will happen following the UK's exit is far less certain.
Withdrawal Agreement Reached
If a withdrawal agreement is entered into between the UK and the EU in the terms agreed in November 2018 (or similar terms), the current EU frameworks would be likely to continue to apply to the UK for at least the duration of any transition period agreed. It would be expected that agreements would then be reached between the UK and the EU as to the relevant cross-border frameworks that should apply in the context of civil justice and judicial co-operation following the UK's exit from the EU. It would be hoped that EU cross-border litigation would, therefore, continue to be relatively straightforward.
If the UK were to leave the EU without any deal, then the position would inevitably become much more complex. There would be no transition period, and there would be no agreed EU framework for ongoing civil justice and judicial cooperation between the UK and EU Member States. The UK Government's stated position is that the UK would repeal most of the existing civil judicial cooperation rules and would instead use the domestic rules which each UK legal system currently applies in relation to non-EU countries. There would be exceptions in some specific areas where the current EU rules do not rely upon reciprocity to operate – in these situations the UK would retain the relevant current EU rules. The UK would also continue to apply existing international agreements, particularly (in the context of cross-border litigation) the Hague Convention. This approach will bring significant changes for parties engaged in EU cross-border litigation.
The rules relating to governing law will remain straightforward following a no-deal Brexit. All parts of the UK would retain the Rome I and Rome II Regulations on applicable law in contractual and non-contractual matters, which do not generally rely on reciprocity to operate. Businesses and individuals will be able to continue to use the current rules to determine which governing law would apply in cross-border disputes. In situations where the parties have included governing law provisions in their contracts, they can be assured that English governing law clauses will generally continue to be recognised by EU Member States following Brexit and that English courts will also continue to give effect to governing law clauses, whether they provide for English law or the law of an EU Member State. This is all good news.
The position on jurisdiction is not as clear. Following a no-deal Brexit the relevant EU Regulations and Conventions that govern jurisdiction between EU Member States themselves and between the EU and Norway, Iceland and Switzerland will all be repealed (almost in their entirety), in all parts of the UK. What this means in practice is that other than in cases where the Hague Convention applies, when considering jurisdiction issues in litigation cases started after Brexit the English courts will apply English common law rules and the courts of EU Member States are likely to apply the relevant national Member State rules.
The English courts are very likely to give effect to English jurisdiction clauses and those conferring jurisdiction on the courts of EU Member States or Norway, Iceland or Switzerland, irrespective of whether the relevant clause is exclusive, non-exclusive or asymmetric. The position is far less certain in the courts of the EU Member States, however, and parties will need to rely on the national laws of the relevant EU country to seek to secure a preferred jurisdiction. It might also be possible to revive the anti-suit injunction (prohibited as a matter of EU law). This is an English court order that restrains a party to an exclusive English jurisdiction clause from continuing proceedings brought in breach of that clause in another jurisdiction. The consequences of failing to comply with an anti-suit injunction can be very serious, and they may again become an effective means of ensuring that parties comply with exclusive jurisdiction clauses.
The Hague Convention
The Hague Convention is also likely to become very relevant following a no-deal Brexit. This is an international convention which was designed to promote international trade and investment by creating certainty for international trading parties, through the creation of a worldwide framework of rules relating to jurisdiction agreements and enforcement of related judgments. It requires Contracting State courts, which includes all EU Member State courts, to respect exclusive jurisdiction clauses in favour of courts of other Contracting States and to enforce related judgments. The UK is a party to the Hague Convention in its capacity as an EU Member State. Other current Contracting States are Mexico, Montenegro and Singapore. None of Norway, Iceland or Switzerland are Contracting States.
In December 2018 the UK deposited its instrument of accession to the Hague Convention. This will ensure that the UK will become a party to the Convention in its own right following Brexit. The UK's accession has currently been suspended until 1 November 2019, and the intention is that by the UK becoming a Contracting State in its own right the day after the UK leaves the EU, there will be a "seamless continuity of the application" of the Hague Convention to the UK following Brexit.
The UK's accession to the Hague Convention is good news for parties who wish to rely upon exclusive jurisdiction clauses – whilst there is currently some uncertainty as to whether the EU will apply the Hague Convention from the date that the UK acceded to the Convention in its capacity as a member of the EU (1 October 2015) or only from the date the UK accedes in its own right (currently expected to be 1 November 2019), parties will be able to rely upon the Hague Convention in the majority of cases to ensure that exclusive jurisdiction clauses entered into following Brexit are respected by the courts of EU Member States.
The recognition and enforcement of judgments throughout the EU Member States is governed by the same Regulations as those which govern jurisdiction. As noted above, all of these will be repealed in all parts of the UK following a no-deal Brexit.
This means that, unless the Hague Convention or some other statutory basis applies, when considering the enforcement of judgments from the EU Member States and Norway, Iceland and Switzerland following a no-deal Brexit the English courts will apply English common law rules and, when considering the enforcement of English court judgments, the courts of EU Member States, Norway, Iceland and Switzerland are likely to apply the relevant national rules. This is subject to certain transitional arrangements which will apply in the UK and the EU Member States. It is important to note that the EU's position on this is that it will not apply the current EU wide rules to the enforcement of UK judgments in EU member States unless certain registration processes have been completed before the UK's departure from the EU. This will be the case even if the judgment was obtained before the UK's departure from the EU or enforcement proceedings were started but not yet completed.
The Hague Convention is again likely to become much more relevant following the UK's exit, and parties will generally be able to rely on the Convention to ensure the enforcement throughout the EU Member States of English court judgments which arise out of English exclusive jurisdiction clauses entered into following Brexit. Again, therefore, the UK's accession to the Hague Convention is good news for parties with the benefit of exclusive jurisdiction clauses.
Steps to Take Now
In light of the ongoing uncertainty around the terms of the UK's exit from the EU and the current UK and EU thinking as to the relevant Regulations and Conventions that will apply following Brexit, there are a number of steps that parties can take now to maximise their chances of success in any future litigation:
1. Review all important cross-border contracts and corporate documents to ensure that they include well drafted and clear choice of law and jurisdiction clauses. Ensure that such clauses are included in all future contractual documents.
2. Consider using exclusive jurisdiction clauses rather than non-exclusive or asymmetric clauses.
3. Consider using process agent clauses. These can then be relied upon for the service of legal proceedings upon EU domiciled defendants independently of the current EU Service Regulation.
4. In cases where the Hague Convention will not apply, consider the likely approach of relevant EU jurisdictions as to the recognition and enforcement of English court judgments as a matter of national law. If there are any concerns, non-exclusive jurisdiction clauses may give flexibility to choose an appropriate jurisdiction at the time litigation proceedings commence.
5. Remember that arbitration is not impacted at all by Brexit. The UK's key legislation for arbitration will continue to apply following Brexit as it does now and will not be affected by EU law. The UK will also remain a signatory in its own right to the key instrument relating to the recognition and enforcement of international arbitration awards, the 1958 New York Convention. For absolute certainty over choice of law, jurisdiction and enforcement, consider using comprehensive and binding arbitration clauses.
6. Evaluate current disputes and consider whether litigation is a likely outcome. If so, consider starting that litigation quickly, before the UK's exit from the EU. That way parties will be able to make use of the current EU Regulations on jurisdiction and, depending on how quickly the litigation progresses and the eventual date of the UK's exit, enforcement.
7. Be ready to take steps to register judgments obtained against EU domiciled defendants before the UK's exit as soon as they are made, and do not delay the enforcement of judgments (note that an appeal does not stay enforcement and parties are generally free to enforce pending any appeal).
8. Take active control of current on-going contracts and actively manage any risk of disputes arising. Many commercial disputes can be resolved amicably if tackled quickly and commercially. Engage early with counterparties on any difficult or tricky issues.
Although there is currently a great deal of uncertainty as to what the UK's exit from the EU will look like, the position in relation to EU cross-border commercial litigation is, for now at least, relatively clear.
If a withdrawal agreement is entered into between the UK and the EU in the terms agreed in November 2018, the current EU frameworks would likely continue to apply for at least the duration of any transition period agreed. In these circumstances, EU cross-border litigation would continue to be relatively straightforward, at least in the short term. The expectation would be that agreements as to the longer term EU cross-border litigation regime would then be agreed.
If the UK leaves the EU without an agreement, then the current position as far as governing law is concerned will remain. English governing law clauses will continue to be recognised by EU Member States and English courts will also continue to give effect to governing law clauses, whether they provide for English law, the law of an EU Member State or any other governing law.
Similarly in relation to jurisdiction and enforcement, the UK's accession to the Hague Convention should largely mitigate any concerns. Parties can be reassured that exclusive English jurisdiction clauses entered into following Brexit will be respected and that related judgments will be enforced throughout the EU Member States.
Inevitably, the UK's exit from the EU, and particularly a no-deal exit, will add an additional level of complexity in some areas. The associated concerns can be mitigated, however, with a considered approach and by taking the steps suggested above.