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The implications of Brexit for international disputes

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Summary: The UK’s decision to leave the EU will have significant implications for the relationship between UK and EU courts. This note looks at the impact on the management of disputes between international parties. It considers the most likely replacements for EU Regulations, anticipating that the UK government will need to take a pragmatic approach in minimising the legislative demands and substantive changes to this area of international cooperation.

Impact on allocation of jurisdiction

The key change in relation to the rules on jurisdiction will be the loss of the Recast Brussels Regulation. It will most likely be replaced by the UK acceding to the Lugano Convention 2007, just like Norway, Switzerland and Iceland.

The Lugano Convention is nearly identical to the old Brussels Regulation, but has not (yet) been updated to capture some of the improvements made in the Recast Brussels Regulation. This may mean that “Italian Torpedo” stalling tactics would be possible once more.  Some protection against parallel proceedings may be offered through the fact that EU Member States are permitted (but not obliged) to stay proceedings in favour of a non-EU jurisdiction first-seized, but this will not obviate the need to act fast to secure jurisdiction in the UK.

The UK is likely to also accede to the Hague Choice of Courts Convention.  This may be in addition to the Lugano Convention if the UK adopts an EEA/EFTA-style relationship, or in the alternative if the UK takes a WTO-style option.  It is broadly similar to the Lugano Convention, but with narrower scope (for example, it only covers exclusive jurisdiction clauses). Its main advantage is that it extends beyond the EU – currently encompassing Mexico and (from 1 October 2016) Singapore.  It is the most logical route to establishing a common jurisdiction and enforcement framework with non-EU states.

One advantage in this scenario may be the reinvigoration of anti-suit injunctions, which are designed to prevent parties from pursuing foreign proceedings  in breach of a jurisdiction agreement. The ECJ does not permit such injunctions, ruling that they undermine the principle of comity between member states. It is debatable whether the ECJ’s prohibition would still be effective if the UK was a member of the EEA, but certainly if the UK adopted a “WTO model” relationship with the EU then it would once more be able to issue anti-suit injunctions effective worldwide.

Arbitration is one area that is unlikely to be affected by the UK’s decision to leave the EU. The UK is a signatory to the New York Convention independent from its relationship with the EU, and no change is anticipated for the Arbitration Act 1996.  Accordingly, the rules regarding jurisdiction over arbitral proceedings, and the international arrangements to support and enforce Convention awards across all signatory states to the Convention, should remain unchanged.

Impact on choice of laws

The key change in relation to choice of laws will be the loss of the Rome I Regulation (concerning choice of law applicable to contracts) and the Rome II Regulation (concerning choice of law applicable to non-contractual matters).

The Rome I Regulation will logically be replaced by its predecessor, the Rome Convention. It has broadly similar policy objectives, establishing applicable laws by reference to the place “most closely connected” with the contract.  However, the Rome Convention is much less prescriptive than the Rome I Regulation.  For example, it has no equivalent of Article 4(1)h) of the Rome I Regulation, which creates a specific rule to establish the applicable law for certain types of financial contracts as defined by MiFID. There are similar examples throughout; in each case, the Rome Convention favours flexibility over predictability. Accordingly, whilst one would expect the courts to adopt a consistent and familiar approach to determining the applicable law in relation to such contracts, there would be less legislative certainty. In relation to non-contractual matters, the UK will probably revert to the Private International Law (Miscellaneous Provisions) Act 1995. It is still good law, currently applying in all situations where the Rome II Regulation does not. There are some key differences however.

Firstly, the 1995 Act adopts a different rule to determine applicable laws in the absence of party choice, by referring to the place where the tort itself occurred (whereas the Rome II Regulation favours the place where the damage occurred).  This discrepancy does open up the possibility of inconsistent and conflicting judgments between the UK and the courts of EU Member States.

Secondly, the 1995 Act does not provide support for party choice over the laws to govern their non-contractual disputes.  It seems likely that the legislature will want to address this shortcoming, given how many contracts now provide a chosen law to govern non-contractual disputes.  However, this will require amendments to the 1995 Act, which cannot be guaranteed at this stage given the sheer scope of the legislative programme associated with departing the EU.

Impact on service of proceedings outside the United Kingdom

As with jurisdiction, the biggest impact in relation to service of proceedings will be the loss of the Recast Brussels Regulation, along with the EU Service Regulation.  This will render ineffective significant parts of Part 6 to the Civil Procedure Rules, and all related practices and procedures. However, accession to the Lugano Convention and the Hague Choice of Courts Convention would restore most of the lost procedures, and the latter actually extends the procedures to non-EU signatories (currently only Mexico and Singapore, but likely more in time).

The one area of disadvantage will be where a claimant is relying on an exclusive jurisdiction clause, but the defendant is not a signatory to either the Lugano Convention and the Hague Choice of Courts Convention; in this situation, the claimant will need to seek permission from the court to serve out of the jurisdiction, whereas this is not required under the Recast Brussels Regulation.

In terms of options for effecting service overseas, little will change, since a claimant will still be able to rely on the Hague Service Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents. This is the precursor to the EU Service Regulation, and is materially identical. All other available methods of service (e.g. through foreign governments, judicial authorities, consular authorities, and other methods valid under local laws) will still apply as well.

Impact on enforcement of judgments

Losing the Recast Brussels Regulation impacts international enforcement options, just as much as it impacts jurisdiction and service of process, since it contains detailed provisions and procedures to simplify and speed up the process of enforcing judgments between EU member states.

Once again, the Lugano Convention will be the likely solution to this problem. It is broadly similar to the Recast Brussels Regulation, albeit missing certain streamlining procedures; for example, judgment creditors would no longer be able to expedite international enforcement by obtaining a standard form certificate from the English court that could be directly enforced across the EU. Instead, it would be necessary to apply for a declaration of enforceability in the state in which enforcement is sought. The grounds for challenging enforcement are materially identical, but the procedure is slower.

Overall conclusions

The end position for the UK upon departure from the EU will likely not become clear for quite some time.  However, for international disputes it is clear that there are logical, practical alternatives to the existing Regulations. The legal framework will have to change, and certain strategic options will open up, but the fundamental principles, procedures, and practicalities will in all probability remain largely unaffected.

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