A hard Brexit would leave choice of law rules largely intact, but remove the UK from convenient EU procedures for recognition and enforcement of judgments.
If you have been following the news recently, you might have the impression that apart from being an alleged move to “take back control,” Brexit is really all about fishing rights. And you would not be mistaken, as this is the very issue that could sink the Brexit deal between the United Kingdom and the European Union.
Hence the spectre of a hard Brexit looms large. Analysts (for example at Allianz) are trying now to outdo one another in predicting its impact on trade, as in the past such a situation was unthinkable (although we also remember Theresa May asserting that “no deal for Britain is better than a bad deal for Britain”). But instead of sticking our heads in the sand or praying that things will take an encouraging turn, we have decided to publish a series of articles guiding readers through the issues of judicial cooperation in the event of a no-deal Brexit.
In this article, we lay out the immediate impact on the rules governing choice of law, jurisdiction, and enforcement of judgments in civil and commercial matters.
How have we ended up in this situation?
Let us start with the Withdrawal Agreement between the UK and the EU, a key feature of which is the transition period (from 31 January 2020 until 11:00 pm on 31 December 2020). There has been no agreement to extend it. Until the end of the transition period, EU law will largely continue to apply in and to the UK as if it had remained a member state. Alongside the Withdrawal Agreement, a non-binding Political Declaration was signed, setting out the framework for the post-transition relationship.
Whenever you hear about a “hard Brexit” or “no-deal Brexit,” it is a mental shortcut to describe a situation in which no further agreement is reached by 31 December 2020. Then, for the most part, the World Trade Organization rules will govern the future EU–UK relationship.
There is a real chance that this will be the situation, so let us now see how that theoretical assumption would translate into practice in civil and commercial matters.
What is the applicable law?
The rules for determining choice of law in relation to contractual claims are now contained in the Rome I Regulation (Regulation (EC) No 593/2008 on the law applicable to contractual obligations). Thanks to Rome I, choice of law clauses in contracts are respected throughout the EU. If they also extend to non-contractual obligations, the parties’ choice of law governing any such disputes is covered by the Rome II Regulation (Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations).
What will happen to choice of law clauses in contracts?
The answer can be found in the Withdrawal Agreement. Rome I and Rome II will continue to apply on a reciprocal basis in both the UK and the EU. The only reservation is that this will be the case when it comes to contracts concluded, and torts committed, prior to the end of the transition period.
When the transition period is over, the rules from Rome I and Rome II will be incorporated into UK law. Thus, even a hard Brexit will have little impact in this area. There is no need to replace or change choice of law clauses from this perspective.
As regards choosing English law for contracts, such a choice will continue to be recognised across the EU. The fact that the applicable law may be that of a non-EU member state is not relevant to the applicability of Rome I and Rome II. The only thing to remember is the need to apply mandatory provisions of local law.
How is it determined now which member state’s courts have jurisdiction to decide a civil or commercial dispute?
Currently the rules for determining which court has jurisdiction to deal with a given civil or commercial dispute can be found in the Recast Brussels Regulation (Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)). In most circumstances, it gives primacy to the parties’ choice of forum, and the general rule is that a person domiciled in an EU member state must still be sued in that state unless the case falls within one of the exceptions in the regulation.
Uncertainties of a hard Brexit in jurisdiction
First of all, the Withdrawal Agreement provides that the status quo will be maintained in respect of any proceedings commenced prior to the end of the transition period. Assuming there is no agreement to the contrary, the UK will find itself outside the Recast Brussels Regulation regime as soon as the transition period expires. Contrary to the Rome I and Rome II provisions, the Recast Brussels Regulation rules will not be incorporated into UK law.
The UK intended to immediately join in its own right the 2005 Hague Choice of Court Convention. It is quite similar to the Recast Brussels Regulation, but its scope is not so broad. The biggest advantage of joining the Choice of Court Convention will be preserving the effect of exclusive jurisdiction clauses in favour of the courts of the contracting states, which will soon be the EU, Mexico, Montenegro, Singapore, and the UK. As the accession instrument was deposited in time, the UK ensured that the Choice of Court Convention will apply seamlessly from 1 January 2021.
Things did not go so smoothly with the 2007 Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. The Lugano Convention reflects the original 2001 Brussels I regulation, hence the UK’s decision to apply to join in April 2020, to provide at least some continuity after the transition period. However, there are some considerable differences between the Lugano Convention and the Recast Brussels Regulation, which was adopted to address the pitfalls of the 2001 Brussels I regulation.
The process of accession to the Lugano Convention is much more complex than for the Choice of Court Convention. Long story short, the UK is now past the deadline for depositing the accession instrument for it to enter into force by 1 January 2021. In this context, it is telling that in its Notice to Stakeholders on Brexit and the rules of civil justice and private international law, the European Commission refers to the UK only as a party to the Choice of Court Convention, with no reference to the Lugano Convention. Today, the non-EU contracting states of the Lugano Convention are Iceland, Norway and Switzerland, which is clearly one of its advantages.
Given that the UK’s accession to the Lugano Convention before the end of the transition period appears highly unlikely, with the exception of matters regulated by the Choice of Court Convention, issues of jurisdiction will be determined by the domestic law of the UK and the rules of the remaining member states. Unfortunately, there is a risk of parallel proceedings without the current reciprocal system.
How is a judgment enforced in the EU?
Like jurisdiction, recognition and enforcement of judgments is governed by the Recast Brussels Regulation. Its biggest advantage is a fast and straightforward procedure. Judgments given by courts of EU member states are recognised and enforceable across the EU.
Uncertainties of a hard Brexit in recognition and enforcement
Similar to the area of jurisdiction, the Withdrawal Agreement provides that the status quo will be maintained with respect to judgments obtained in proceedings where the underlying claim was issued prior to the end of the transition period.
The Choice of Court Convention will only regulate the enforcement of judgments secured in one of the contracting states pursuant to an exclusive jurisdiction agreement. This does not mean, however, that there is a specific procedure analogous to the one provided by the Recast Brussels Regulation, and that is a grave disadvantage. Enforcement will be governed by domestic law. In theory a court of a contracting state is required to act “expeditiously,” but what that means will vary depending on the factors weighing on contracting states’ judiciaries.
Given the uncertainty surrounding accession to the Lugano Convention, which provides a much more comprehensive regime of mutual recognition and enforcement of judgments, whenever the Choice of Court Convention does not apply and the proceedings are instituted after the end of the transition period, a judgment will have to be enforced pursuant to the domestic law of the EU member states.
This means that outmoded, time-consuming, complicated, jurisdiction-specific procedural steps will have to be taken. Hence, exequatur proceedings will be needed again for declaration of enforceability, even before enforcement is commenced.
With the exception of choice of law clauses, issues of jurisdiction and recognition and enforcement of judgments are likely to lead to further uncertainty if a hard Brexit indeed takes place. This insecurity may convince many to opt for international arbitration in search of legal certainty.
It is still possible that a new treaty between the UK and the EU will be reached, although such a scenario is unlikely. The problem lies in the UK’s rejection of, among other things, the European Court of Justice’s position on the forum non conveniens doctrine from the common law rules on jurisdiction, and the use of anti-suit injunctions. By contrast, the EU will not be willing to make an exception for the UK when it comes to ECJ jurisprudence in the area of private international law.
In this context, it is important to bear in mind that the UK’s accession to the Lugano Convention would also imply a form of acceptance of the ECJ’s jurisdiction. At the same time, the Lugano Convention is not a simple remedy for the aftermath of a hard Brexit, as, for instance, Lugano proceedings are susceptible to the “Italian torpedo” strategy, which was one of the imperfections of the original 2001 Brussels I regulation.
Piotr Golędzinowski, attorney-at-law, Dispute Resolution & Arbitration practice, Common Law Desk, Wardyński & Partners
Piotr Szczepański, Dispute Resolution & Arbitration practice, Wardyński & Partners