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Home > News > Governing law, jurisdiction and enforcement of judgments after Brexit

Governing law, jurisdiction and enforcement of judgments after Brexit

16 February 2021 | Hugh Thompson

How has Brexit has impacted cross-border contract disputes?

In this blog, specialist paralegal Hugh Thompson discusses the current state of play now the Brexit transition period has ended.

Hugh will look at how Brexit has impacted cross-border contract disputes with a European element are handled, affecting governing law, jurisdiction and enforcement of judgements, albeit to different extents.

 

GOVERNING LAW

If you are planning on entering into a European Contract you may be assured that your choice of law will be upheld by EU member states (e.g. whether you have chosen UK law or local law to your counterparty). This is because relevant parts of the Rome I and II Regulations[1] have been retained in UK law and are universally applicable. This means EU member states must generally respect the governing law clause in a European Contract whether it is the law of an EU member state or a ‘third country’ such as the UK now it is no longer an EU member state.

[1] These are EU laws passed in the 2000s designed to harmonise rules governing choice of law across EU member states in respect of contractual and non-contractual obligations

 

JURISDICTION

If you are planning on entering into a European Contract, our current position is to recommend that the jurisdiction clause of the Contract is exclusive i.e. to make any disputes over the European Contract subject to the exclusive jurisdiction of the courts of England and Wales. This is because the UK has acceded to the Hague Convention on Choice of Law Agreements (Hague Convention) with effect from 01 January 2021. All EU27 member states are party to the Hague Convention, and so they should all respect a European Contract with an exclusive jurisdiction clause in favour of the English courts.

However, the UK being a party to the Hague Convention alone does not prevent an EU based counterparty to your European Contract committing what’s called ‘the Italian torpedo’ i.e. causing delay and inconvenience to you by initiating proceedings against you under the European Contract in its own EU State. When the UK was a member of the EU, the Recast Brussels Regulation applied to it and under that if ‘the Italian torpedo’ was committed, the court of the applicable EU member state would be obliged to stay the proceedings.  The UK is taking steps to address this and has applied to join the Lugano Convention, to which all EU27 member states are signatory, however, this is conditional on consent of all signatories to the Convention so it is a matter of watch this space. In the meantime, we recommend you take specific advice to address this potential issue.  

 

ENFORCEMENT OF JUDGMENTS

Enforcing an English court’s judgment in respect of a European Contract against the EU-based counterparty is now more complicated compared to when the UK was a member of the EU. This is because the UK no longer benefits from the Recast Brussels Regulation, which amongst other things established a straightforward framework for enforcing English court judgments against EU-based counterparties.  

The UK’s accession to the Hague Convention provides you with some protection, however under it you would not be able to enforce an interim injunction or freezing order granted by an English court in respect of your European Contract. In addition, enforcing English court judgments in respect of a European Contract under the Hague Convention is largely untested (when the UK was an EU member state, UK-based parties would have relied on Recast Brussels Regulation).  However, this is somewhat ameliorated by the fact that English courts have more powerful tools (such as forced disclosure) to enforce English court judgments than any EU member state.

The UK is attempting to address this by acceding to the Lugano Convention, however this is an ongoing project (see JURISDICTION above).

In addition to this uncertainty, the UK has several bi-lateral treaties with certain European countries regarding enforcement of judgements which are expected to remain in full force and effect, and several countries have their own local laws in relation to it.

Whilst previously when the UK was an EU member state, Jurisdiction and Dispute Resolution clauses in European Contracts were treated as ‘boilerplate’ (i.e. standard), this can no longer be the case. Each time you plan to enter into a European Contract, these clauses need to be carefully considered and drafted appropriately taking into account all the relevant factors including:

  1. the location of your EU/European counterparty
  2. whether the UK has any agreement with the country where the counterparty is based concerning enforcement of foreign judgments; and
  3. any local laws of that country concerning enforcement of foreign judgments.

Therefore, we strongly recommend that you take advice from your solicitor, who may recommend that you also need to take specific local law advice. Your solicitor should be able to obtain this for you.

 

ARBITRATION

An option which is becoming increasingly popular is international arbitration in place of traditional dispute resolution by the courts. International arbitration is governed by the New York Convention (and the Arbitration Act 1996) which remains unaffected by Brexit or the end of the transition period. Depending on the nature of your European Contract and other relevant circumstances, including an arbitration clause instead of a dispute resolution clause may be appropriate (if possible). However, this will require a careful evaluation of the various attractions and drawbacks of arbitration and court litigation taking into account your specific circumstances.

 

[1] These are EU laws passed in the 2000s designed to harmonise rules governing choice of law across EU member states in respect of contractual and non-contractual obligations.

 

Expert Brexit legal advice

GL Law’s Corporate and Commercial team specialises in reviewing, negotiating, drafting, and advising on a range of cross-border commercial contracts, and its Dispute Resolution team specialises in commercial contract disputes. For further information, please contact call 0117 906 9400 or email hello@gl.law

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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