25 Jul 2016

Disputes about existing contracts

The UK exit may impact upon existing contracts particularly those based upon EU legislation.  Parties may try to avoid contractual obligations or renegotiate a contract. With regard to existing contracts (that govern relationships beyond the two-year window before the UK formally leaves the EU), parties should review relevant clauses such as force majeure and material adverse change. Parties may consider including a 'Brexit' clause in any new contracts so that the parties agree in advance what will happen in the event of a UK exit.

Disputes about English law

A UK exit will mean that some English law may be repealed or amended.  This may lead to a period of uncertainty over both UK legislation and how pre- exit EU case law impacts upon the UK courts' post-exit. These uncertainties are likely to lead to disputes.

Jurisdiction and enforcement

Unless decided otherwise the UK exit will mean that the Recast Brussels Regulation will not apply to the UK. The Recast Brussels Regulation provides that member state courts apply the same rules in relation to jurisdiction and recognition and enforcement of member state court judgments in most civil and commercial matters.The automatic recognition and enforcement of judgments and equality of treatment between a domestic judgment and member state judgment will no longer automatically apply between the UK and remaining member states post exit.

It may be that the UK and EU enter into a parallel arrangement on the same/similar terms as the Recast Brussels Regulation. Alternatively some or a combination of the following regimes may apply:

  • English domestic rules on jurisdiction and enforcement of judgment
  • The Brussels Convention (predecessor to the Brussels Recast Regulation and there is some discussion that post Brexit this Convention could apply between the UK and remaining member states)
  • The Lugano Convention 2007 (subject to UK accession). The Lugano Convention applies between EU member states, Norway, Switzerland and Iceland and provides a very similar regime to the Brussels Recast Regulation regarding jurisdiction and the recognition and enforcement of judgments
  • The Hague Convention on Choice of Court Agreements 2005 (subject to UK accession). This provides for the allocation of jurisdiction and for the recognition and enforcement of judgments where parties have agreed to an exclusive jurisdiction clause in favour of a contracting state. This applies between EU member states (excluding Denmark) and Mexico.  From 1 October 2016 it will also apply to Singapore.  For matters purely between EU member states the Recast Brussels Regulation applies.

Unless an agreement is reached the UK exit will mean that there will be no automatic enforcement of judgments between the UK and EU.  Without such agreement enforcement between the UK and remaining EU Member States is likely to take longer, cost more and generally be more difficult.

The current protection against EU parallel proceedings will not apply on a UK exit. If the UK accedes to the 2007 Lugano Convention, some protection against EU parallel proceedings will apply, however not the recent changes introduced by the Recast Brussels Regulation giving precedence to the courts of the country that the parties have agreed have exclusive jurisdiction (blocking the tactic known as an 'Italian torpedo').

Parties with an English jurisdiction clause concerned about enforcement within member states would be advised to make sure that they have an exclusive English jurisdiction clause.

Governing law

On exit the EU-wide rules for determining which national law applies in civil and commercial matters involving more than one country, contained in the Rome I (the law applicable to contractual obligations) and Rome II (the law applicable to non-contractual obligations) Regulations, will not apply in UK courts.  It may be the government decide to continue with the current rules but with the English courts taking the role of the Court of Justice of the EU (CJEU).  Alternatively they could revert to the pre-Rome I and II rules contained in the Rome Convention (contractual obligations) and the Private International Law (Miscellaneous Provisions) Act 1995 (non-contractual obligations). The Rome Convention is very similar to Rome I and most commercial contracts contain an express choice of law clause in any event. However the old rules governing non-contractual obligations do not allow parties to choose the law that applies to non-contractual relations which may lead to a different conclusion that that under Rome II.

The remaining EU member states will continue to apply Rome I and II. 

Service

The UK exit will mean that the EU Service Regulation (allowing service of judicial documents between Member States without recourse to consular and diplomatic channels) will not automatically apply and permission to serve proceedings out of the jurisdiction may be required. This will increase the time and cost of service out of the jurisdiction. Parties doing business with non-English parties should make sure they appoint an agent for service in England where they have agreed to the jurisdiction of the English courts.

Anti-suit injunctions

The English courts may issue anti-suit injunction if the court of a remaining member state fails to recognise an English jurisdiction clause.  Since 2004 these injunctions have not been allowed by the CJEU.

Arbitration

The UK will remain a party to the New York Convention (The Convention on the Recognition and Enforcement of Foreign Arbitral Awards). The English courts may decide that they can issue anti-suit injunctions to protect a London Arbitration as the West Tankers case (which prevented anti-suit injunctions in support of arbitration) was a decision of the CJEU.