European Union: What Impact Will Brexit Have On Arbitration?

Introduction

Arbitration, and particularly commercial arbitration, is unlikely to be affected by Brexit.  That is so regardless of whether there is a negotiated exit or a no deal scenario.  Commercial arbitration is a creature of contract, in terms of the agreement to arbitrate and the applicable procedures.  That will not be affected by Brexit.  The law of the seat of the arbitration will also continue to apply, post-Brexit, to the supervisory jurisdiction of the courts.  The recognition and enforcement of arbitration awards is governed by an international convention, known as the New York Convention, rather than the EU regulations that govern the enforcement of court judgments.  That will continue to be the position post-Brexit and may in fact lead to a greater use of arbitration given potential uncertainties around the enforceability of UK judgments.

However, depending on whether there is a negotiated exit or a no deal scenario, there are two instances where the UK’s departure from the EU may have an impact: (i) the availability of anti-suit injunctions (ie, injunctions restraining foreign court proceedings in favour of arbitration), and (ii) the UK’s capacity to enter into intra-EU investment treaties providing for investor-State arbitration.

Negotiated Exit

If the Withdrawal Agreement applies, Article 89 provides that the decisions and orders of the CJEU remain binding on the UK during the transition period (to 31 December 2020).

EU case law confirms that there is general prohibition on anti-suit injunctions being granted against proceedings in an EU Member State.  That prohibition applies even if the court proceedings were commenced in breach of an arbitration agreement.  Similarly, following recent case law, the EU Commission announced that investor-State arbitration agreements to resolve intra-EU investor-State disputes are illegal.

Accordingly, anti-suit injunctions, even to restrain proceedings in breach of an arbitration agreement, will not be available during the transition period.  In addition, the UK’s capacity to enter into intra-EU investment treaties providing for investor-State arbitration will be precluded during that period.  However, it remains to be seen what arrangement will be reached thereafter.

No Deal Scenario

If the UK leaves the EU with no deal, the UK will not be bound by decisions of the CJEU.  The UK courts could therefore resurrect the use of anti-suit injunctions, including to prevent parties commencing court proceedings in an EU Member State in breach of an arbitration agreement.  The courts of EU Member States would also be free to grant anti-suit injunctions restraining a party from bringing an action in the English courts.  There may, however, be question-marks over (i) whether such injunctions would be enforced, and (ii) the enforceability of an arbitration award obtained after the granting of such an injunction.  In addition, the UK’s capacity to enter into investment treaties with individual EU Member States providing for investor-State arbitration will no longer be precluded.

These changes could make the UK a more attractive jurisdiction for arbitration and from which investors (including from the EU) could invest into EU Member States (or the EU itself).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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