Disputes often have at their core a commercial contract, entered
into between two or more parties, for the supply of goods or
services. Many of the provisions of such contracts will be affected
by the monumental decision reached on the 23 June 2016, by the
United Kingdom; that is to leave the European Union.
Those ancillary parts of the contractual documentation, often
considered to be of lesser importance, will now be front and centre
of a number of commercial disputes. Businesses should take steps
immediately to consider the same and how far their operations are
likely to be effected.
For example, the Recast Brussels Regulation governs the issue of
jurisdiction and provides clarity for parties regarding this thorny
issue. If a specific EU Member State court is named in a contract
then once that court has decided it has jurisdiction, any
proceedings issued in another court are stayed. Similarly, if
the contract is silent and proceedings are issued in a Member State
court, proceedings issued in another court will be stayed. If
the UK leaves the EU, these provisions may cease to apply. It is
currently unknown what legislation the UK will replace these
provisions with. One possibility is an accession to the Lugano
Convention 2007 however, this convention does not achieve the
certainty found in the Recast Brussels Regulation.
The Recast Brussels Regulation also governs the mutual
recognition and enforcement of judgments among EU Member State
courts. If you have a judgment that needs to be enforced in another
EU state, you should take advantage of this procedure whilst it is
In terms of the actual litigation process, the EU Service
Regulation sets out the existing rules regarding the service of
proceedings and associated documents. Again, this may cease to have
effect and the new process may take longer and cost more if
permission from the applicable Member State court is required.
No doubt, queries will arise on how to interpret existing
contracts. If the territory referred to in the contract is the
European Union, this will at some point cease to include the UK.
Variations to contracts may be required but what if these cannot be
agreed upon? It is likely that disputes will arise regarding the
interpretation of contracts and parties may seek to claim that
contracts are frustrated.
The exit of the UK from the EU may affect the profitability of
some contracts and no doubt parties will seek to depart from their
obligations. Will the Brexit be considered a force majeure
event? This argument will depend on the facts, but success cannot
be ruled out.
In terms of the choice of law, English law has long been a
popular choice for companies negotiating contracts based on
international trade. It offers certainty and stability and
our courts have a reputation for commerciality. Will such
choice of law clauses be upheld?
The departure from the EU is unlikely to cause much concern
here. Little of English contractual law is derived from EU
legislation and it is widely believed the English courts will
uphold an English law clause contractually agreed upon. The other
Member States would be bound by the EU legislation still.
We will likely have a two year period to negotiate the
withdrawal of the UK from the EU, however, these issues will become
live very soon.
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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