European Union: Brexit: Impact On Cross-Border EU Litigation

Last Updated: 17 August 2016
Article by Adam Greaves

Summary and implications

The triggering of Article 50 of the Lisbon Treaty will commence the two-year period for the UK government to negotiate its exit from the European Union. It is only once these negotiations have concluded that we will be closer to determining what shape a post-Brexit UK might take. The date for Brexit could be as late as 2020.

Whatever form Brexit takes, businesses should not adopt a "sit and wait" approach. Throughout this lengthy period of negotiations, businesses must be proactive in mitigating Brexit-related risk, particularly when it comes to cross-border commercial disputes.

Continuing benefits of London as a forum to resolve disputes

Historically, London has been an attractive city in which to resolve cross-border disputes and this is unlikely to change post-Brexit. England's precedent-based system of law and London's highly experienced judiciary and international, commercially focused legal community mean that it should remain one of the best venues for litigation and alternative dispute resolution in the world.

Expected changes

EU law

EU legislation has been enshrined in UK law for decades and is highly significant when it comes to dispute resolution in the UK. EU law has had a useful streamlining effect on cross-jurisdictional disputes, creating certainty as to where disputes are heard and which laws apply. Without it, it is likely that service will be slower, issues of forum and law less certain, and enforcement more complicated.

Existing EU legislation, such as the Recast Brussels Regulation and the EU Service Regulation ensures certainty, in particular in relation to governing law, jurisdiction, mutual recognition and enforcement. The UK will now need to make difficult decisions about which EU legislation should be retained. EU directives, which are implemented into domestic legislation, will automatically remain unless an express decision is taken to repeal them. EU regulations, however, which are directly applicable to member states will most likely fall away unless the UK agrees to preserve them. It is likely that the majority of EU laws will simply be adopted so that they continue to apply, unless specifically changed by the UK government.

The European Court of Justice (ECJ) currently has sovereignty over the UK courts on points of European law. It is uncertain how ECJ precedents will be interpreted post-Brexit. What is more certain is that individuals seeking to appeal a decision made in the UK will no longer be able to appeal to the ECJ, as the UK's Supreme Court will become the final decision-making court unless otherwise agreed. This may ultimately save substantial time and expense in connection with the small proportion of English commercial cases that are currently referred to the ECJ.

Service

Under the EU Service Regulation, if proceedings are brought in England and Wales against an EU counter-party, permission of the English court to serve proceedings on a defendant in another member state is not generally required. Post-Brexit, serving court documents outside of England and Wales will be more complicated where no agreements for reciprocal service are in place. Parties will therefore need to consider how they will effect service by, for example, appointing a process server in the relevant jurisdiction.

Choice of law

The current Rome I Regulation provides that the courts will uphold the parties' choice of law clause in the event of a dispute arising out of that contract. If there is no such clause, the country in which the opposing party is based should deal with the dispute (subject to certain exceptions). Without this regulation, parallel proceedings may occur in separate member states unless the UK government agrees legislation preventing this.

Jurisdiction

The Recast Brussels Regulation sets out which EU member state courts have jurisdiction in civil and commercial disputes (as well as the principles of mutual recognition and enforcement of judgments). In the absence of this regulation, the UK may become a party to the Lugano Convention in its own right (which would ensure judgments are enforceable in Europe) and/or the Hague Convention on Choice of Court Agreements 2005. Alternatively, the UK may revert to principles of forum conveniens.

For further analysis on the potential changes to jurisdiction following Brexit, please see Jonathan Scrine's article, Brexit: implications for EU litigation rules.

Enforcement

The Recast Brussels Regulation also provides a straightforward procedure for enforcing judgments across all EU member states. Following Brexit, it may become more difficult to enforce judgments in EU countries as the procedure may vary between member states. Local legal advice may be required, for example, as to how to enforce a court order.

The potential changes to the enforceability of court judgments are discussed in further detail in Jonathan Scrine's article.

Mutual recognition

Currently, an EU member state will mutually recognise and enforce judgments given in another member state without the need for cases to be reassessed. This minimises the risk that a judgment will be unenforceable in another EU member state. Without this, British judgments may no longer be automatically recognised by EU courts.

European small claims procedure

This EU law procedure simplifies and removes barriers to the recognition and enforcement of civil and commercial claims not exceeding €2,000. Without this procedure, it is likely that parties will decide it is not cost-effective to pursue small claims.

Existing litigation

Although Brexit should not have a direct effect on domestic disputes or on cases which are currently before the courts, the UK's decision to leave the EU may have an immediate effect on the behaviour of litigants due to financial uncertainty.

Parties may be reluctant to continue or embark on litigation or they may be incentivised to reach a judgment, make settlement offers earlier or settle legal bills in GDP sooner to take advantage of any decline in the UK economy. The High Court pilot schemes for shorter and flexible trials, which are designed to expedite judgments, may also become more popular.

Claimants with existing disputes involving parties in EU member states may want to accelerate proceedings so that any they can take advantage of choice of law, enforcement and judgment mechanisms under the current EU regime. Defendants, on the other hand, may want to delay matters to take advantage of the prevailing uncertainty.

Future litigation

The impact on future litigation in the UK is uncertain and depends to a large extent on what is negotiated by Theresa May and her Department for Brexit.

If the UK applies a framework with its own rules on governing law and jurisdiction post-Brexit, there is a risk that parallel proceedings will be commenced in the UK and an EU member state. Such a framework might conflict with EU laws, resulting in conflicting judgments, with the risk that judgments are not recognised or enforced in the defendant's jurisdiction. Without the certainty of the EU legislation mentioned above, parties may consider that the risk of commencing cross-border litigation with EU counter-parties is too great, the process being too complex, time-consuming and expensive, making it commercially unjustifiable.

Arbitration

It is in this context that the benefits of arbitration may be amplified. Indeed, the recognition and enforcement of arbitral awards (the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards) will not be affected by Brexit. Arbitration clauses are already being increasingly used in contracts. It is therefore likely that arbitration will become an even more popular forum to resolve disputes following Brexit.

What can businesses do to mitigate the impact of Brexit on cross-border litigation in the EU?

Businesses should identify and minimise risks arising from dealing with businesses in EU member states at an early stage, by, for example, starting proceedings now to obtain a judgment (and enforce any court order) prior to Brexit, or look to alternative dispute resolution methods to accelerate the conclusion of existing disputes.

Contractual disputes surrounding Brexit are inevitable. Existing contracts should be kept under close review as the UK negotiates its withdrawal from the EU to ensure that parties' rights, particularly in relation to jurisdiction and enforcement, are not jeopardised. Businesses should also check existing contracts to see whether any force majeure or material adverse change clauses have been triggered and whether there is any potential for contracts to be frustrated or terminated by changes in the law. Governing law and jurisdiction clauses in new contracts should also be carefully considered and agreed to avoid any Brexit-related disputes arising in the future.

Conclusion

It is difficult to predict with any certainty the political, social and economic picture of a post-Brexit UK and much of this will depend on the strength of the UK in its withdrawal negotiations with the EU.

In the midst of all this legal uncertainty, it is more important than ever for businesses to anticipate, plan for and manage the resolution of commercial disputes. Businesses need to keep their positions under careful review and consider whether they should revise their approach to any ongoing, pending or future cross-border EU disputes, or whether they should consider pursuing alternative dispute resolution methods, such as arbitration.

This briefing was prepared by Nabarro trainee Stefanie Day.

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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