Matheson Post-Brexit Guide To Cross-Border Disputes - Arbitration & Dispute Resolution

For parties involved in cross-border civil disputes, the departure of the UK from the EU gives rise to a number of issues. The post-Brexit EU-UK Trade and Cooperation Agreement (the "TCA") was agreed at the eleventh hour on 24 December 2020 and governs the immediate future relationship between the EU and the UK from 1 January 2021. Whilst it includes provisions for legal services, notably absent from the TCA are any provisions dealing with the mutual recognition of UK judgments or broader judicial cooperation.

This, in many ways, impacts more on aspects of litigation than the EU and UK's new trade deal, in particular, around the issues of jurisdiction, and the recognition and enforcement of judgments. In both of these areas, a relatively hard Brexit is now the reality and parties need to be aware of the ramifications these changes present.

We are almost two months on from the conclusion of the TCA and there is no further update on whether the EU will allow the UK to accede to the Lugano Convention. The UK applied to join in April 2020 and the contracting parties (the EU, Iceland, Norway and Switzerland) have a year to make a decision, which must be unanimous. The non-EU contracting countries have supported the UK's accession. So far, the EU has not.

With this in mind, we are pleased to bring your our guide, which is intended to explain in simple terms the landscape for international and cross-border disputes involving the UK post-Brexit, in particular in relation to what the practical implications of these developments are for parties with a preference for English law and jurisdiction.

The guide looks at:

jurisdiction;
recognition and enforcement of judgments;
whether the effectiveness of arbitration and governing law clauses is impacted;
the impact on issues such as service of proceedings and taking of evidence; and
what the practical implications of these developments will be for parties with a preference for English law and jurisdiction clauses and what steps you can take to mitigate against potential difficulties in this regard in the future.

Jurisdiction Clauses

The Brussels Regime¹ (which applies to EU member states) and the Lugano Convention² (which applies between EU member states and EFTA³ states) set out clear jurisdictional principles to avoid a multiplicity of actions in a number of jurisdictions. These treaties no longer apply to the UK for proceedings commenced after 31 December 2020.⁴

The TCA therefore represents a relatively hard Brexit in relation to the question of jurisdiction. As a result, where the Hague Convention⁵ (dealt with below) is not applicable there is a possibility of parallel proceedings between the UK and the EU which could lead to inconsistent judgments in different jurisdictions.

Questions of jurisdiction in civil and commercial matters across EU member states are now dependent on rules of private international law (which in Ireland is based on the common law) unless they relate to proceedings to which the Hague Convention applies.

The Hague Convention provides for the allocation of jurisdiction to courts of contracting states but is much more limited in scope. The contracting states are the EU, Mexico, Montenegro, Singapore and the UK (as of 1 January 2021). (No EFTA country has acceded to the Hague Convention as yet.) For the Hague Convention to apply:

There must be an agreement in place between the parties to the dispute containing an exclusive choice of court agreement. This is generally understood⁶ not to include asymmetric or unilateral jurisdiction clauses.⁷
The choice of court agreement must have been entered into after the accession date (ie after 31 December 2020).⁸ In order to minimise disruption, parties to contracts entered into during this period may wish to consider restating or re-executing any jurisdiction clause contained therein.
Only judgments on the merits are covered. It is not therefore possible to seek enforcement of interim rulings as would be the case under the Brussels Regime.
The subject matter of the proceedings must come within the scope of the Hague Convention.

Article 26(6) of the Hague Convention provides that where neither party is domiciled in the UK (or another non-EU Hague contracting state, ie Mexico, Singapore and Montenegro) the rules of Brussels Recast will take precedence.⁹ Articles 33 and 34 of Brussels Recast have been interpreted to mean that an EU court only has discretion to stay its proceedings in favour of identical or related proceedings in a foreign court where the foreign proceedings were first in time and not otherwise (regardless of whether the parties contractually agreed to the jurisdiction of that foreign court).¹⁰ This clearly casts doubt on the effectiveness of English exclusive jurisdiction clauses where proceedings are commenced first in an EU member state and where neither party is domiciled in the UK or another Hague Convention contracting state that is not an EU member state (for example where both parties are EU domiciled).

Therefore, in cases where the Hague Convention does not apply, and where an Irish defendant has submitted to the jurisdiction of a foreign (ie non EU/EFTA) court, an Irish court will first consider whether it has any basis for jurisdiction under Brussels Recast. If so, Brussels Recast will take precedence. If not, the court will apply common law principles in determining whether or not to decline jurisdiction.

As a matter of common law, the court will apply the doctrine of forum non conveniens pursuant to which the court may in its discretion decline to exercise its jurisdiction in circumstances where it considers that, for the convenience of the parties and in the interests of justice, an action should be brought elsewhere. The court will usually exercise its discretion to secure compliance with an exclusive jurisdiction agreement in the absence of a strong reason for departure from it.

Although the UK has applied to accede to the Lugano Convention in its own right, it is unlikely that there will be a decision on whether or not to give the required consent before April 2021 at the earliest. Furthermore, while the Lugano regime is very similar to the Brussels Recast, there are nevertheless some important differences that can and will have a significant practical impact in post-Brexit litigation. For example, it would not prevent the infamous "Italian torpedo" tactics¹¹ in parallel proceedings, which Brussels Recast has addressed.

Recognition and Enforcement of Judgments in Civil and Commercial Matters

Recognition and enforcement of judgments covered by the Brussels Regime and the Lugano Convention is very straightforward (and is in fact automatic where Brussels Recast applies). What constitutes a judgment under those instruments is broadly defined and includes orders or judgments in the nature of injunctions and costs determinations as well as interim orders.

For legal proceedings commenced prior to 1 January 2021, the Brussels Regime and Lugano Convention will continue to apply. However, these treaties no longer apply to UK proceedings commenced after 31 December 2020.

The TCA therefore represents a relatively hard Brexit in relation to the question of recognition and enforcement of UK judgments. The Hague Convention acts as somewhat of a fall-back. However, it is much more limited in its scope than the Brussels Regime.

This means that (where the Hague Convention does not apply) recognition and enforcement of UK judgments across the EU is dependent on domestic rules of private international law, which in Ireland is based on its common law. As a matter of common law, recognition and enforcement of a foreign judgment in Ireland is discretionary and only possible where the judgment is final and conclusive and involves a fixed monetary amount. In addition, other considerations such as questions of jurisdiction and public policy may also be relevant to whether it will be recognised and enforced. Enforcement of UK judgments in other EU jurisdictions will similarly depend on their domestic rules on the enforcement of foreign judgments, which may differ between jurisdictions.

Recognition and enforcement of non-final or non-money judgments (e.g. declaratory orders) are not facilitated at common law, rendering it necessary to bring fresh proceedings in Ireland in which the foreign judgment or order forms the basis of the action.

If UK judgments are obtained against corporations with assets spread across the EU, it will potentially be necessary to make separate applications for enforcement in each EU member state. Given that not all member states will have the same procedures or rules in relation to the enforcement of such judgments, this brings with it added uncertainty, complexity and cost that would not exist if judgment has been obtained in an EU member state.

Arbitration

The effects of Brexit do not extend to arbitration, meaning that UK-based arbitration clauses will continue to have full effect. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which EU Member States and the UK are signatories, governs the enforcement of arbitral awards and maintains the status-quo in this area. This may result in arbitration becoming a more attractive option for dispute resolution than litigation, at least until some of the issues set out elsewhere in this guide have crystallised.

Governing Law Clauses

The status quo remains unchanged with regard to governing law in contractual and non-contractual matters concerning UK parties. This is by virtue of the fact that (i) the Rome I¹² and Rome II¹³ Regulations have been incorporated into UK domestic law by the European Union (Withdrawal Act) 2018 and (ii) EU member states will continue to abide by Rome I and Rome II.

Pursuant to Rome I (on the law applicable to contractual claims) and Rome II (on the law applicable to non-contractual claims), the law specified in the contract shall be applied, whether or not it is the law of an EU Member State and regardless of whether one of the parties is from outside the EU.

Non-EU courts will continue to decide whether or not to recognise choice of law clauses by reference to their own domestic rules or bilateral treaties post-Brexit.

What can I do to mitigate against the risks of litigation in the UK post 31 December 2020?

Certainty is a necessity in commercial transactions. In order to minimise disruption, should businesses with a preference for English law and jurisdiction clauses revisit that preference? For parties to contracts entered into pre 1 January 2021, where the choice of jurisdiction is England, some things to consider include the following:

(a) Restate or re-execute any choice of court clause contained therein and ensure that it contains an exclusive jurisdiction clause that is not asymmetrical or unilateral in nature in order to ensure any proceedings arising will be covered by the Hague Convention. While the Hague Convention is not as comprehensive or effective as the Brussels Regime, it is nevertheless helpful.

(b) Choose an alternative jurisdiction within the EU in which to litigate disputes. If the counterparty has assets in other jurisdictions and you would like to preserve the option of additionally enforcing a judgment in another EU or EFTA country, you should consider including an exclusive jurisdiction clause in favour of Ireland or another EU Member State, so that you can avail of Brussels Recast or the Lugano Convention. (Ireland, as the largest English-speaking, common law jurisdiction remaining in the EU, will offer an attractive alternative jurisdiction in which to litigate international commercial disputes post-Brexit. For example, the International Swaps and Derivatives Association, Inc. (more commonly referred to as "ISDA") has already added an Irish (and a French) law version to its 2002 ISDA Master Agreement. Prior to that, ISDA's documentation offered participants in cross-border derivatives markets a choice of only two governing laws, English law or New York law. Post-Brexit, the availability of the Irish law ISDA Master Agreement will enable parties to continue to transact derivatives under the laws of an EU member state that is a common law jurisdiction and to benefit from the automatic recognition and enforcement of judgments between EU member states).

(c) Include an alternative dispute resolution mechanism instead, such as arbitration. Cross border enforcement processes for arbitration awards are not affected by Brexit.

Service of proceedings

For documents received prior to 31 December 2020, the EU Service Regulation¹⁴ will continue to apply. Thereafter, the Hague Service Convention¹⁵ will apply as between the UK and EU Member States. All 27 EU member states are currently signatories to the Hague Service Convention.

The EU Service Regulation provides for the service of documents by public authorities (or "Transmitting Agencies") in foreign jurisdictions, as well as providing for proof of service in the form of a certificate issued by the relevant public authority. The Transmitting Agency in Ireland is the Combined Court Office, Castlebar, County Mayo.

The Hague Service Convention, broadly speaking, provides a similar framework to that of the EU Service Regulation. Under the Hague Service Convention each contracting state designates a "Central Authority" which will be responsible for receiving and executing requests for service originating in other contracting states.¹⁶ The designated Central Authority in Ireland is the Master of the High Court.¹⁷

The primary impact which parties are likely to experience following the change from the EU Service Regulation to the Hague Service Convention is in the length of time it takes to have documents served. Under the EU service Regulation, Transmitting Agencies were required to serve documents within a month of receiving them.¹⁸ The Hague Service Convention does not contain any similar time limit, meaning increased delays in the service process are anticipated.

It may therefore be advisable for parties to appoint authorised agents within the jurisdiction where proceedings are to be commenced or to include a process agent clause in contracts with their UK counterparties. For example, an EU based party may wish to nominate UK solicitors to accept service on its behalf (and vice versa), thus avoiding the Hague Service Convention procedures. In the absence of these measures, Irish parties will need to ensure that the provisions of the Hague Service Convention are complied with when serving proceedings on UK based parties and vice versa. Failings in this regard will lead to a risk of service being deemed invalid at a later stage and the potential for further delay or proceedings being struck out.

Taking of evidence

With regard to the taking of evidence, requests for evidence received before 1 January 2021 will continue to be covered by the provisions of the EU's Taking of Evidence Regulation¹⁹, which governs judicial cooperation between Member States in this area. The CJEU will also continue to have jurisdiction to give preliminary rulings on requests from UK courts and tribunals before this time. The Taking of Evidence Regulation allows for direct contact between courts of Member State jurisdictions, without recourse to diplomatic or consular channels. It also provides for a standardised request form, improving universal recognition of such requests.

From 1 January 2021 the UK will instead deploy the Hague Evidence Convention²⁰ with regard to requests made for the taking of evidence. However, the Hague Evidence Convention has not been ratified by and does not therefore apply with regards to Ireland²¹, Belgium or Austria. Courts in these states do not have jurisdiction to entertain applications pursuant to the Hague Evidence Convention. Instead, "letters rogatory" will have to be sent to the respective national courts via diplomatic channels. As with the position on service, this change in regime represents a somewhat less straightforward process for parties seeking to request evidence.

Footnotes

1. Included in this is Brussels Regulation (Regulation (EC) No 44/2001) (for proceedings commenced before 10 January 2015) and Brussels Regulation (Regulation (EU) No 1215/2012) ("Brussels Recast") (for proceedings commenced on or after 10 January 2015).

2. Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters 2007.

3. Norway, Switzerland and Iceland.

4. The Withdrawal Agreement provides for certain transitional arrangements regarding English jurisdiction including that the Brussels Regime and the Lugano Convention will apply to proceedings commenced before 1 January 2021.

5. Hague Convention on Choice of Court Agreements of 2005.

6. Certain English judges have expressed the view, obiter, that there are "good arguments" that choice of court agreements should be regarded as exclusive under the Hague Convention. However, the explanatory report that accompanied the Hague Convention, case law in the EU, a report by the Financial Markets Law Committee and academic commentary all suggest the opposite.

7. These types of clauses are a common feature in finance documents. They generally give one contracting party (the lender) the choice of a range of courts in which to sue, while limiting the other party (the borrower) to the courts of a single state (usually the lender's home state).

8. The UK has taken the position that it has been a contracting state to the Hague Convention, without interruption, since 1 October 2015 and has, for its part, passed a statutory instrument requiring its courts to apply the Hague Convention to contracts entered into between 1 October 2015 and 31 December 2020. However, the EU Commission is of the view that the Hague Convention does not apply to contracts entered into during this period. In such circumstances, where neither the Hague Convention nor the Lugano Convention apply, EU Member State courts would enforce their own conflict of law rules. This has the potential to lead to differing results between jurisdictions and increased uncertainty and cost for contracting parties.

9. See Article 26(6) of the Hague Convention. Article 26(5) provides that it shall not affect the application by a Contracting State of a treaty, whether concluded before or after the Hague Convention, for the purposes of obtaining recognition or enforcement of a judgment given by a court of a Contracting State that is also a Party to that treaty. Therefore it does not apply to proceedings governed by the Brussels Regime or Lugano Convention.,

10. See Gulf International Bank BSC v Andwood [2019] EWHC 1666 (QB).

11. This means that the court first seised does not in principle have to stay its proceedings pending the outcome on jurisdiction in another jurisdiction.

12. Regulation (EC) No 593/2008 of the European Parliament and of the Council on the law applicable to non-contractual obligations (Rome I).

13. Regulation (EC) No 864/2007 of the European Parliament and of the Council on the law applicable to non-contractual obligations (Rome II).

14. Regulation (EC) No 1393/2007 of the European Parliament and of the Council on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters.

15. The Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

16. A list of these Central authorities can be obtained from the Master of the High Court in Ireland, or alternatively at www.hcch.net.

17. Order 11E, Rules of the Superior Courts.

18. This process is expected to be further streamlined with the anticipated introduction of the EU Recast Service Regulation on 1 July 2022, which will provide for electronic service of documents.

19. Regulation (EC) No 1206/2001 on cooperation between the courts of the EU countries in the taking of evidence in civil or commercial matters.

20.Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters.

21. The taking of evidence in Ireland for the assistance of courts outside the EU remains governed by the Foreign Tribunals Evidence Act of 1856.

Originally published 22/02/2021

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.

Ireland: Matheson Post-Brexit Guide To Cross-Border Disputes