“Brexit”: Potential implications of the vote to leave on dispute resolution in the UK
Suffice it to say it is not yet known what the precise mechanics for leaving will be or what model will then be adopted to govern the UK-EU relationship post-Brexit. Neither the UK nor the EU has indicated what might be proposed in negotiations. However it is clear that whichever model is chosen, the UK will face a significant process of review and revision of EU-derived laws.
Article 50 of the Treaty on European Union (as amended by the Lisbon Treaty) sets out the mechanism by which a member state can leave the EU. It provides for a transitional period of two years following formal notification, in which negotiation can take place before the UK officially withdraws. There is the possibility of a further extension but this must be agreed unanimously by the EU Member States.
The EU treaties will continue to apply until an agreement is made. Should an agreement not be made before the expiry of the negotiating period then membership ends automatically. During this time the UK will continue to have the same rights and obligations under EU law. Therefore the legal implications are unlikely to be immediate. However, for those who may be involved in a current dispute with a business or individual within the EU or who may face the prospect of a potential legal dispute during this transitional period, it is worth considering what the likely options might be and what potential impact Brexit may have on the conduct and management of litigation where there is a cross border element within the EU.
Service of proceedings
Under the Recast Brussels Regulation, the basic position is that where the UK has jurisdiction, permission to serve proceedings outside of the jurisdiction (i.e. in another EU Member State) is not required. If the UK does not negotiate for the continued application of these rules, the cost and time involved in effecting service out of the jurisdiction is likely to increase. Therefore if you have a potential claim against a prospective defendant situated within the EU, it may be better to issue and serve those proceedings sooner rather than later whilst the current rules apply. If you are planning to enter into an agreement with a European entity or individual where the English courts are to have jurisdiction in the event of a dispute, then it would be advisable to require that an agent for service in England be appointed.
Choice of Governing Law
The UK is currently subject to the Rome I Regulations regarding the choice of law applicable to contractual claims, which provides that the courts will uphold the parties’ choice of law clause. Following Brexit, the UK will need to decide whether it falls back on the Contracts (Applicable Law) Act 1990 which previously dealt with conflicts of laws or incorporate the Rome I Regulation into UK law. It is not anticipated that Brexit will have a significant impact on the choice of law, as the UK is likely to continue to uphold the parties’ choice or in the absence of such choice adopt similar rules as those currently in force to determine the law which will apply.
Jurisdiction and Enforcement
As part of the EU, the UK is currently party to the EU Recast Brussels Regulation and the international 2007 Lugano Convention, which contain common rules that the UK courts must apply in relation to accepting jurisdiction over a dispute and the mutual recognition and enforcement of judgments given in other EU States.
The EU Recast Brussels Regulation introduced protection against parallel proceedings whereby if the parties have agreed to submit their disputes to the exclusive jurisdiction of the courts of a particular Member State, the court of that Member State will have priority even if it is not the first court in which proceedings have been commenced. One option might be for the UK to sign the Lugano Convention in its own right (at present the EU as a whole is a signatory to the Convention). Although signing up to the Lugano Convention would provide some jurisdictional protection from parallel proceedings it does not provide the enhanced protections which the EU Recast Brussels Regulation incorporates.
Under the present regime, judgments obtained in the UK may be enforced in EU Member States (and vice versa) with only minimal formalities. Following Brexit, the arrangements in relation to the enforcement of judgments will need to be replaced to prevent judgments made in the UK becoming less effective in Europe. If the UK does not adopt a suitable alternative, it may find that international parties commence proceedings in an EU Member State instead, where pan-European enforcement is needed. Alternatively, parties may increasingly opt for arbitration. Given that the UK is a party to the New York Convention on the recognition and enforcement of foreign arbitral awards in its own right, Brexit should not affect arbitrations in the UK.
If the UK were to sign the Lugano Convention in its own right, this would serve to ensure that UK judgments remain enforceable in Europe, although it is possible that the other signatories might potentially seek to place conditions upon the UK in exchange for UK accession to the Convention.
Possible but less attractive alternatives include the UK entering into individual treaties with EU Member States, or instead relying on international principles of comity, which would mean that the UK’s enforcement relationships with EU Member States would be akin to those currently in place with the United States of America. This would likely increase the complexity (and therefore the cost) of enforcing judgments in the EU.
Consequently, the enforcement of judgments could take significantly longer and become more costly following Brexit. Where a party currently has a judgment of the courts of England and Wales against an individual or entity with significant assets in Europe then it would be worth seeking to enforce that judgment sooner rather than later to take advantage of the existing regime. Alternatively, if judgment has not yet been obtained but proceedings are in train, careful consideration should be given to the steps which may be taken to expedite the claim.
Cross-Border Debt Recovery
In addition to the provisions of the EU Recast Brussels Regulation regarding enforcement, membership of the EU also enables the UK to follow simple and effective if slightly lesser known cross-border procedures for the recognition and enforcement of debts where assets are located elsewhere in Europe. Presently, UK claimants are able to invoke the European Order for Payment procedure where an uncontested debt is owed to a party in the UK by a party in another Member State. This procedure makes the recovery of uncontested sums of money, with a pan-EU element, more time and cost-effective.
The European Small Claims Procedure is another instrument intended to simplify and remove barriers to the recognition and enforcement of civil and commercial claims where the value of the claim does not exceed €2,000. Without this procedure it is likely that a party would decide that it would not be cost-effective to pursue modest claims of this nature. We do not yet know what impact Brexit will have on these measures but the potential impact illustrates the pervasive reach of EU-derived law to the litigation strategies and procedures that are currently deployed here in the UK.
There is still significant uncertainty and it is far too early to try to predict the course the negotiations will take. However parties to agreements who face potential or existing disputes should keep their positions under careful review and consider whether any revisions to their approach may be appropriate, even at this early stage, where the other party is based in, or has a significant connection to an EU Member State.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.