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Choice of Law

English law (and the advantages of choosing English governing law in international commercial contracts) will remain largely unchanged as a result of Brexit, at least in the short term.

The current Government White Paper proposing the Great Repeal Bill confirms that historic CJEU case law will have the same precedent status as decisions of the UK Supreme Court. Therefore the UK courts should interpret EU-derived law by reference to the CJEU’s case law as is stands on the day we leave the EU. Going forward, however, post-Brexit CJEU decisions will not be binding, and we could see a divergence in approach develop between the CJEU and the UK courts.

 

Choice of law

Under the Rome Conventions, if contracts contain an express choice of English law, regardless of Brexit (and a UK withdrawal from the Rome Convention), other EU countries who continue to be members of the Rome Convention would be required to respect a choice of English law.

Furthermore, the courts of member states should continue to apply the rules set out in the Rome Conventions to disputes which may have a UK element.

However, as concerns the UK Courts, post-Brexit the Rome I Regulation on choice of law in contractual disputes and the Rome II Regulation on choice of law in non- contractual disputes (such as claims in tort) will no longer apply. That said, if an issue arose relating to governing law before the English courts, at least in respect of contractual obligations, it is unlikely that the existing position will change significantly because the common law principles are similar to those in Rome I.

The position is less clear with regard to the governing law in respect of non-contractual obligations as Rome II does not reflect the English common law so closely.

Contracts which do not contain an express choice of Governing Law or Jurisdiction

At the moment there are specific rules governing which European country’s law or jurisdiction applies in certain situations, where there is no express choice of governing law and jurisdiction. As concerns the UK, those rules will cease to apply on Brexit and these issues will be determined according to the local law of the country where a party has brought a dispute to be heard.

 

Jurisdiction Clauses

The Hague Convention only applies to exclusive jurisdiction clauses and any consequential judgment. If the jurisdiction clause is non-exclusive there is the risk of parallel proceedings, particularly where the parties or one of them is domiciled outside the EU.

Brexit may make non-exclusive jurisdiction clauses an attractive alternative where enforcement within the EU is an issue and the parties are happy to be sued in jurisdictions other than the English courts. But, post-Brexit, such strategy comes with an increased risk of parallel proceedings as, once the Brussels regime no longer applies, the mechanism for preventing parallel proceedings within the EU will no longer apply.

 

Service of Court proceedings

The EU Service Regulation means that currently English court proceedings can be served relatively quickly and cost effectively on defendants within other EU Member States without the need for a prior application for permission from the English court. The Regulation will no longer apply to the UK post-Brexit.

To avoid any issues it would be sensible to include in commercial contracts a clause authorising service of Court proceedings on a process agent at an address within England and Wales. That is quicker and simpler than service under the Service Regulation and will be unaffected by Brexit.

 

Arbitration 

The EU rules on jurisdiction and governing law do not extend to arbitration, and therefore Brexit will have little immediate impact on this area of dispute resolution.

Arbitration has various advantages (including confidentiality and flexibility) but also disadvantages (including expense, as you have to pay the Arbitrator). Also certain countries do not recognise interim remedies granted by an Arbitrator (for example to freeze or ring-fence assets) and it may be necessary to take steps through the Courts. Therefore contracts with arbitration clauses should specifically allow parties to take interim steps in an appropriate local Court to preserve their position, until the arbitration has run its course.

Identify contracts with UK companies; governed by UK law or containing an English jurisdiction clause and consider whether enforcement of any English Court judgment in any of the 27 remaining EU member states may be required.

 

Recommended Actions

  • For important contracts consider renegotiating choice of law and jurisdiction clauses, until the precise impact of Brexit is known.
  • Always include, in international contracts, clauses which make clear which courts are to have jurisdiction in the event of a dispute and which law is to govern the contract.
  • Those clauses should cover non-contractual claims and obligations. That said, if the contract is one that falls within or relies upon certain EU laws, future proofing to ensure EU law still applies might be required.
  • Where enforcement of the contract within the EU is likely to be an issue, exclusive jurisdiction clauses may not be appropriate and consider non-exclusive or asymmetric jurisdiction clauses. However care should be taken, as this may mean that the jurisdiction clause would not be effective under the Hague Convention.
  • Consider including in contracts a “Brexit trigger clause” (to allow parties to use a dispute resolution forum other than the UK Courts if, when a dispute arises, there is no reciprocal post-Brexit arrangement for the enforcement of judgments) or a “conditional” dispute resolution clause (that allows a degree of flexibility as the UK’s position becomes clearer). However legal advice will be needed on the wording of these clauses and as to whether such clauses will be enforceable against the counter party.
  • Include clauses providing for a process agent in England on whom English Court proceedings can be served.
  • Think about arbitration (and arbitration clauses) as an alternative to Court jurisdiction clauses (you can still choose English law and an English seat for the arbitration)
  • If you have a cross-border dispute where settlement looks unlikely, consider issuing proceedings sooner rather than later to take advantage of the existing reciprocal arrangements.
  • Keep current litigation moving and do not allow delays.
  • If you have or obtain a judgment enforceable in one of the other 27 EU states, enforce it as soon as possible before Brexit.

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