Brexit – all change. Not yet
Whilst there has been a huge volume of material filling inboxes regarding the impact of Brexit and a rush to set up emergency helplines, for most, all that can be distilled from this “noise”, is that nobody really knows what it will bring and it’s a case of “Keep Calm and Carry On”!
However, international clients have been asking me, should we continue to operate under English law and jurisdiction clauses, i.e. whether Brexit may affect the basis on which we contract internationally and how disputes arising from those contracts will be dealt with? Given that both private practice and in-house lawyers spend much of their time managing risk, it is worthwhile standing back and taking stock of the situation.
Where we are now?
The English courts (and lawyers) are renowned globally for their commercial-mindedness, independence and efficiency. It is an attractive venue for dispute resolution because English is the global commercial lingua franca; the English common law is a well-developed and relatively consistent body of law; the judiciary are smart and independent as are the lawyers. Hence, many international contracts are made subject to English law and jurisdiction.
As things currently stand choice of law is subject to EU rules set out in the so-called Rome I and Rome II conventions which have sought to provide a harmonising framework. Under Rome I as regards contractual obligations, effect will be given to the parties’ choice of law and if the parties have not done so there are rules to determine the applicable law – a position to be avoided by ensuring choice of law is expressed in the contract (sometimes overlooked). Rome II deals with non-contractual obligations, e.g. tortious claims, providing a similar framework.
And after …
Post-Brexit the UK could become part of EFTA (with Norway, Iceland, Leichtenstein and Switzerland) and subject to the Lugano Convention, but this convention is limited in scope to governing jurisdiction and enforcement of judgments between EU member states and EFTA countries (but not Leichtenstein). It does not deal with choice of law. As neither Rome I nor Rome II will regulate the situation the UK’s existing rules relating to the conflict of laws will apply but English common law rules are similar to those in Rome I.
As regards non-contractual disputes the position is less clear as Rome II is less similar to English common law rules.
Equally, courts in the EU would be free to apply their own choice of law rules to disputes that have a UK element. A version of Rome I and Rome II will need to be negotiated with each member state and it remains to be seen whether that will have to be bilateral or whether it could be multilateral.
As for jurisdiction EU rules are to be found in the Brussels Regulation. Generally-speaking a defendant should be sued in the courts of the member state where it is domiciled. The parties to a contract are free to agree which courts will have jurisdiction, subject to caveats around property and corporate governance disputes. The Lugano Convention is very similar to the Brussels Regulation. So EFTA membership would mean no real change. The UK could ratify the Hague Convention, a worldwide optional framework of jurisdictional rules, which has been ratified by the EU.
So far as recognition of judgments and their enforcement is concerned the EU rules enable judgments of the court of one member state to be registered and enforced by the courts of another member state, just as if they were judgments of that other member state. Again accession to EFTA and the Lugano Convention or ratification of the Hague Convention provide routes to ensure things are not really different. However without either of these frameworks in place an English judgment may once again become difficult to register and enforce making use of the English courts a less attractive option.
Service of proceedings on a defendant in an EU member state does not currently require permission from the English courts - that will change after Brexit. Contractual mechanisms can be used to overcome this by appointing an agent for service based in the UK.
In the increasingly important area of international arbitration these rules do not apply so whilst nothing should change directly as the result of Brexit, there is a risk that London’s position as a leading centre for international arbitration may come under attack, as much as the result of the growth of Singapore and Hong Kong as arbitration centres (for non-EU related contractual disputes), but possibly through a challenge to its current superiority by the ICC homed in Paris.
The enthusiasm of some member states to weaken London’s position as the dominant centre for handling international disputes is not a secret. For the UK to retain that pre-eminence these matters will need to be kept at the top of the Brexit political agenda for resolution.
So in summary, both private practice and in-house lawyers would be well placed if they:
• Checked existing contracts for governing law and jurisdiction clauses.
• Revisited their library of template documents for governing law and jurisdiction clauses and review them where deployed with EU member state domiciled counterparties.
• Included a provision in contracts with counterparties domiciled in EU member states to appoint an agent for service of process in the UK.