Brexit under the Withdrawal Agreement: The implications for disputes

The post below first appeared on our Litigation Notes blog.

It now seems inevitable that the UK will leave the EU on 31 January 2020 at 11pm GMT under the terms of the Withdrawal Agreement concluded between the UK and the EU on 19 October 2019. In this post, we consider the implications for commercial litigation involving the English courts, both during the transition period established under the Withdrawal Agreement (which ends on 31 December 2020) and following the end of the transition period. We have also updated our decision tree on the enforcement of English judgments in the EU post-transition, which you can access here.

Although the Withdrawal Agreement provides that the transition period may be extended for “up to 1 or 2 years” by agreement before 1 July 2020, the UK government has ruled out any extension in the legislation implementing the Withdrawal Agreement which is currently working its way through Parliament (the European Union (Withdrawal Agreement) Bill 2019-2020). That could be changed by further legislation, or a temporary arrangement could be reached between the UK and the EU to similar effect as an extension of the transition period, but for present purposes we have assumed that transition will end on 31 December 2020. At that point, what happens – in relation to disputes and many other areas – will depend largely on what, if anything, is agreed between the UK and the EU in the interim. There are, however, a number of respects in which transitional provisions under the Withdrawal Agreement will continue to affect the position after the transition period itself comes to an end.

It should be noted at the outset that arbitration with a seat in London will not be affected by Brexit. Arbitration is not regulated by EU law, and the UK and all EU Member States are signatories to the 1958 New York Convention. Accordingly, arbitration clauses will remain effective and arbitral awards will continue to be enforceable in the same circumstances as currently.

Before 31 December 2020

The Withdrawal Agreement provides (at Article 127) that EU law will apply to and in the UK during the transition period, unless otherwise provided in the Withdrawal Agreement, and any reference to EU Member States in EU law will be understood as including the UK. EU law includes the various EU treaties, general principles of EU law, EU legislation such as regulations and directives, and (significantly) international agreements to which the EU is party. There is a specific provision (at Article 129) that, during the transition period, the UK will be bound by the obligations stemming from those international agreements, and that the EU will notify the other parties to these agreements that the UK is to be treated as an EU Member State for the purposes of those agreements during the transition period.

Accordingly, very little should change between now and 31 December 2020. The UK courts will continue to apply EU law and to interpret it in accordance with case law of the CJEU. Current rules on jurisdiction and enforcement of judgments under the recast Brussels Regulation (Regulation 1215/2012) will continue to apply as between the UK and the EU, as will current provisions relating to service and the taking of evidence under the EU Service Regulation and Taking of Evidence Regulation (Regulations 1393/2007 and 1206/20011 respectively).

The UK will also continue to comply with the obligations stemming from international agreements relating to jurisdiction and enforcement of judgments (among other things) to which the EU is a party, such as the 2007 Lugano Convention (which applies between EU Member States and EFTA countries Iceland, Norway and Switzerland) and the 2005 Hague Convention on Choice of Court Agreements (which applies between EU Member States and Mexico, Singapore and Montenegro). Up to the end of December 2020, therefore, the English court will have to stay proceedings or decline jurisdiction where required under those Conventions – for example, under Hague, if there is an exclusive Mexican jurisdiction clause agreed since 1 October 2015 (when Hague came into force for Mexico), or under Lugano if parallel proceedings were first commenced in a Swiss court.

As noted above, the EU will notify the other parties to those Conventions that, during the transition period, the UK is to be treated as an EU Member States for these purposes. Assuming none of the contracting states object, therefore, those countries’ courts should also stay proceedings or decline jurisdiction in favour of the English court in similar circumstances – for example the Swiss court should stay its proceedings, under Lugano, if there is a prior English action.

After 31 December 2020 but where transitional provisions apply

The Withdrawal Agreement contains various transitional provisions relating to civil cooperation, which will continue to have effect as between the UK and the EU after 31 December 2020 if certain steps have been taken before that date. In particular:

• By Article 66, current rules on applicable law in contractual and non-contractual matters under the Rome I and Rome II Regulations (Regulations 593/2008 and 864/2007) will apply to contracts concluded, or events giving rise to damage, before the end of the transition period.
• By Article 67, current rules on both jurisdiction and enforcement of judgments under the recast Brussels Regulation will apply where proceedings are commenced before the end of the transition period.
• By Article 68, current provisions under the EU Service Regulation and Taking of Evidence Regulation will apply where the relevant document for service or request for the taking of evidence was received before the end of the transition period.
• By Article 86, the CJEU will continue to have jurisdiction to give preliminary rulings on requests from UK courts and tribunals made before the end of the transition period and, by Article 89, those rulings will continue to be binding in the UK.

These provisions generally apply in both directions, so that (for example) the English courts will continue to apply current rules to enforce French judgments where the proceedings leading to that judgment were commenced before 31 December 2020, and the French courts will do likewise in respect of English judgments where the proceedings were commenced before that date. That is in contrast to the position that would have applied on a “no deal” Brexit, in which case the English courts would have continued to apply current rules to enforce French judgments if proceedings were commenced before exit day, but the French courts would only have done so in respect of English judgments which completed an exequatur procedure before exit day: see this post.

Note that these provisions do not apply in relation to EFTA countries Iceland, Norway and Switzerland. It seems likely that the UK will continue to apply the current rules under the Lugano Convention in relation to questions of jurisdiction and enforcement where proceedings were commenced in an EFTA country before the end of transition. That was the UK’s intention in the event of a “no deal” Brexit, ie to apply Lugano if proceedings were commenced before exit day (as reflected at s.92 of the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, which would have come into force on exit day in the event of a “no deal” Brexit, but will now come into force at the end of the transition period subject to any necessary amendments – which will presumably include substituting exit day with the end of the transition period). It is not clear, however, whether the EFTA countries will continue to apply Lugano where English proceedings were commenced before the end of transition, or whether post-transition they will simply apply domestic rules in relation to jurisdiction and enforcement questions involving the UK regardless of when proceedings were commenced.

After 31 December 2020 where no transitional provisions apply

Where the transitional provisions under the Withdrawal Agreement do not apply, matters are more complicated and, to some extent, uncertain. The precise position will depend on whether any further arrangements are agreed between the UK and the EU (and/or the EFTA countries) between now and the end of transition – for example for the UK to join the Lugano Convention, in which case little will change in relation to jurisdiction and enforcement as between the UK and both the EU and EFTA countries. The below assumes that nothing further is agreed in relevant areas. The position will also depend on the content of any further UK legislation put in place before the end of transition, such as the intended Private International Law (Implementation of Agreements) Bill flagged in the Queen’s Speech, which it seems will clarify the implementation in domestic law of the 2005 Hague Convention, although little detail is available.

Applicable law

When it comes to the law which applies to determine a dispute, very little will change even where the transitional provisions under the Withdrawal Agreement do not apply. The UK has legislated to incorporate Rome I and Rome II into English law, under the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 (which will come into force at the end of the transition period, rather than on exit day as originally provided) and so the English court will apply the same rules as currently to determine applicable law. EU courts will of course continue to apply Rome I and Rome II, so will continue to give effect to a choice of English law to the same extent as currently, and the rules applied by non-EU courts and arbitration tribunals will not be affected by Brexit.

Jurisdiction clauses and enforcement of judgments

Where the transitional provisions under the Withdrawal Agreement do not apply, the recast Brussels Regulation will no longer be relevant to questions of jurisdiction and enforcement as between the UK and the EU. In those circumstances, a key question will be whether there is an exclusive jurisdiction clause which falls within the 2005 Hague Convention. Hague applies only if: (i) there is an exclusive jurisdiction clause (not a non-exclusive or unilateral clause) entered into after it came into force for the country whose courts are chosen; and (ii) proceedings are commenced after it came into force for the country whose courts are seised. (The clause must also fall within the scope of the Convention, which does not apply, for example, to employment and consumer contracts.)

The UK is currently party to Hague by virtue of its EU membership, but that will cease when the UK leaves the EU on 31 January 2020. As noted above, however, the UK and the EU have agreed that, during the transition period, the UK is to be treated as an EU Member State for the purposes of international agreements, which will include Hague. The UK would have acceded to Hague in its own right immediately after exit day in the event of a “no deal” exit but, in light of the Withdrawal Agreement, the intention now is that the UK will withdraw its instrument of accession and (presumably) accede with effect from the end of the transition period.

Exclusive jurisdiction clauses agreed on or after 1 January 2021: Assuming the UK does re-join Hague with effect from 1 January 2021, the position will be relatively straightforward where there is an exclusive jurisdiction clause in favour of either the UK or an EU Member State entered into on or after that date. EU Member State courts will generally respect exclusive English jurisdiction clauses and enforce the resulting judgments under Hague, and the English courts will do likewise where there is an exclusive jurisdiction clause in favour of an EU Member State court.

Note that, even where Hague applies, there is a slight wrinkle in relation to issues of jurisdiction where there is no party domiciled in the UK (or another non-EU Hague contracting state, ie Mexico, Singapore and Montenegro at present) – so for example if all parties are EU domiciled. In those circumstances, Article 26(6) of the Hague Convention provides that the Brussels regime takes precedence, and there is some uncertainty as to whether, under that regime, EU courts can stay proceedings or decline jurisdiction in favour of non-EU courts, as the English court will then be, except where the non-EU proceedings were commenced first in time. The authorities do not speak with one voice, but a recent English Court of Appeal decision lends support, somewhat indirectly, to an argument that there is in fact such a power: see this post. In any event, this uncertainty does not affect questions of enforcement, only questions of jurisdiction.

Exclusive jurisdiction clauses agreed before 1 January 2021: The position here is more complicated, whether the clause is in favour of the English courts or the courts of an EU Member State.

• With regard to exclusive English jurisdiction clauses, there has been some uncertainty as to whether EU Member States would treat the Hague Convention as having been in force for the UK since 1 October 2015, when it came into force for the EU generally, or only from when the UK re-joins on 1 January 2021 – what we have referred to previously as the “change of status risk”. On the face of it, it is difficult to see why the earlier date should not be the relevant one. However, guidance issued by the European Commission in April 2019 suggests it is taking the opposite view (as explained in this post), although that is not of course binding on the courts that will decide this question in future. Where a clause is agreed during the transition period, there is the additional point that the UK will not actually be party to Hague during that period. However, in light of the agreement between the UK and EU that the UK will be treated as if it were an EU Member State for such purposes, this fact arguably should not affect whether or not EU Member State courts treat exclusive English jurisdiction clauses agreed in this period as falling within Hague.
• With regard to exclusive jurisdiction clauses in favour of EU Member States, the transitional provisions in the Hague Convention mean that English courts considering questions of jurisdiction or enforcement should apply Hague so long as the Convention was in force for the chosen state at the time the clause was agreed (ie 1 October 2015, or 1 September 2018 in respect of Denmark). That is regardless of whether or not, at that time, the Convention was in force for the UK. (The Convention’s operation is somewhat asymmetric in this respect: a new joiner must apply Hague to pre-existing clauses in favour of other contracting states, so long as the Convention was in force for that state when the clause was agreed, but it will only get the benefit of Hague for clauses in favour of its courts which are agreed after its own accession.) There is, however, some uncertainty as to whether that will be the English court’s approach. That is discussed in an article which we have recently published on Practical Law’s Dispute Resolution blog. You can click here to access the article or here for the Practical Law Dispute Resolution blog homepage.

Where Hague does not apply: This could be because of the risks outlined above, or because there is a jurisdiction clause which is non-exclusive or unilateral or which was agreed before 1 October 2015, or simply because there is no jurisdiction clause. In those circumstances, the UK and EU courts will apply their own rules to questions of jurisdiction and enforcement.

As noted above, where an EU court has jurisdiction pursuant to the Recast Brussels Regulation, there is some uncertainty as to the circumstances in which it can stay proceedings or decline jurisdiction in favour of non-EU courts, as the English court will be, save where the English proceedings are commenced first (as there is an express power in those circumstances under Articles 33/34 of the recast Brussels Regulation).

So far as enforcement of  judgments is concerned, most (but not necessarily all) EU countries will enforce foreign judgments even without a specific reciprocal regime, although the type of judgment enforced may be more limited and the procedures may be more cumbersome and more expensive. Conversely, it will be possible to enforce EU Member State judgments in the English court by suing on the judgment as a debt, but that applies only to money judgments.

Other issues relating to jurisdiction 

A number of other jurisdiction-related issues were addressed in our previous blog post which considered the implications of a “no deal” exit, and these will apply equally after the transition period ends, if nothing else is put in place. In particular:

• The English courts will no longer be restricted from applying national rules of jurisdiction to EU-domiciled defendants, eg based on temporary presence within England and Wales. This will, however, be subject to the court’s discretion to refuse jurisdiction on the basis that England is not the convenient forum for the dispute. Similarly, English-domiciled defendants will be subject to national rules of jurisdiction in the various EU Member States.
• The English courts should again be able to issue anti-suit injunctions in respect of proceedings in EU Member State courts in appropriate circumstances, such as where an action has been brought in breach of an exclusive English jurisdiction clause.
• The English court’s permission to serve proceedings out of the jurisdiction will be required in more cases, though it will still be possible to serve out without permission if there’s an exclusive English jurisdiction clause falling within the Hague Convention and in a limited range of other circumstances.

Service and taking of evidence

After the transition period comes to an end, the EU Service Regulation and Taking of Evidence Regulation will no longer apply to the UK (unless, under the transitional provisions referred to above, the relevant document for service or request for the taking of evidence was received before 31 December 2020).

Procedures for service of documents and taking of evidence between the UK and the EU will therefore largely depend on whether the relevant states are, like the UK, contracting states to:

• the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Service Convention); and/or
• the Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters (the Hague Evidence Convention).

All EU Member States other than Austria are contracting states to the Hague Service Convention (Austria signed the Convention in November 2019 but has yet to bring it into force) and all but Austria, Belgium and Ireland are contracting states to the Hague Evidence Convention. Where those conventions apply they will give alternative routes for service and/or the taking of evidence. Where they do not apply, there may be other methods available for both service and the taking of evidence. For example, in relation to service, it may be possible to serve through consular authorities, or by any method permitted by the law of the country in which service is to be effected. In relation to the taking of evidence, it may be possible to proceed via a letter of request.

EU law

Existing EU law as at the end of the transition period will continue to apply in the UK, as retained EU law, pending any decision to amend or repeal it. In interpreting this retained EU law, the European Union (Withdrawal) Act 2018, as originally enacted, provided that lower courts than the Supreme Court would apply EU case law that pre-dated the withdrawal; the Supreme Court would not be bound but would have to apply the same test as it would in deciding to depart from its own case law.

However, the European Union (Withdrawal Agreement) Bill amends the 2018 Act to introduce a new power for Ministers, by regulations, to specify the extent to which, or circumstances in which, courts or tribunals are not to be bound by case law pre-dating 31 December 2020 and the test they must apply in deciding whether to depart from it. Accordingly, the circumstances in which the English courts will be able to depart from CJEU case law, are likely to be broader. However, we note that this provision is currently the subject of debate in Parliament and it remains to be seen whether it will be accepted into legislation by both Houses.

Post-transition, the English courts will no longer be able to refer questions to the CJEU for a preliminary ruling, though (as noted above) the Withdrawal Agreement provides that the UK courts will continue to be bound by preliminary rulings made in response to requests from UK courts and tribunals made before the end of the transition period.