Disputes after the end of the Brexit transition period: where are we now?

The post below was first published on our Litigation blog.

With the end of the Brexit transition period rapidly approaching, we are still waiting to see whether the UK and the EU can reach an agreement on their future relationship from 1 January 2021. In fact, whether or not an agreement is reached has no direct impact on commercial dispute resolution. But the hope is that a deal will pave the way for a further agreement on the UK's accession to the 2007 Lugano Convention.

In this post, we consider the position for commercial litigation involving the English courts following the end of the Brexit transition period, whether or not the UK re-accedes to Lugano. We have also updated our decision tree on the enforcement of English judgments in the EU post-transition, which you can access here.

It is worth noting at the outset that arbitration with a seat in London will not be affected by Brexit, as arbitration is not regulated by EU law. 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.

The Withdrawal Agreement

During the transition period established by the UK/EU Withdrawal Agreement, EU law has continued to apply to and in the UK, and the UK has continued to be treated as an EU member state for the purposes of international agreements to which the EU is a party, such as the Lugano Convention and the 2005 Hague Convention on Choice of Court Agreements. This will no longer be the case after 31 December, though there are a number of respects in which transitional provisions under the Withdrawal Agreement will continue to affect cross-border disputes and the enforcement of judgments between the UK and EU member states after that point. 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 (and in fact little will change even where these provisions do not apply – see below).
• 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 (by the relevant body in the state where service is to be effected or evidence to be taken) 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.

The Lugano Convention?

These transitional provisions do not apply in relation to Iceland, Norway and Switzerland. Questions of jurisdiction and the enforcement of judgments between the UK and these three EFTA countries are currently governed by the Lugano Convention. As noted above, that will come to an end on 31 December 2020. The UK has applied to re-accede to Lugano with effect from 1 January 2021 (see this post), but this requires the unanimous agreement of the contracting parties – namely the EU, and Denmark as an independent state (it has an “opt-out” of justice and home affairs matters under relevant EU treaties), as well as Iceland, Norway and Switzerland. While Iceland, Norway and Switzerland have indicated their support for the UK’s accession, the EU’s position is not yet clear.

If the UK re-accedes to Lugano, assuming no other agreement on jurisdiction and enforcement of judgments is concluded between the UK and the EU, Lugano will then apply as between the UK and the EU (as well as between the UK and other signatories). The result would be that there would be little change from the current regime in relation to jurisdiction and enforcement, so that English court judgments would continue to be readily enforceable throughout the EU and in EFTA countries, and English jurisdiction clauses would largely continue to be respected by those countries, and vice versa. (The Lugano Convention does have some disadvantages compared to the current regime, as it does not include the improvements made when the Brussels Regulation was “recast” for proceedings commenced on or after 10 January 2015.)

Even if the UK does not re-accede, it will continue to apply the current rules under Lugano in relation to questions of jurisdiction and enforcement where relevant where proceedings were commenced before the end of transition. It is not clear, however, whether those 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.

In any event, the UK and Norway have recently reached an agreement to continue to apply an old mutual enforcement treaty between the two countries dating back to 1961, if the UK has not become an independent contracting party to Lugano by the end of the transition period. Judgments will therefore continue to be enforceable between the UK and Norway under these provisions, even if the UK does not re-accede to Lugano.

If the UK does not re-accede to Lugano

If the UK does not re-accede to Lugano, and the transitional provisions under the Withdrawal Agreement do not apply, matters are somewhat more complicated, particularly as regards jurisdiction and the enforcement of judgments. The below sets out the position in some of the key areas affecting commercial dispute resolution.

Rules on applicable law

Very little will change in this area, 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 from the end of the transition period, 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 2005 Hague Convention first came into force for the UK when the EU acceded on behalf of most EU member states on 1 October 2015. During the transition period, the UK has continued to be treated as an EU member state for the purposes of international agreements including the 2005 Hague Convention. And the UK has re-acceded with effect from 1 January 2021.

However, there is some uncertainty as to whether EU member states will treat the 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”. As we have said previously, it is difficult to see why the earlier date should not be the relevant one. However, the European Commission takes the opposite view (as explained in this post), although that is not binding on the courts that will decide this question in future. That means that, where an exclusive English jurisdiction clause was agreed before 1 January 2021 (and on after 1 October 2015) there is some uncertainty as to whether EU member states will treat the clause as falling within the Convention.

For exclusive English jurisdiction clauses agreed on or after 1 January 2021, however, the position should be straightforward: EU member state courts will generally respect exclusive English jurisdiction clauses and enforce the resulting judgments under Hague (as will the other contracting states to the 2005 Hague Convention, currently Mexico, Singapore and Montenegro). Note however 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) – 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 an English Court of Appeal decision from 2019 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.

Where the 2005 Hague Convention does not apply (whether 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) 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.

Other issues relating to jurisdiction 

After the transition period ends, assuming the UK does not re-accede to the Lugano Convention:

• 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. However, it will still be possible to serve out without permission if there is an exclusive English jurisdiction clause which falls within the 2005 Hague Convention, and also if there is an (exclusive or non-exclusive) English which does not fall within that Convention (due to a recently approved rule change - see this post - though it is not clear whether that will take effect by 1 January), 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 are contracting states to the Hague Service Convention 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, UK courts will apply decisions of the Court of Justice of the European Union (“CJEU”) that pre-date the end of the transition period, save to the extent that particular courts are given power to depart from those decisions. The European Union (Withdrawal) Act 2018, as originally enacted, provided that the Supreme Court (as well as the ultimate court of appeal on Scottish criminal law) would have such power. Following a consultation by the Ministry of Justice, such power will now also be extended to other appellate courts, including the Court of Appeal. CJEU decisions post-dating the end of the transition period are not binding on UK courts but the courts may have regard to them so far as relevant.

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.