Brexit: key practical implications for disputes and dispute resolution clauses

The post below was first published on our Litigation blog

Despite the UK and EU having finalised a Trade and Cooperation Agreement to govern their trading and security relationship following the end of the Brexit transition period, there remain a number of uncertainties when it comes to commercial dispute resolution in cases involving the UK and the EU. In this post we look at some key practical points for parties to consider, taking into account both what we do know and what remains unclear.

The main source of uncertainty arises from the fact that the EU has not yet indicated whether it will consent to the UK’s accession to the 2007 Lugano Convention. It was hoped that a post-Brexit trade deal would pave the way for a further agreement on the UK's accession to that Convention, but a month on from agreement being reached on the trade deal we are still waiting for a decision.

The position should become clear by April, since the UK submitted its application for permission to accede on 8 April 2020 and the Convention provides that contracting parties "shall endeavour to give their consent" within a year - though that is not a hard deadline. If consent is given, the Convention will come into force as between the UK and the EU on the first day of the third month following the UK's deposit of its instrument of accession, and will apply to proceedings commenced after it comes into force.

In the meantime, two things are clear: (i) the recast Brussels Regulation no longer applies to jurisdiction and enforcement of judgments as between the UK and the EU, unless proceedings were commenced in a UK or EU court before the end of 2020; and (ii) the UK re-joined the 2005 Hague Convention on Choice of Court Agreements in its own right from 1 January 2021 (having previously been party to it by virtue of EU membership) so that the 2005 Convention now applies as between the UK and the EU in matters falling within its scope (as explained below).

Against that background, below are some key practical points for parties to consider in matters involving the UK and the EU.

1. Think about including an exclusive English jurisdiction clause in new agreements 

The 2005 Hague Convention applies where there is an exclusive jurisdiction clause (not a non-exclusive or unilateral clause) entered into after the Convention came into force for the country whose courts are chosen (subject to certain exclusions, for example employment and consumer contracts).

There is some debate as to the relevant date, for these purposes, for clauses in favour of UK courts (as discussed below). But it is clear that the 2005 Hague Convention will apply to such clauses where they have been concluded on or after 1 January 2021.

Accordingly, for contracts being negotiated now, parties can be confident that an exclusive English jurisdiction clause will be respected by EU Member State courts and the resulting English judgment will be enforceable throughout the EU under the 2005 Hague Convention (subject to limited grounds on which enforcement can be refused, which are broadly similar to those which previously applied as between the UK and the EU).

Where parties want the certainty of being able to enforce judgments in the EU, regardless of whether the UK is able to accede to the Lugano Convention, an exclusive English jurisdiction clause may therefore be an attractive option. However, this advantage may need to be balanced against a loss of flexibility to bring proceedings in other courts, particularly if parties may also need to enforce outside the EU (and the additional contracting states to the 2005 Hague Convention, ie Mexico, Montenegro and Singapore) and there is any uncertainty as to whether those countries will enforce an English judgment.

2. You may want to re-state (or re-think) the jurisdiction clause in pre-2021 agreements 

As noted above, there is some debate as to whether EU Member States will treat an exclusive English jurisdiction clause as falling within the 2005 Hague Convention if it was concluded on or after 1 October 2015 (when the Convention came into force for the EU generally, including the UK) or only from when the UK re-joined on 1 January 2021. In our view, it is difficult to see why the earlier date should not be the relevant one, but 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.

To avoid this uncertainty, for contracts entered into before the end of 2020 which contain an exclusive English jurisdiction clause, it may be worth entering into a new agreement restating the clause so as to obtain the benefits of the 2005 Hague Convention. (The same applies to longer term contracts where the original jurisdiction clause was concluded before 1 October 2015, in which case it is clear that the clause falls outside the Convention.) This will of course require the counterparty's cooperation, unless the original agreement contained a term requiring the counterparty to enter into a new agreement to this effect.

For existing contracts which contain some other dispute resolution clause (eg a non-exclusive or unilateral English jurisdiction clause), parties may wish to consider entering into a new agreement which provides for exclusive English jurisdiction. Again, however, the advantages of falling within the 2005 Hague Convention, in particular ease of enforcement within the EU (regardless of whether the UK accedes to Lugano), would need to be balanced against the loss of flexibility, particularly where enforcement may be needed elsewhere. And again, the counterparty's cooperation would be needed, unless this was contemplated by the original agreement.

3. Remember that arbitration is unaffected by Brexit

Brexit has no impact on arbitration, which is not regulated by EU law. The UK and all EU Member States are party to the New York Convention 1958, meaning that enforcement of UK-seated arbitral awards in those states, and of EU-Member-State-seated arbitral awards in the UK, will be unaffected.

Our impression is that, in the run-up to the end of the Brexit transition period, some commercial parties entered into arbitration agreements where they might otherwise have opted for the exclusive jurisdiction of the English courts - particularly because of the uncertainty regarding enforcement under the 2005 Hague Convention where the clause was agreed before 1 January 2021. We did not, however, see a mass repapering of existing contracts to provide for arbitration, and in any event the previous uncertainty does not apply for contracts entered into going forward. Of course, arbitration remains an attractive option for many commercial parties, regardless of Brexit, including for reasons of ease of enforcement, party autonomy and flexibility, limited grounds of appeal, and privacy in the arbitral process.

4. Permission to serve out of the jurisdiction may be needed in more cases

Before the end of the Brexit transition period, proceedings could be served on a defendant outside England and Wales, without needing to obtain the court's permission, where the court had jurisdiction under the recast Brussels Regulation or the Lugano Convention (including in almost all cases where there was a jurisdiction clause in favour of the English court). This was a significant benefit. An application for permission to serve out of the jurisdiction can involve significant time and cost, not least because of the duty of "full and frank" disclosure which applies (as the application is, at the initial stage, made without notice to the defendant).

For proceedings issued after the end of 2020, it will still be possible to serve out of the jurisdiction without permission if there is a jurisdiction clause which falls within the 2005 Hague Convention, ie an exclusive English jurisdiction clause concluded on or after 1 October 2015. (The uncertainty referred to above as to the relevant date for the application of the Convention to jurisdiction clauses in favour of UK courts does not apply for these purposes, due to provisions under the Private International Law (Implementation of Agreements) Act 2020.)

As a result of an amendment to the rules on service under CPR Part 6 that is expected to take effect from 6 April, it is also likely to be possible to serve out without permission if there is any other (exclusive or non-exclusive) English jurisdiction clause. This will likely apply regardless of whether the proceedings were issued before the rule takes effect, but since the claim form must be served within six months of issue (where it is served out of the jurisdiction), some claimants may wish to wait for this rule to take effect before issuing proceedings (where they are comfortably within any applicable limitation period) so as to avoid the additional procedural hurdle of applying for permission to serve out.

Even where there is no jurisdiction clause, some claimants may be waiting to see whether the UK will be able to re-accede to the Lugano Convention - in which case no doubt the provisions allowing service out without the court's permission will be reinstated from the point at which the Convention comes into force for the UK.

Of course, any advantages that may be gained by a delay in issuing proceedings will need to be balanced against the risk of a counterparty commencing parallel proceedings in an EU Member State court (or a contracting state to the Lugano Convention) during the period of delay - which may affect which court has priority under the rules that apply in the foreign court (and potentially in the English court if the UK re-accedes to Lugano), and whether that court can or will stay its proceedings in favour of the English court.

5. The question of whether English judgments can be enforced in the EU has become more complex

Under the terms of the UK/EU Withdrawal Agreement, where proceedings were started in the English court before the end of 2020, the resulting judgment will be enforceable in EU Member State courts under the recast Brussels Regulation (subject to limited grounds of refusal).

Where proceedings were started only after 2020, the position on enforcement will depend on whether the UK re-accedes to Lugano or, if not, whether the judgment was given pursuant to an exclusive jurisdiction clause falling within the 2005 Hague Convention. In either case, English judgments should be readily enforceable throughout the EU (again, subject to limited grounds of refusal).

Otherwise, the position is likely to depend on national rules in each EU Member State. There are old bilateral treaties on enforcement between the UK and a number of EU countries, which predate the EU and could be relevant post-Brexit. However, it is generally considered unlikely that these will "spring back to life" as they were superseded by the Brussels Convention and the original and recast Brussels Regulations. Assuming such treaties don't apply, our understanding is that 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.

6. There may be more frequent challenges to the jurisdiction of the English courts

Where the English court's jurisdiction derived from the Brussels regime (ie the Brussels or Lugano Convention or the original or recast Brussels Regulation), the court was generally bound to exercise that jurisdiction: it could not refuse to hear the case on the basis that the courts of another country would be a more appropriate forum for the resolution of the dispute.

In contrast, under the English common law, the court's decision to exercise jurisdiction is subject to the question of appropriate forum, or forum conveniens. This doctrine operates differently depending on whether the claimant is seeking permission to serve the proceedings out of the jurisdiction, in which case the burden is on the claimant to show that the English court is clearly or distinctly the appropriate forum, or whether the proceedings have been served within the jurisdiction, in which case the burden is on the defendant to show that there is another available forum which is more appropriate. But, in either case, the defendant can challenge the exercise of jurisdiction on this broad basis.

Unless the UK re-accedes to the Lugano Convention, therefore, it seems likely that there will be more cases in which defendants bring challenges to the jurisdiction of the English courts based on such arguments.

7. The English courts may be willing to grant anti-suit injunctions in more cases

Under the Brussels regime, the UK could not issue an anti-suit injunction to seek to restrain parties bringing or continuing proceedings in another EU court, as the CJEU has held that this is incompatible with the mutual trust EU Member States must accord to one another’s legal systems.

Now that the Brexit transition period has come to an end, and unless the UK re-accedes to the Lugano Convention, these sorts of injunctions should be back on the table in respect of proceedings in EU Member State courts in appropriate circumstances - the obvious example being where an action has been brought in breach of an exclusive English jurisdiction clause.

8. There may be more challenges to established principles arising from EU law incorporated into UK law

EU law which was in force at the end of the Brexit transition period continues to apply in the UK, as retained EU law, unless amended or repealed (as from the end of transition, or in future). In interpreting this retained EU law, UK courts will apply decisions of the CJEU which pre-date the end of the transition period, save to the extent that particular courts are given power to depart from those decisions - most importantly the Supreme Court and 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.)

In deciding whether to depart from a CJEU decision which pre-dates the end of transition, the English courts will apply the same test that that the Supreme Court uses when considering whether to depart from its own previous case law, namely “whether it appears right to do so”. This appears very wide, but in practice the Supreme Court has generally exercised the power only sparingly. It may well be that appellate courts will be similarly restrained in departing from CJEU case law, but of course this is currently untested.

It seems likely that the potential for appellate courts to depart from CJEU decisions will lead to more parties seeking permission to appeal on the basis that they wish to challenge the interpretation of a particular piece of legislation as established in previous decisions of the CJEU. We will have to wait to see the extent to which the courts will grant permission in such cases, and the extent to which such challenges will ultimately be successful.

9. Service of proceedings in the EU may be less straightforward

Now that the Brexit transition period has come to an end, the EU Service Regulation no longer applies to the UK unless, under transitional provisions in the Withdrawal Agreement, the relevant document for service was received in the country of service before the end of 2020.

All EU Member States are contracting states to the 1965 Hague Service Convention, so it should in most cases be possible to effect service under that Convention. However, a number of EU Member States (and other countries) have objected to the possibility of service under article 10 of that Convention which allows direct service by post, or through judicial officers, officials or other competent persons of the state in which service is to be effected. In such cases, service may be less straightforward than previously.

10. Different procedures apply to the taking of evidence in the EU

The EU Taking of Evidence Regulation has also ceased to apply to the UK - unless, under transitional provisions in the Withdrawal Agreement, the request for the taking of evidence was received in the country where the evidence is to be taken before the end of 2020.

However, all EU Member States except for Austria, Belgium and Ireland are contracting states to the 1970 Hague Evidence Convention, which gives an alternative route for the taking of evidence. Otherwise, it may be possible to proceed via a letter of request.