In brief
- if a withdrawal agreement is signed between the UK and the EU, little will change immediately in relation to dispute resolution.
- if the UK leaves the EU in January without a transition period agreed, or no new reciprocal arrangements are concluded during the transition period, there will be implications for agreements on jurisdiction and on the enforceability of judgments between the UK and EU.
- if there is no transition period, existing EU law will be incorporated into domestic legislation as provided for by the European Union (Withdrawal) Act 2018 on 31 January 2020.
Governing law
Regardless of when the UK leaves the EU, a choice of English law to govern a contract will remain effective across the EU. The Rome Conventions, which govern the choice of law for obligations across the EU, do not distinguish between a choice of law of an EU member state and any other laws. Contractual choices of English law will therefore continue to be effective.
Jurisdiction clauses
Contractual choices of jurisdiction are a different matter. These are currently governed by the Brussels Regulation (Recast). This will continue to apply to cases commenced within any transition period, but will cease to apply to choices of UK courts after that. It is possible that the UK will sign a treaty extending the terms of the Brussels Regulation (Recast) to the UK in the same way that Norway has, but that may not be on offer.
The UK Government has lodged a request to formally re-join the 2005 Hague Convention on Choice of Court Agreements in its own right. The EU is a signatory to the Hague Convention and would therefore recognise exclusive jurisdiction clauses (but only exclusive ones) in favour of UK courts if the UK became a signatory. There is a three month period between ratifying the convention and it coming into force and the UK has not been able to sign it while it is already a signatory via its EU membership.
The most important limitation of the Hague Convention is it applies only to those agreements entered into after the UK acceded to it. As an EU Member State, the UK originally acceded to the Convention on 1 October 2015. However, there is uncertainty as to whether clauses in contracts signed pre-Brexit will continue to fall under the Hague Convention, given that the UK will have ceased to be a signatory and then become one again. A statutory instrument in the UK states that the UK’s membership will be considered to have been continuous, but more important will be the decisions of courts in remaining EU Member States. The European Commission has already indicated, in a document published in April 2019, that it does not believe that the Hague Convention will apply to agreements entered into before the UK rejoins as a member in its own right. The issue may ultimately be referred to the CJEU to decide.
The UK government has also signalled that it will attempt to join the Lugano Convention, to which all EFTA states are signatories and which has the benefit of recognising non-exclusive jurisdiction clauses. However, joining Lugano requires the approval of all existing signatories and it is unclear how long this may take.
Enforcement of judgments
During any transition period, the existing rules from the Brussels Regulation (Recast) will continue to apply. After that, or from 31 January 2020 in the event of no transition period, no reciprocal apparatus would exist for the enforcement of judgments between the English courts and the courts of the EU Member States. The Hague Convention on Choice of Court Agreements offers some limited assistance, while the Lugano Convention would effectively replicate the current regime if the UK joins it.
The post-Brexit legal landscape
The Government’s new Withdrawal Agreement Bill also provides that secondary legislation may enable lower courts than the Supreme Court to overturn previous decisions of the CJEU, which are to be imported as “retained EU caselaw”. Should this happen, challenges seeking to reinterpret retained EU law may be far more numerous.
After the UK leaves the EU there is likely to be a period where retained EU law throws up questions of interpretation and application. The European Union (Withdrawal) Act 2018 gives Ministers sweeping powers to make changes to legislation to deal with “deficiencies” in law carried across from the EU.
Disputes may arise over how legislation designed to be applied in the context of the EU should be applied in a country that is not a member of the EU, so if there is no transition period we may see the first cases raising such issues in 2020.
As Brexit unfolds, it is possible that some parties will seek to use it as a way to renegotiate or walk away from existing contracts. In Canary Wharf (BP4) T1 Ltd v European Medicines Agency the English High Court handed down its first judgment on the question of whether Brexit can amount to an event of frustration, such that a party could be deemed to have discharged its contractual obligations. The European Medicines Agency (EMA) sought to argue that Brexit (if and when it happened) would be an event of frustration which would allow the EMA to treat its lease of premises in London as having been discharged.
The High Court determined that Brexit could not constitute an event of frustration in this case. Whilst the judge did not go so far as to determine that Brexit could never amount to a frustrating event, this judgment offers a certain amount of comfort that arguments of this sort will be difficult to win in practice. A proposed appeal by the EMA was withdrawn after it successfully sublet the premises.
What this means for you
- parties need not have any concerns about choosing English law for their contracts, as such a choice will continue to be recognised across the EU.
- for now, parties wanting any disputes with a European connection heard by courts in the UK would be well advised to use exclusive jurisdiction clauses, to take advantage of the Hague Convention.
- for more on Brexit as a whole, see our Brexit online resource.
