In commercial contracts, many multinational organisations that do business in Europe opt for their contracts to be governed by English law and for any disputes arising to be subject to the jurisdiction of the English courts. This blogpost assesses the impact of Brexit on your boilerplate.
“This Agreement shall be governed by the laws of England…“
English law will continue to be a good choice of law post-Brexit. English law is based on the common law and consists of precedent established over hundreds of years. The factors that make it attractive now (robustness, flexibility, a bias towards freedom of contract) remain unchanged and courts in EU Member States will continue to be required to respect a choice of English law.
The English law of contract is primarily rooted in English common law, not EU law (although there are certain exceptions where the impact of EU law has been greater, for example, consumer contracts). EU Member States currently apply the Rome I and Rome II Regulations (“Rome Regulations“) to determine the governing law of contractual and non-contractual relations. The Rome Regulations require all courts in the EU to respect parties’ choice of law, whether or not a party is located in the EU.
The UK Government has stated that it intends to retain the Rome Regulations after the UK leaves the EU, and has put forward secondary legislation to transpose the Rome Regulations into UK law (the draft Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2018). This should ensure that businesses can continue to use the same (or equivalent) rules as at present to determine which law applies in cross-border disputes.
“Each party submits to the jurisdiction of the courts of England…“
If a commercial contract provides that English courts have exclusive jurisdiction to resolve disputes, it is likely that courts in EU Member States will continue to accept that choice of jurisdiction and enforce any judgment rendered.
If a commercial contract provides that English courts have non-exclusive jurisdiction to resolve disputes, there is a risk that courts in EU Member States could institute parallel proceedings and/or refuse to recognise or enforce any judgment rendered.
Brexit will not have an impact if a commercial contract currently provides for the resolution of disputes through arbitration.
The question of whether EU Member States will continue to recognise the jurisdiction of the English courts is less straightforward. The answer depends on the dispute resolution mechanism set out in the relevant contract.
Existing legal framework
If a commercial contract provides for the resolution of disputes by the English courts, a framework of judicial cooperation rules currently ensures that EU Member States recognise that choice of jurisdiction and enforce any judgment made by the English courts.
The Recast Brussels Regulation (“Brussels Regulation“) determines jurisdictional issues if both parties are in an EU Member State. It currently ensures that if a dispute subject to the jurisdiction of the English courts arises, any English court judgment can be enforced throughout the EU as if it were a court judgment in the Member State in which enforcement is sought (including in respect of protective measures, such as injunctions). A court of one Member State may apply protective measures to assist with proceedings in another Member State. It also provides that a Member State court must decline jurisdiction where it is not the court specified in a contract’s exclusive jurisdiction clause.
The 2007 Lugano Convention (“Lugano Convention“) addresses jurisdiction and enforcement between EU Member States, Switzerland, Norway and Iceland. Under the Lugano Convention, the courts of signatory states will respect a choice of jurisdiction in a commercial contract if at least one contracting party is domiciled in a signatory state and the jurisdiction selected is a signatory state. If none of the contracting parties are domiciled in a signatory state, the chosen court may decline jurisdiction. Subject to the points described above, persons domiciled in a signatory state must be sued in the courts of that signatory state (regardless of nationality). Where parallel proceedings arise, the second court must stay its proceedings until the first court has assessed the question of jurisdiction.
The 2005 Hague Convention on Choice of Court Agreements (“HCCA“), between the EU, Mexico, Singapore and Montenegro, ensures that where parties have opted for a court to have exclusive jurisdiction to resolve disputes, the chosen court must hear the case and any other court must decline jurisdiction. The judgment of the chosen court will be recognised and enforced by the courts in the other signatory states.
Post-Brexit legal framework
Currently, the EU is a signatory to the Brussels Regulation, the Lugano Convention and the HCCA. As a result of its membership of the EU, the UK benefits from the rules described above.
On the UK’s departure from the EU, the Brussels Regulation will cease to apply because the UK will no longer be an EU Member State. The UK’s appeal to join the Lugano Convention as an independent signatory has, to date, been rebuffed by the EU. However, the UK is permitted to accede to the HCCA unilaterally and has submitted its accession instrument to do so (although the accession date is uncertain and depends on the nature of the UK’s departure from the EU). In practice, the Brussels Regulation has largely superseded the HCCA, so there is limited case law on how the HCCA operates, and no precedent on how it would apply to the UK as an independent signatory.
Impact where the English courts have exclusive jurisdiction
Assuming the UK accedes to the HCCA, Brexit should not affect contracts containing exclusive jurisdiction clauses in favour of English courts, even in the event of a no-deal departure.
Impact where the English courts have non-exclusive jurisdiction
The absence of the Brussels Regulation and Lugano Convention (or any equivalent agreement between the EU and the UK) will create some uncertainty in relation to contracts that are subject to the non-exclusive jurisdiction of the English courts.
The risks are twofold. Firstly, courts in EU Member States may not accept the jurisdiction of the English courts, which could lead to parallel proceedings. Secondly, courts in EU Member States may not enforce judgments made by the English courts against parties or assets located in their jurisdiction. As such, non-exclusive jurisdiction clauses drafted prior to the Brexit referendum may not have the impact intended by the parties at the time of contract drafting. These risks could see litigation arising under international commercial contracts becoming more uncertain, expensive and time-consuming.
Impact where disputes are resolved through arbitration
If a contract provides for the resolution of disputes by arbitration (for example, at the International Court of Arbitration of the International Chamber of Commerce (“ICC“) or the London Court of International Arbitration (“LCIA“)), Brexit will have no impact. The recognition and enforcement of arbitral awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which the UK is a contracting party in its own right, rather than as an EU Member State.
Serving notice of proceedings
Brexit will also affect the way in which parties serve notice of proceedings. Currently, the Service Regulation provides a mechanism for the service of UK court proceedings on defendants in other EU Member States, and vice versa. It applies in the absence of any express contractual provisions that designate a specified UK address for service or an agent for service of process.
The Service Regulation will no longer apply to the service of proceedings in the UK after Brexit. Instead, service of proceedings between parties in the UK and EU Member States will revert to being regulated by common law and the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (“Hague Service Convention“). The Hague Service Convention will facilitate the service of UK court proceedings on defendants in other EU Member States (and vice versa), and is still used to enable the service of court documents in some international disputes. However, the process is more complex and time-consuming than that established by the Service Regulation.
Even with the mechanism established by the Service Regulation, it is common for parties to contract for a less complicated procedure for serving court documents – typically by appointing an agent for service of process. Where parties have already effectively contracted out of the Service Regulation by appointing an agent for service of process, the delivery of court documents will remain unaffected by Brexit. Given that the process established by the Hague Service Convention is more cumbersome than the equivalent set out in the Service Regulation, there is yet more reason post-Brexit to contract out of the statutory regime by designating an agent for service of process.
- Businesses should continue to use English law if that was the previous preferred law of choice. Counterparties demanding new governing law are being opportunistic and such demands should be resisted, unless a rationale (beyond Brexit) is provided.
- Consider whether it would be prudent to review the choice of jurisdiction or whether arbitration would be an appropriate mechanism for resolving disputes.
- Consider whether to appoint an agent for service of process and contractually provide for service on that agent.