Jurisdiction and Enforceability Post-Brexit

Back in 2017, we considered the potential impact of Brexit on choice of law and jurisdiction agreements and the recognition and enforceability of English judgments and arbitration awards under the European regime. Now that the UK has left the EU, we revisit the position below and consider what, if any, impact there will be during the transition period and after, and whether UK companies need to make changes to their contracts as a result.

During the transition period

The Withdrawal Agreement concluded between the UK and the EU provides for a "transition period" running until 31 December 2020. The Agreement itself provides for the transition period to be extended by up to two years, although the UK government has currently ruled out any extension. During the transition period, the Withdrawal Agreement provides that EU law will continue to apply in the UK. Accordingly, very little should change between now and (at least) 31 December 2020, meaning that:

  • The Brussels I (Recast) Regulation will continue to regulate jurisdiction and the recognition and enforcement of judgments between EU Member States and the UK;
     
  • The Lugano II Convention will continue to regulate jurisdiction and enforcement of judgments (in civil and commercial matters) between EU Member States (and the UK) and European Free Trade Association countries other than Liechtenstein, namely Iceland, Norway and Switzerland;
     
  • The Hague Convention on Choice of Court Agreements will continue to give effect to exclusive choice of court agreements and judgments of the courts nominated thereunder in contracts between EU Member States (and the UK) and Mexico and Singapore; and
     
  • The Rome I and Rome II Regulations will continue to regulate the law applicable to contractual and non-contractual obligations respectively, in the absence of party choice.

After the transition period

The position after the transition period is more complicated and to some extent uncertain as it remains unclear what further agreements the UK will enter into with the EU. In the absence of further agreement, the position will be as follows:

  • The Brussels I (Recast) Regulation will continue to regulate jurisdiction and the recognition and enforcement of judgments between EU Member States and the UK only where proceedings are commenced before the end of the transition period, but will otherwise cease to apply;
     
  • The Lugano II Convention regulating jurisdiction and enforcement of judgments between the EU (and UK) and EFTA countries will cease to apply;
     
  • The Hague Convention on Choice of Court Agreements will cease to apply by virtue of the UK's membership of the EU; and
     
  • The Rome I and Rome II Regulations regulating applicable law will continue to apply to contracts concluded, or events giving rise to damage before the end of the transition period (pursuant to the Withdrawal Agreement) and thereafter (pursuant to proposed legislation which would incorporate the Regulations into UK law).

It is widely anticipated that the UK will accede to the Hague Convention on Choice of Court Agreements as a signatory in its own right following the transition period. Assuming that is the case, the position will be straightforward for contracts entered into from 1 January 2021 where there is an exclusive jurisdiction clause in favour of the UK or an EU Member State; EU courts will uphold jurisdiction agreements and enforce ensuing judgments pursuant to the Convention and vice-versa.

The position is far less clear for contracts entered into before 1 January 2021 where proceedings are commenced after the end of the transition period. In such cases, the Recast Regulation will not apply and it is unclear whether EU Courts (and those in Mexico/Singapore) will regard the Hague Convention as applicable either. On the one hand, it may be said that the Hague Convention applies to all contracts entered into after 1 October 2015 (when it came into force in the EU and therefore the UK), on the other hand it may be said that it only applies from the date on which the UK re-accedes (in theory 1 January 2021). The UK has previously indicated in draft legislation that it would treat the Convention as having been in place since 1 October 2015, but to date there does not appear to have been any reciprocal statement from the EU or Mexico/Singapore.

The position is equally uncertain for contracts entered into before 1 October 2015 (where the Hague Convention could never apply) and where proceedings are commenced after the transition period such that the Recast Regulation does not apply.

The position vis-à-vis EFTA countries is also uncertain, although it is possible that the UK will simply re-join the Lugano Convention, in which case very little will change.

What about arbitration?

Both during and after the transition period, London-seated arbitrations will be unaffected by Brexit and will continue to be governed by the Arbitration Act 1996, together with any applicable institutional rules. The UK and all EU Member States (and EFTA countries, Mexico and Singapore) are signatories to the 1958 New York Convention meaning that arbitration awards from London-seated arbitrations will continue to be enforceable in the same way that they were pre-Brexit.

Do UK businesses need to amend their contracts?

UK businesses with existing contractual arrangements with EU/EFTA countries, Mexico or Singapore, as well as those entering into contractual arrangements with such countries during the transition period and/or after, should be considering whether their jurisdiction clauses are adequate as well as whether and how any resultant judgments will be enforceable during the transition period and beyond. As noted above, particular uncertainty surrounds contracts entered into before 1 October 2015 (before the Hague Convention), those entered into after the transition period, and those involving the EFTA countries; Iceland, Norway and Switzerland. Businesses keen to ensure absolute certainty after the transition period may wish to consider including an arbitration agreement in their contracts.

For more information please contact Sara Chisholm-Batten or Harriet Chopra