Brexit and business: UK seeking to replicate existing regime for cross-border disputes and enforcement

On 22 August 2017, the UK government published the latest in a series of position papers, aimed at addressing criticisms that it has been overly coy in setting out its position (or has lacked a clear position) on the major issues in the Brexit negotiations. The paper on “Providing a cross-border civil judicial cooperation framework” proposes that the UK and the EU essentially replicate the existing regime for jurisdiction and enforcement of civil judgments. The UK will similarly be looking to preserve existing arrangements with countries outside the EU. If the EU agrees with this proposal, it would provide much-needed certainty for businesses, whether based in the UK, the EU or elsewhere.

Why does this matter?

The EU has comprehensive regimes for deciding, in any given dispute involving EU parties, which country’s law applies to that dispute and which country’s courts have jurisdiction to hear the dispute.  Where judgment has been given by the court of an EU Member State, it can then be easily enforced through the courts of any other Member State.

It is important to recognise, first, that whatever the outcome of Brexit negotiations, courts in EU Member States and the UK are likely to continue to recognise jurisdiction clauses and civil judgments given by the other’s courts.  However, as we have explained previously, there are a number of possible alternatives as to which regime will apply, which vary significantly in their scope and ease of use.  The suggestion in some reports that English judgments simply will not be enforceable in other EU countries once the current regulations cease to have effect is wrong.

The legal market is an important part of the UK economy, which is underpinned by the extensive use of English law and English jurisdiction to govern and resolve disputes between businesses across the world. Understandably, therefore, there have been calls for the UK government to set out its position on judicial cooperation post-Brexit.  This paper does that.

What is the UK government proposing?

Choice of law

The EU legislation governing applicable law (the Rome I and II Regulations), unlike the regime on jurisdiction, does not require judicial reciprocity.  The Rome I Regulation, which applies to contracts, is based on the principle that where a contract provides for the law of a given country (whether within or outside the EU) to apply, this will be respected by the courts of EU Member States.  Under the UK government’s draft Repeal Bill, this provision would become UK law, as part of the general adoption of EU-based law. The position paper, though, is explicit in stating that the UK intends to preserve this position.  As a result, businesses can be confident that an English governing law clause will continue to be recognised in any EU Member State, and that the English courts will continue to respect governing law clauses applying foreign laws.

Jurisdiction and recognition of judgments: with the EU

For jurisdiction clauses and civil judgments (currently governed by the Recast Brussels I Regulation), the position paper argues that:

Businesses and investors value certainty. The EU and the UK will continue to be key trading partners and to invest in each other’s economies. Confidence in cross-border commercial contracts and investment relationships is underpinned and enhanced by clear rules governing: which country’s courts hold responsibility for resolving disputes; the enforcement of the resulting judgment in other countries where a party has assets; and the approach to managing insolvency in cross-border situations.

In order to provide that certainty, and to ensure that the litigation of any cross-border disputes is as predictable and efficient as possible, the paper confirms that the UK is aiming for an agreement “that allows for close and comprehensive cross-border civil judicial cooperation on a reciprocal basis, which reflects closely the substantive principles of cooperation under the current EU framework.”

Conceptually at least, it would be reasonably straightforward for the UK and the EU to agree (perhaps as part of an agreement on the future trading arrangements) to a regime that replicated or at least closely mirrored the Brussels Recast Regulation.

International conventions

As well as looking to replicate the existing intra-EU regime, the position paper confirms that the UK will be seeking to preserve current arrangements with other countries, by seeking to accede in its own right to conventions that the EU is a party to, including:

• The Lugano Convention, which follows the previous version of the Brussels Regulation, and is therefore similar to the intra-EU regime, but applies between EU Member States and Norway, Iceland or Switzerland.  Countries outside the European Free Trade Area can apply to be parties to the Lugano Convention, but this requires agreement by all of the other parties (so could potentially be blocked by the EU); and
• The 2005 Hague Convention on Choice of Law Agreements, which currently only applies to EU Member States, Mexico and Singapore, but is being considered by a number of other countries. The scope of the Hague Convention is more limited than the Brussels Recast Regulation or the Lugano Convention, but still includes the essential provision that courts will respect exclusive jurisdiction clauses and judgments of other countries that are a party to the Convention where jurisdiction was established under an exclusive jurisdiction clause.  The UK is free to accede to the Hague Convention unilaterally.

Are there reasons to want to break from the existing EU arrangements?

Although judicial cooperation is generally seen as good for business, the English courts and English lawyers have not always welcomed all aspects of the EU regime.

The lack of flexibility of the rules on jurisdiction in the original version of the Brussels Regulation was a cause of great concern to those dealing with international disputes because of the scope for abusive tactics such as the renowned “Italian torpedo”. This was where evasive defendants could prevent proceedings in England for many years by starting tactical proceedings in jurisdictions such as Greece and Italy, where issues of jurisdiction might take years to determine.  This flaw in the regime was eventually resolved (at least in part) by the amendments to the Regulation in 2015, but there remain points of concern.  For example, businesses may not be pleased to find that a judgment or injunction of a court in Bulgaria, for example, is automatically enforceable in England with very limited rights to challenge enforcement.  Concerns such as these resulted in the UK opting out of the European Asset Preservation Order Regulation, which relates to the pan-European freezing of bank accounts.

The EU Regulations are therefore in some ways a mixed blessing.

Will the EU agree with the UK?

In general terms, cross-border judicial cooperation agreements are of benefit to businesses, wherever they are based.  Knowing that jurisdiction and choice of law clauses will be respected provides valuable certainty and the ability to enforce wherever assets may be located reduces the risk of contracting cross-border.  The UK is likely to find support for its position from businesses.

The consistent message from the EU, though, has been that the UK should not expect to continue to have the benefits of EU membership without being bound by the obligations (such as financial contributions) that go with it.  The UK and EU would also need to agree which court or tribunal is able to rule on the application of such an agreement.  The Court of Justice of the EU (CJEU) has final jurisdiction to decide on the application of the Recast Brussels Regulation; a major point of negotiation between the UK and the EU is the extent that the CJEU will retain jurisdiction over the UK, or else what replaces it as arbiter for UK-EU matters such as judicial cooperation.

In any event, the EU is likely to stick to its approach that the on-going aspects of the UK’s proposals will only be discussed in ‘phase 2’ of the Brexit negotiations, once the EU is satisfied that ‘satisfactory progress’ has been made on the UK’s exit arrangements.

For now, the message to businesses remains the same – that whilst certainty as to which regime applies would be welcomed, English law and jurisdiction clauses are likely to continue to be recognised and enforceable, in one way or another.  A regime similar to the Brussels Recast Regulation would have many advantages, but cross-border enforcement is rarely straightforward whichever regime applies.