Now loading.
Please wait.

menu

 DEUTSCH | ENGLISH | 中文 

You are here: Current / Client Briefing  / Client Information Details
CurrentClient Briefing   Client Information Details

Client Information

The impact of Brexit on cross-border disputes

Client Briefing Litigation & Arbitration - 


The EU-UK Trade and Cooperation Agreement, hastily put into force on 01 January 2021 to avoid a “no-deal Brexit”, omits a key area of commercial law – applicable law and international civil procedure. The harmonised rules of the European Union have now been replaced with a volatile mix of national, European, and international law. This generates a host of complex legal questions for cross-border disputes with an English element. Companies engaged in international activities will be well-advised to revisit their choice of law and choice of jurisdiction clauses and adapt these where appropriate, or to introduce arbitration clauses where necessary.

1. Overview

The EU-UK Trade and Cooperation Agreement makes no provision for judicial cooperation in civil and commercial matters, despite the global importance of the English legal system and in particular London as a global dispute resolution hub. As the prior EU rules no longer apply, this means that for areas such as international jurisdiction or conflict of laws the final outcome resembles a “hard” Brexit. Practically every area of cross-border commercial activity between the EU and England & Wales will now become more legally complex. Companies active in these jurisdictions will therefore need to assess whether their current contractual arrangements still lead to satisfactory results.

2. Jurisdiction

Perhaps most significantly, Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, often referred to as Brussels I Regulation (recast), will no longer apply to England & Wales, meaning that the rules on which court has jurisdiction over a cross-border matter have shifted drastically. Unfortunately, the question of which rules will apply instead is subject to significant legal uncertainty. One possibility is that the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters, which was superseded by today's system of the Brussels I Regulation in 2002, will make an unlikely comeback. However, a considerable argument can be made in support of the notion that the Brussels Convention ceased to be in force when its contracting states migrated into the Brussels I Regulation and, thus, it cannot serve as a fallback regime.

Whatever the result, the lack of clear rules in the Trade and Cooperation Agreement is a clear step back compared to the situation within the European Union. As regards England & Wales, court judgments will no longer be easily recognised and enforced across national borders. Instead, every decision will now have to be reviewed in separate proceedings in order to be recognized and enforced. In addition to significant delays and a major increase in costs, this poses a real risk of non-recognition.

A rather handy solution for this predicament would be UK's accession to the Lugano Treaty, which largely mirrors the Brussels I (recast) rules and applies between the EU and the EFTA States Iceland, Norway and Switzerland. In April 2020, the United Kingdom applied to accede to this Treaty. However, its accession would have to be approved by the EU. The fact that the EU and the United Kingdom were unable to reach a consensus in the course of the Trade and Cooperation Agreement would tend to indicate that such an approval is unlikely in the near future.

Nonetheless, the United Kingdom has already been able to accede to the 2005 Hague Convention on Choice of Court Agreements. However, since this Convention applies only to exclusive choice of court agreements between companies, this is far from a cure-all. Even where the substantive requirements of the Hague Convention are met, its temporal scope remains unclear. The Convention certainly applies to choice of court agreements entered into after 1 January 2021, but the position on choice of court agreements entered into between October 2015, the date the EU acceded to the Convention, and the end of the EU-UK transition period is ambiguous. The United Kingdom has argued that the Hague Convention still applies, since the UK was indirectly a member of the Convention through its EU membership. The European Union, for its part, has called this reading into question – prior to 1 January, the argument goes, the UK was not a member in its own right, and therefore not a member at all.

The changes discussed above are likely to increase drastically the field of application for English autonomous rules on international civil procedure. This also re-opens a number of issues previously considered closed. For example, “torpedo” proceedings, where a matter is intentionally brought before a court in a jurisdiction known for its slow pace (Italy long being a favourite in this regard) in an attempt to prevent litigation in a more efficient forum such as England & Wales will now once again pose a danger to English proceedings. Conversely, English courts will now once again be able to issue "anti-suit injunctions" in order to prevent parties from litigating a case in the EU. What is more, the doctrine of “forum non conveniens” becomes available again, enabling English courts to decline jurisdiction if they deem a foreign forum more suitable to adjudicate the matter. These peculiarities of the Common Law and the consequent differences to Continental systems mean that choice of forum is now particularly important. In turn, this will enable parties to approach their case more strategically by resorting to “forum shopping”, i.e. selecting the jurisdiction they believe is most favourable to their claim.

3. Judicial Co-Operation

Even once these difficulties regarding the competent court have been overcome and a matter is being litigated, the exit from the EU rules without new rules to replace them is likely to create further difficulties within the proceedings themselves. The lack of a deal on these points means that EU law dealing with service of documents or cooperation between courts in taking of evidence now no longer applies. While such technicalities are rarely the centre of attention while an established framework ensures an orderly procedure, they are prone to significant challenges now. This is because the parties will have to resort to domestic law or, in many cases, to a number of international treaties, some of which are rather arcane. Compared to the previous system of harmonised rules, navigating this terrain successfully will require more expertise.

4. Applicable Law

One area where little has changed – for now – are the rules on the applicable substantive law. For the time being, the UK has simply transposed the Rome I and Rome II Regulations, which deal with the law applicable to contractual and non-contractual claims respectively, into national law. Nonetheless, in the long term this does not mean that the EU and UK rules will be the same: Since this is now a question of domestic UK law, the United Kingdom is both able to change these rules and to depart from the extensive jurisprudence of the Court of Justice of the European Union interpreting them. The future of this area of law is therefore far from clear.

5. Recommended Action

By way of respite, a field of law completely unaffected by Brexit is the law of international arbitration. This area, which has never been subject to harmonised EU rules, will continue to provide an attractive option wherever cross-border enforcement is important, since the 1958 New York Convention with its 166 State parties continues to apply. In practice, the significant uncertainties regarding international litigation will mean that in many cases choosing arbitration may be the better alternative.

Regarding intertemporal application, litigation already pending before the end of the transition period is equally unaffected: In this respect, Arts 66 et seq of the EU-UK Withdrawal Agreement of 12 November 2019 mandate the continued application of EU law.

In sum, cross-border disputes with a connection to the United Kingdom are therefore likely to become more complex, more time-consuming, and more expensive under the Trade and Cooperation Agreement. The end of the “mutual trust” principle between the EU and the UK and the resurgence of the Common Law leads to new litigation risks, but also creates a set of new strategic options that circumspect parties can use to their advantage. Many companies will be well advised to assess whether their choice of law and choice of court clauses are up-to-date or need to be adapted. In addition, arbitration may now be an even more attractive choice than it previously was, since it largely avoids the transitional issues discussed above.

Schilling, Zutt & Anschütz have extensive experience advising on cross-border matters and representing international companies in both litigation and international arbitration. Our attorneys will continue to influence international commercial law as it develops in response to Brexit both through their practical work as litigators and arbitrators, as well as through their academic contributions in top-level fora.

This client briefing constitutes non-binding overview of recent developments in German competition law and is not intended to replace individual legal advice. In case of comments or questions please contact:

Dr. Ben Steinbrück, MJur (Oxford)
Dr. Stefan Zeyher, M.B.L.-HSG

 

FILES:
2021-01_SZA_Client_Information_Brexit_Cross-Border_Disputes.pdf 491 KB