Choice of governing law and jurisdiction post-Brexit

Introduction

Even though the nature of the future relationship between the UK and the EU remains uncertain, in the field of cross border civil litigation, it is possible to set out the parameters of the post-Brexit landscape. When drafting commercial contracts, parties will need to consider the impact of Brexit on issues such as choice of law, choice of jurisdiction and enforcement of judgments, although in most instances, the reasons for choosing English law or the English courts will endure post-Brexit.

Choice of law

The question of choice of governing law should be relatively straightforward once the UK has left the EU: the position essentially will reflect the position prior to Brexit.

Before Brexit, the UK is bound by the rules for choice of law set out in the Rome I Regulation (593/2008) with respect to contractual obligations and in the Rome II Regulation (864/2007),which provides an ability for parties to adopt a choice of law for non-contractual obligations.

The UK Government will transpose both the Rome I Regulation and the Rome II Regulation into UK law via the EU (Withdrawal) Act 2018. As such, the UK will continue to apply the rules set out in Rome I and Rome II to determine the proper law of the contract and the law governing non-contractual obligations.

Further, the Rome I and Rome II Regulations do not rely on reciprocity and accordingly, subject to a few specific exceptions, EU Member State courts will continue to uphold English choice of law clauses even in the event of a “no deal” Brexit.

As such, there is no reason not to continue to choose English law to govern agreements if that would have been the choice prior to Brexit – and such choice should continue to be respected in EU Member States via the application of Rome I following Brexit.

Choice of jurisdiction

The question of choice of jurisdiction requires slightly greater analysis. Prior to Brexit, the UK is bound by the rules for choice of jurisdiction set out in the Brussels I Recast Regulation (1215/2012) (the Brussels Regulation). In general, the Brussels Regulation provides that parties should be sued in the courts of the EU Member State where they are domiciled; although, where the parties have agreed that the courts of a particular EU Member State have exclusive jurisdiction, only those courts will have jurisdiction. If proceedings were brought in the courts of another EU Member State then those other courts should stay proceedings pending determination of jurisdiction by the chosen court.

The Brussels Regulation is inherently reciprocal. The UK could in theory transpose the contents of the Brussels Regulation into UK law via the EU (Withdrawal) Act, although this would have limited practical benefit if courts of EU Member States were no longer bound to respect and uphold English jurisdiction and indeed, the UK Government has already indicated that the UK will revoke the Brussels Regulation in the event of a no deal Brexit.

In the absence of any such agreement and save for specified circumstances set out in the Brussels Regulation, it will be for the domestic laws of each EU Member State to determine whether or not they would give effect to a clause giving jurisdiction to a UK court and for UK domestic law to determine whether or not a clause giving jurisdiction to an EU court would be effective.¹

Enforcement of judgments

Turning to enforcement of judgments, as we discussed previously in Theimpact of Brexit on English litigation, the same issues are likely to arise. Under Articles 36 and 39 of the Brussels Regulation, a judgment given in an EU Member State is recognised and enforceable in all other EU Member States without any special procedure or declaration of enforceability being required. In the absence of the Brussels Regulation or another reciprocal regime for the enforcement of judgments, enforcement of a non-EU judgment in an EU Member State is a matter for the local law in the enforcing state. This is not to say, however, that enforcement of such judgments will be unduly burdensome, although the procedure may not be as straightforward. In any event, this is unlikely to be the end of the story. Although it is the stated intention of the UK Government to seek an agreement with the EU which would replicate, as far as possible, the benefits of the Brussels Regulation, in the absence of any such agreement, one of the ways in which the UK will be able to mitigate any perceived disadvantage arising from the UK falling outside of the Brussels Regulation is by applying to accede to the Hague Choice of Court Convention (the Hague Convention) w in its own right.

The Hague Convention is an international agreement pursuant to which the courts of contracting states agree to uphold exclusive jurisdiction agreements provided that the nominated court is in one of the contracting states and the agreement complies with certain prescribed standards. The Hague Convention is limited in that it would apply to only certain types of exclusive jurisdiction clauses (it would almost certainly not apply to asymmetric jurisdiction clauses and hybrid arbitration clauses). It also does not apply to “interim measures of protection” so (for example) judgments granting an interim freezing order of a defendant’s assets could not be enforced under the Hague Convention. However, in terms of coverage, the contracting states of the Hague Convention comprise the Member States of the EU, Mexico, Singapore and Montenegro – although not currently EFTA countries such as Norway and Switzerland. It has also been signed (but not ratified) by the US and China.

It should also be noted that Article 16 provides that the Hague Convention only applies where an exclusive jurisdiction agreement was agreed after the entry into force of the Hague Convention for the chosen state and shall not apply to proceedings instituted before its entry into force for the state of the court seised. As such, there is a question over the status of transactions entered into prior to the UK’s accession to the Hague Convention in its own right post-Brexit. So far as the UK is concerned, the UK Hague Regulations will purport to effect a seamless transition; however whether the courts of other contracting states take the same approach remains to be seen.

Crucially, the UK can accede to the Hague Convention unilaterally – it does not depend on agreement with the EU. On December 28, 2018, the UK filed its instrument of accession to the Hague Choice of Courts Convention. It will come into force on November 1, 2019 in the event of a no deal Brexit. From that date, in accordance with the Convention, English and EU Courts will respect exclusive choice of courts agreements designating England or an EU Member State and they will also enforce the resulting judgements. If a withdrawal agreement is signed, ratified and approved by the UK before October 31, 2019 the Instrument of Accession will be withdrawn.

Finally, it is also worth mentioning arbitration: international arbitration awards are enforced under the New York Convention, to which all EU Member States, including the UK, are signatories. Accordingly, the UK’s withdrawal from the EU will have no impact on the enforcement of English arbitration awards in EU countries (or elsewhere).

Practical considerations

In most cases, the reasons parties choose the UK courts to resolve disputes have little to do with the UK’s membership of the EU and will remain post-Brexit. These include the English courts’ reputation for quality and independence, the absence of punitive damages and a ‘loser pays costs’ system.

Nevertheless, where enforcement is likely to be an issue, it will be necessary to consider the potential impact of Brexit. If the contract is unlikely to require enforcement in an EU Member State then Brexit will not impact upon any analysis of choice of jurisdiction or enforcement at all. It is important to remember that the UK has favourable regimes for the enforcement of judgments with a number of nonEU jurisdictions. In contrast, if the contract is likely to require enforcement in an EU Member State following Brexit, there may be some advantage to agreeing that the courts of England (or other UK courts) have exclusive jurisdiction if this will mean that the provisions of the Hague Convention relating to choice of jurisdiction and enforcement apply.