Brexit: What it may mean for your business transactions and commercial disputes?

The process of separation of the UK from the EU will take a few years and a number of scenarios of the UK’s exit from the EU and future relationship with it are possible. Accordingly, at this stage it is impossible to predict with any reasonable certainty what the exact impact of Brexit on existing and future transactions and disputes will be. However, it is important to identify the key areas where EU law currently applies and monitor (and be prepared for) the forthcoming changes.

The UK’s departure from the EU may affect the following key aspects of business transactions and commercial disputes (which are considered in more detail below):

• Jurisdiction
• Governing law
• Enforcement of judgments
• Service of court proceedings.

 

Jurisdiction in civil and commercial matters

The issues of jurisdiction of state courts of EU Member States (except Denmark) in civil and commercial matters are currently governed by the Regulation 1215/2012 (Recast Judgments Regulation) as interpreted in the case law of the European Court of Justice (ECJ).

Jurisdiction under the Recast Judgments Regulation is generally based on the defendant’s domicile, i.e. persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State (Article 4). This general rule is subject to a few exceptions where, in the opinion of the European legislator, the subject-matter of the dispute or the autonomy of the parties requires a different approach (for example, exclusive jurisdiction in immovable property disputes).

According to the decision of the ECJ in Owusu v Jackson (Case C-281/02), where the court of a Member State has jurisdiction because the defendant is domiciled there, it could not decline such jurisdiction on the basis that the court of another (EU or non-EU) state is a more appropriate forum (the principle of forum non conveniens does not apply).

Following the withdrawal of the UK from the EU, Recast Judgments Regulation (and the principle in Owusu) may cease to apply and, if so, it is presently unclear what regime will replace the EU rules on jurisdiction. In these circumstances it is of critical importance to include carefully considered and drafted jurisdiction provisions in transactional documentation.

Governing law

At present the governing law of contractual obligations is determined in accordance with Rome I Regulation ((EC) No 593/2008) and Rome II Regulation ((EC) 864/2007) applies to non-contractual obligations, such as torts and unjust enrichment.

If the UK eventually leaves the EU, Rome I and II may cease to be applicable in the UK. Again, it is currently unclear as to what rules will replace these instruments. Accordingly, it is strongly recommended to include in transactional documentation carefully drafted express choice of law clauses covering both obligations under the contract and any related non-contractual obligations.

Enforcement of judgments

The Recast Brussels Regulation provides for a simplified mechanism for the recognition and enforcement of judgments in the EU. Under the Recast Brussels Regulation the recognition and enforcement of a judgment of an EU Member State court could only be refused in very limited circumstances. Moreover, Regulation 805/2004 “EEO Regulation) has created the European Enforcement Order procedure which has further simplified the enforcement of judgments in the EU in uncontested claims.

The enforcement and recognition regime under the Recast Brussels Regulation and the EEO Regulation may cease to apply when the UK leaves the EU and it is unclear at present whether a similar framework may be agreed between the UK and the EU.

It is submitted that due to the uncertainties of the future of the enforcement of EU judgments in the UK and UK judgments in the EU, arbitration may be a safer dispute resolution option for some transactions. Arbitral awards can be enforced under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in over 150 jurisdictions.

Service of court proceedings

Council Regulation (EC) 1393/2007 (EU Service Regulation) regulates the service of judicial and extra judicial documents out of the jurisdiction in the EU. It provides for a number of methods of service, such as service via designated “transmitting agencies” and “receiving agencies”, postal service as well as direct service. It is unknown at present what rules may replace the current regime for the service of UK court documents in the EU and the EU court documents in the UK

It should also be noted that at present under the English Civil Procedure Rules there is, generally, no requirement to obtain permission of the English court to serve proceedings out of the jurisdiction in another EU Member State. However, the position may well change following the UK’s anticipated withdrawal from the EU.

It is submitted that the risks related to service of proceedings out of the jurisdiction could be mitigated by including a service agent clause in transactional documentation appointing an agent for service of process in England, or, alternatively, using arbitration as the dispute resolution mechanism for the transaction.

Conclusion

Brexit has created uncertainty in a number of areas of law relevant for international business transactions and cross-border commercial disputes and changes in these areas need to be closely monitored.

It is now even more important to carefully consider and draft governing law and dispute resolution provisions in cross-border transactional documentation. It may also be more appropriate to use arbitration as the dispute resolution mechanism in cross-border transactions with EU parties to avoid the risks and difficulties associated with litigation in state courts in the current highly uncertain legal environment.

For further information regarding the above please contact Alexander Muksinov – Associate, or any member of the Edwin Coe Litigation & Dispute Resolution team.

If you aren’t receiving our Brexit updates directly to your mailbox, please sign up now