Court of Appeal reminds drafters to get the dispute resolution clause exactly how you want it post Brexit

As we left the European Union at the end of last year, it had been hoped that despite our departure we would see continued co-operation in civil justice. Whilst members of the EU, citizens in both the UK and the EU enjoyed the benefit of the Brussels Regulation recast which allows mutual recognition of judgments and enforcement. The Regulation went further than simply judgments and enforcement, providing a framework for intra-EU jurisdiction issues.  The Regulation first appeared as the Brussels Convention in 1968 and developed until the latest iteration of 2012.  Being identified as a Single Market instrument, it was a foregone conclusion that the Brussels Regulation would no longer have force as between the UK and the EU after the UK’s departure.

Stakeholders in the UK had hoped that the Brussels Regulation would be replaced with the Lugano Convention; an agreement for civil justice co-operation between the EU states and three of the EFTA states. The Lugano Convention provides similar co-operation between nations to the Brussels Regulation. The Lugano Convention dates from 1988 and was updated in 2008 to reflect the then Brussels Regulation.  For this reason, the Lugano Convention still has some of the issues which the 2012 Brussels Regulation sought to address.

The UK applied to accede to the Lugano Convention in April 2020. The EU has a veto. The application was all the more important because although many issues of justice were addressed in the Trade and Co-operation Agreement between the EU and the UK reached at the end of 2020, markedly, civil justice co-operation was not included. The Commission has the first say on accession to Lugano but not the last.  Unfortunately accession became caught up in the politics of Brexit with some commentators suggesting that accession would allow the UK to have its cake and eat it. Some suggested that Lugano was, like Brussels, a Single Market instrument and therefore we could not accede to it. The EU Commission has indeed taken this line on two occasions. In a Note Verbale to the Swiss Federal Council, the EU Commission has very recently said that it is ‘not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention’. This is not the end but it’s certainly several steps backwards. In due course, it’s for the nation states to decide which they do by majority in the EU Council. Don’t hold your breath.

What has this to do with drafting dispute resolution clauses. Much. The parties to a contract may provide in it for how any disputes relating to the contract may be resolved. This can include a choice of court or arbitration provision.  That choice can be exclusive or non-exclusive.  Such clauses are recognised as predominant in the Brussels Regulation and Lugano Convention.  Regulation 25 of the Brussels Regulation provides an assumption that the parties choice of court is exclusive, unless the contract expressly provides for non-exclusivity.  Outside the Brussels Regulation and Lugano, the predominance of exclusive choice of court agreements is recognised in international agreement; the Hague Convention on the Choice of Court Agreements provides for the international recognition of choice of court agreements but to fall within the Convention it has to be an exclusive choice.

Whilst everything in the garden is rosy as parties look forward to working together, they often pay scant attention to terms relating to the resolution of disputes. This habit can have dire consequences. For instance parties should be very careful as to the jurisdiction in which claims may be resolved and the applicable law. If provision fails, parties might find themselves resolving disputes over many years in an unfamiliar jurisdiction with an unfamiliar law.

The following is a standard term:

“Governing Law and Jurisdiction.

The Agreement shall be governed by and construed in accordance with the laws of England and Wales and the parties hereby irrevocably submit to the non-exclusive jurisdiction of the Courts of England and Wales as regards any claim, dispute or matter arising under or in connection with this Agreement.”

This was the clause recently considered in the Court of Appeal in Perform Content Services Ltd v Ness Global Services Ltd [2021] EWCA Civ 981.  In this case the issue was the effect of a choice of court provision under the Brussels Regulation (which still applied to this dispute). Perform had commenced proceedings in New Jersey. Subsequently, Ness started proceedings in London based on the terms of the choice of court clause.   Perform argued that the London court should stay its proceedings in favour of those started by it in New Jersey.  They prayed in aid Article 33(1) Brussels Regulation which provides for the court’s discretion to stay proceedings in a member state in favour of the courts of a third state where the court’s jurisdiction is based on the domicile of the parties.

The Court concluded that Article 33 did not come into play and that Article 25 was predominant in the hierarchy of the Regulation’s provisions because it provides a complete framework for the recognition of choice of court agreements. Article 25, however, does not provide for the staying of proceedings and indeed allows concurrent jurisdictions as here.

The important take away from this decision is that, if courts in the EU concur with the Court of Appeal as to the interpretation of the Brussels Regulation, those courts may refuse to stay proceedings in an EU member state that are commenced in competition with English proceedings, the UK having become the third country after Brexit.

This is a timely reminder, post Brexit, to all those drafting agreements to pay very close attention to the dispute resolution clause. One way of removing a vast swathe of uncertainty is to provide for resolution through arbitration. The New York Convention – to which most trading nations are joined – provides a uniform code for the recognition and enforcement of arbitration agreements. Even then there are issues that need consideration in the drafting. If arbitration is for any reason not a choice then ensure there is agreement on the courts and the law that applies.

If you have any queries about this matter, please contact David Greene or any member of the Litigation & Dispute Resolution team.

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