Brexit and dispute resolution - the legal implications
It is now perhaps trite to say that the full implications of the Brexit vote will not be known for many years as the terms of the UK’s exit from the EU are negotiated and implemented. Despite the uncertainties, however, there are strategies which businesses can adopt to minimise the impact of Brexit on ongoing and future disputes, and to protect their interests in the short- and medium-term.
1. Is your dispute with a party based in a remaining EU country?
Current EU rules make enforcing a court judgment obtained against a party based in another EU member state much simpler (and therefore cheaper) than they may prove to be after Brexit is formalised.
These rules – contained in the Brussels I Regulation and the Recast Brussels I Regulation – enable a judgment obtained in the court of one member state to be enforced against a party based in another as if it were a judgment of their home court. This avoids lengthy delays in enforcing judgment awards against assets based in other member states and having to follow the assorted rules for enforcement of foreign judgments which each of those states applies.
Post-Brexit, the Brussels regime will not continue to apply and, unless an alternative position is specifically negotiated as a term of exit, UK judgments will be enforceable as foreign judgments in the remaining EU states. The UK could become a signatory of the Lugano Convention, whose enforcement provisions mirror those contained in the Brussels Regulations. However, those in possession of an existing court judgment which needs to be enforced in another EU state should take steps to enforce it as soon as possible in order to take advantage of the certainty of the current regime. Similarly, those already in litigation or contemplating litigation but without a final judgment should be mindful of unnecessary delays in procedure or settlement negotiations to ensure that judgment is obtained and can be enforced prior to Brexit.
The service of documents and taking of evidence from parties in the remaining EU states may also become more cumbersome after the UK leaves the EU. If the UK does sign up to the Lugano Convention, the position will not change materially from that which already applies under the Brussels regime. However, to avoid uncertainty, claims should, where possible, be issued and progressed promptly against parties based in the EU outside the UK, and certainly before Brexit negotiations are concluded.
2. Is it clear which country has jurisdiction over your potential dispute and which country’s law governs it?
A historic problem in international contractual disputes arose where each party issued court proceedings against the other in different countries. This resulted in two sets of court proceedings running in parallel to determine the same issue, with two sets of costs being incurred and the potential for conflicting outcomes. Some parties would even issue proceedings in jurisdictions knowing it would take years to resolve (effectively torpedoing the final determination of the dispute). This often led to one court issuing an anti-suit injunction against a party to make it stop the other court case (or ‘suit’).
Under existing EU regulations, this problem is avoided by a general rule that a defendant in civil or commercial matters should be sued in the courts of the country in which it is domiciled, with a number of exceptions. One exception to this rule is where the parties have agreed in the contract which country's court will have exclusive jurisdiction to determine a dispute arising under it. International commercial contracts will therefore often have a jurisdiction clause which identifies which courts will have jurisdiction to determine any dispute.
Most commentators agree that the remaining members of the EU are unlikely to allow the Recast Regulation to continue to apply to the UK after Brexit, not least because this was attempted and refused for Switzerland. However, it is likely that exclusive jurisdiction clauses will continue to be upheld.
As the UK’s exit draws closer, any party involved in a dispute which has links to other EU jurisdictions, despite the existence of an exclusive jurisdiction clause, should take specific advice about the strategic timing of the issue of claims and the potential for parties to stifle them.
Similarly, most contracts have clauses specifying which law governs the contract. If they don’t, the question of which law governs the contractual and non-contractual obligations is determined by EU law (the Rome I and II Regulations). What the position will be post-Brexit is uncertain, so if a dispute arises and parties seek more certainty, it may be more advisable to seek a determination sooner rather than later.