With the UK due to leave the institutions of the EU at the end of January 2020, and its legal system eleven months later, parties with EU-related disputes on their hands may have to act quickly to benefit from the special rules that operate during the intervening Transition Period. We explain what needs to be done, and why.
The UK election is now over, and Prime Minister Boris Johnson is in a position to ensure that the UK leaves European Union (EU) institutions at the end of January 2020 – the current deadline for Brexit. This will result in the UK moving into a Transition Period of at least eleven months, during which it will continue to be part of the EU for most legal and practical purposes, though no longer technically a member state.
In theory, the Transition Period could be extended beyond the end of 2020, but the Prime Minister has made clear that he will not seek an extension under any circumstances. Indeed, the UK’s European Union (Withdrawal Agreement) Bill now prohibits the government from asking for more time. This has serious implications, among other things, for parties who have chosen English courts to resolve their disputes and whose counterparties are located (or have assets) in the remaining EU member states.
Under the Withdrawal Agreement negotiated by the Prime Minister, courts in the EU will continue to respect exclusive jurisdiction clauses in favour of UK courts, and to enforce UK judgments, provided the initial begin before the Transition Period ends. This is in some ways a generous arrangement, because it does not matter when a judgment is actually given. In practice this could be some years after the UK separates completely from the EU. It is very different from the position the UK would have been in had it decided to leave the EU without a Withdrawal Agreement (a ‘no-deal Brexit’). Then the enforceability of UK judgments would have been a matter for the domestic rules of each member state rather than uniform EU rules (see below).
Nevertheless, it will be a challenge for some parties to commence UK proceedings before 31 December 2020, if that is when the Transition Period actually ends. Contracts sometimes stipulate that settlement negotiations and/or ADR must be attempted, for example, before proceedings begin, and English Civil Procedure Rules (CPR) generally require parties to take a number of steps before issuing a claim form – see the Practice Direction on pre-action conduct (the Practice Direction), which says that “litigation should be a last resort”.
However, as the end of the Transition Period draws near, courts in England are likely to be lenient to claimants who skip procedural steps in order to benefit from EU rules. The Practice Direction itself says that proceedings may to be issued prematurely if this is necessary to avoid a claim being out of time, and the Commercial Court Guide makes the same point in relation to jurisdiction issues, i.e. that it may be necessary to commence proceedings suddenly where delay “might prompt forum shopping in other jurisdictions”. These passages suggest that the courts will be flexible in the context of Brexit too. If that is the case, parties may have to complete ‘pre-action’ procedure after proceedings have commenced, while the court orders a stay. However, no costs sanction will be imposed.
Global rules to the rescue?
Some parties may be tempted to ignore the 31 December deadline, placing their faith in the global enforcement rules of the 2005 Hague Convention on Choice of Court Agreements (the Convention) instead. These bind all EU member states now, and the UK will re-join the Convention as an independent contracting state when Brexit it done. This is, however, a risky course to take.
It is true that the Convention should prove useful to the UK in the longer term, and has some utility now, but it is limited to judgments resulting from jurisdiction agreements entered into after the Convention comes into force for the jurisdiction concerned. The EU (including the UK) joined the Convention on 1 October 2015. However, the UK government has conceded that where the EU is concerned, the clock should be reset to zero, so to speak, after Brexit takes place. (For technical reasons, there may be a period when the Convention does not apply to the UK at all.) The Convention is anyway limited in terms of its subject matter – it does not apply to disputes arising from consumer or tenancy agreements, for example – and the jurisdiction agreement in question must be a simple exclusive one, not one-sided/asymmetric or non-exclusive in nature.So in many cases the Convention will not apply in any event.
That is the position where enforcement is concerned. The same principles apply in relation to the Convention’s rules on jurisdiction, with the additional complication that where Convention and EU rules clash, the latter may take precedence in practice, depending on the location of the parties. This means that exclusive jurisdiction agreements in favour of English, Scottish or Northern Irish courts may not be as effective as parties expect, even when they are entered into after the Convention comes into force for the UK again.
The broader picture
Fortunately, Brexit does not directly affect international arbitration: after 2020 it will be possible to enforce awards across borders under the New York Convention 1958, just as one can do now. Even where court judgments are concerned, it would be a mistake to view enforcement purely through the prism of global and regional regimes. Judgments are routinely enforced across borders under bi-lateral arrangements or national rules. US judgments, for example, are enforced in England and Wales under common law principles; no special arrangements are needed or apply.
However, relying on national rules can be difficult, partly because they have individual quirks, not all of which are readily foreseeable, and partly because they tend to involve longer and more expensive procedures. Local counsel also has to be consulted at an early stage. The EU’s rules, by contrast, allow for the smoothest of cross-border enforcement procedures. Parties should take advantage of them while they can.
Authors: Partner Richard Power and Professional Support Lawyer Giles Hutt. To view the article click here.