Many international contracts are governed by English law with disputes referred to the English courts even where neither party has a connection with the United Kingdom.[i] There are many reasons for this: commercial custom, the system of binding precedent that provides a degree of certainty and a judiciary with the highest reputation for fairness, independence, integrity and expertise. A key factor is also the high status accorded to judgments of the English courts and their enforceability around the world.
But, on 29 March 2019, unless extended or reversed, the UK will leave the EU with the risk of a No Deal Brexit much higher following the UK Parliament’s rejection of the government’s Withdrawal Agreement on 15 January 2019.
As the European Commission’s Notice to Stakeholders of 18 January 2019[ii] points out, if there is a No Deal Brexit, proceedings to enforce UK court judgments in the EU-27 after 29 March 2019 will no longer be under EU law, but subject to national rules.
Even if there is a Withdrawal Agreement, the existing regime will last only for the transitional period.
What impact will Brexit have on the enforceability of English judgments and are changes needed to English law and jurisdiction agreements?
Overview of Brexit
- Following the Referendum on 23 June 2016, the UK gave notice on 29 March 2017 under Article 50 that it would leave the EU on 29 March 2019.
- On 26 June 2018, the European Union (Withdrawal) Bill 2018 became an Act of Parliament (the “Withdrawal Act”). Unless varied by a Withdrawal Agreement, the effects of the Withdrawal Act will be:
(a) to repeal the European Communities Act 1972 on 29th March 2019, so that EU law will no longer be directly effective in the UK;
(b) to ensure that nearly all EU law currently in-force in the UK is imported into domestic UK law as “retained EU law” (this includes both EU derived domestic law and directly effective EU law); and
(c) to grant the UK government wide powers to amend “retained EU law” in order to correct deficiencies and inconsistencies.
- If an agreement on withdrawal is approved by both the UK Parliament and the EU Parliament, there will be a transition period (currently proposed to last until 31 December 2020) during which EU law will continue to apply as a matter of UK domestic law save as otherwise provided by the Withdrawal Agreement[iii].
- On 15 January 2019, Parliament rejected the government’s draft Withdrawal Agreement by a large majority.
- There is no certainty as to what comes next. All options are on the table. These include:
- a No Deal Brexit on 29 March 2019
- a Brexit on the terms of a revised Withdrawal Agreement
- an extension to Brexit Day
- a General Election
- a Second Referendum.
Whatever happens there is a very real possibility that after 29 March 2019 (or some later date) the existing regimes for the recognition of jurisdiction agreements and the enforcement of judgments as between EU member states will no longer apply to the UK.
Under the current Withdrawal Agreement the Rome I Regulation (on the law applicable to contracts) and the Brussels I (recast) Regulation (on jurisdiction and the enforcement of judgments) would continue to apply during the transition period. But the terms of any Withdrawal Agreement remain uncertain and the chances of having a No Deal Brexit remain significant.
Should companies and financial institutions who have traditionally opted for English law and jurisdiction for international contracts be reviewing their use of such clauses?
Choice of Law
EU law on determining the law applicable to contracts is contained in the Rome I Regulation[iv]. The underlying rule is that the courts will respect the right of the parties to agree the law to govern their contract. Other rules relate to determining the applicable law in the absence of choice. In the event of a No Deal Brexit, the government has said that it intends to retain EU rules which do not rely on reciprocity to operate[v]. This will include Rome I which does not rely on reciprocity. English courts will continue to give effect to the parties’ choice of law and the courts of EU member states are very likely to continue to be bound to give effect to a choice of English law even when the UK is no longer a member state.
While there may be future divergence between English law and EU law in certain areas, the main body of English law as it applies to contracts will remain unaffected. There may be significant impacts on specific industry sectors[vi].
Choice of Jurisdiction
The rules by which the courts of EU Member states give effect to a contractual choice to refer disputes to the courts of another EU Member state are set out in the Brussels I (recast) Regulation [vii].
Under the current draft Withdrawal Agreement, this regulation would continue to apply to any proceedings started during the transitional phase. However, if there is a No Deal Brexit (under which the regulation would become part of the EU retained law) the UK government has said it will repeal it as it relies on reciprocity[viii].
What rules then will apply if there is a No Deal Brexit where jurisdiction is disputed between the English courts and the courts of a member state?
By and large the answer is that the courts will apply their national rules. Where the contract contains a jurisdiction agreement, it can be expected that the courts of most jurisdictions will give effect to that.
Where the jurisdiction agreement is exclusive, the rules will be as set out in the Hague Convention on Choice of Court Agreements 2005 (discussed below). These will provide some certainty but the convention applies to exclusive jurisdiction agreements only and as the rules are not the same as under Brussels I (recast) some novel issues are bound to be thrown up.
One possible consequence in the English courts, is a resurgence in applications for anti-suit injunctions seeking to prevent parties from bringing proceedings in other EU member states in breach of exclusive jurisdiction agreements. There is however some doubt as to the extent to which such injunctions will be enforced by the courts of EU member states on the grounds that they are an interference with sovereignty.
Where there is no agreement on jurisdiction there is likely to be a wider range of different national approaches and increased uncertainty.
Enforcement of English Judgments
For proceedings that started after 10 January 2015, Brussels I (recast) provides an administrative mechanism for enforcing judgments of the courts of EU member states in other member states with very limited grounds for objecting.
Brussels I (recast) will however be repealed if there is a No Deal Brexit and even if there is a deal, it will likely remain effective only during the transition period.
The repeal of Brussels I (recast) will not affect the worldwide enforcement of English court judgments outside the EU (under bilateral treaties or as a matter of comity) but English court judgments will no longer be enforceable in EU member states under the simplified procedure.
But this does not mean they will not be enforceable at all as there are many alternative ways in which English court judgments will continue to be enforceable in EU member states.
The 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters is very unlikely to have a role to play. In August 2017, the UK Government said it would seek to continue to participate in the Lugano Convention[ix] (which provides a broadly similar enforcement regime) but in December 2018, it published the draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 which confirm that post-Brexit (if there is no agreement) the Brussels Regime (which includes the Lugano Convention) will be repealed subject to transitional arrangements.
The UK could become eligible to (re)join the Lugano Convention, but this would require either approval of all EU members or for the UK to join EFTA.
The Hague Convention on Choice of Court Agreements 2005
Of greater significance is the Hague Convention on Choice of Court Agreements 2005[x]. The EU-27 are members via the EU. On 28 December 2018, the UK ratified the convention and on 1 April 2019 it will come into force for the UK in its own right. It will not come into force if the UK and the EU enter into an agreement to effect a withdrawal period.
The Hague Convention 2005 requires contracting states (including the EU-27) to recognise and give effect to jurisdiction agreements giving exclusive jurisdiction to the courts of another contracting state. It also requires the courts of contracting states (including the EU-27) to enforce judgments of the courts of other contracting states, which from 1 April 2019 will include the UK in the event of a No Deal Brexit.
However, the Hague Convention 2005 is more limited than Brussels I (recast). In particular, it applies only to agreements that designate a court or courts of a Contracting State to decide disputes to the exclusion of any other courts (i.e. exclusive jurisdiction agreements). While choice of court agreements are deemed to be exclusive unless the parties have expressly provided otherwise, the Hague Convention 2005 will not apply to the one-sided (asymmetric) clauses frequently seen in international loan agreements under which the lender can sue in one of a number of jurisdictions (including say England), but the borrower is required to bring proceedings in, say, the English courts only[xi]. The English courts have held that asymmetric clauses should be treated as exclusive agreements for the purposes of Brussels I (recast) but the Explanatory Note to the Hague Convention 2005 expressly states that the Convention will not apply to such clauses unless the states concerned make a declaration under Article 22 of the Hague Convention 2005. At present the UK has made no such declaration[xii].
Nor does the convention apply to all types of contract, including notably some insurance agreements, nor to natural persons nor to interim judgments.
The UK statutory instrument giving effect to the Hague Convention 2005 contains detailed provisions on its transitional application and these will need to be consulted carefully in any given case.[xiii]
Bilateral Enforcement Treaties
Prior to joining the EU, the UK had entered into bilateral treaties for the reciprocal recognition and enforcement of judgments in civil matters with a number of European states. So, for example, bilateral treaties were made between the UK and France (1934), Germany (1961), Austria (1962), Italy (1964) and the Netherlands (1969).
While these conventions were superseded by EU law they are still in force and potentially could be revived to provide a mechanism for recognition and enforcement.
And, in the UK, enforcement of judgments from those European jurisdictions may once more need to be effected pursuant to the Foreign Judgments (Reciprocal Enforcement) Act 1933.
National law in EU member states
And of course, as the EU Notice to Stakeholders acknowledges, UK judgments will still be enforceable in other the EU-27 states under national law whether under the exequatur procedure or otherwise. This will be so even where there was no prior bilateral treaty and regardless of whether the jurisdiction in question has a common law system (e.g. the Republic of Ireland) or a civil law system (e.g. France or more recent member states such as the Czech Republic).
There are of course jurisdictions around the world where enforcement of foreign court judgments is always going to be difficult and this will not be altered by Brexit.
Common law enforcement in the UK
Even where the Hague Convention 2005 and the Foreign Judgments (Reciprocal Enforcement) Act 1933 do not apply, judgments of the courts of other EU jurisdictions will continue to be enforceable in England under the common law on the basis of comity. Where a judgment is for a debt or definite sum of money, is final and conclusive, is not a penalty and remains enforceable in the court in which it was obtained, it will be deemed by the English courts to be conclusive in England as between the parties. As a result, an action may be commenced by the judgment creditor in the English courts for an amount due and summary judgment will usually be granted. There are limited grounds to objecting to enforcement: lack of jurisdiction by the court that gave judgment, where the judgment was obtained through fraud, where enforcement would be contrary to the public policy of the UK, or where the proceedings of the court in which the judgment was obtained were opposed to the rules of natural justice. This is for example the procedure that is presently followed for the enforcement of judgments of courts of the USA in the UK.
Brexit will have no direct impact on London as a centre for international arbitration. The UK will continue to be a signatory to the New York Convention[xiv] and arbitration awards made in London will continue to be enforceable in other contracting states.
It is always worth considering arbitration as an option for a range of reasons, especially where the jurisdiction where any award may need to be enforced is a New York Convention contracting state. An arbitration award may be easier to enforce than a court judgment.
Although a No Deal Brexit would change the way English court judgments are enforced in the courts of EU member states, they will remain enforceable whether under the Hague Convention 2005, a bilateral enforcement treaty or national law. And, Brexit will have no impact on the enforcement of English court judgments outside the EU or on the enforcement of arbitration awards.
If you are entering into a contract with a risk of needing to enforce a judgment in an EU member state in the future, you may wish to seek English and local law advice. The options will include:
- making the choice of court agreement ‘exclusive’ to take advantage of the Hague Convention 2005.
- checking national law on enforcement procedures in the jurisdictions where enforcement may be needed.
- switching to arbitration, but recognising that this is not always suitable and can be expensive.
- choosing the governing law and place of jurisdiction of a different jurisdiction, though care is needed to ensure the legal system is appropriate for the contract and that the courts can be relied on to be independent. If the contract has already been drafted, a full review of its terms will be needed under the replacement law.
While there are changes ahead, even if there is a No Deal Brexit, judgments of the English courts will remain enforceable worldwide as before and also in EU member states even if the rules are no longer the same. The wording of existing choice of law and jurisdiction clauses should continue to be effective but they should be reviewed if future enforcement in an EU member state is a possibility.
Contributors: With thanks to Floor van Dijk of Wiersma Mensonides (the Netherlands), Sophia Schwemmer of Lindenpartners (Germany), Natalie Rosova and Sebastian Lukic of Schoenherr (Austria) and Karyn Harty of McCann FitzGerald (Ireland) for their comments on the post Brexit enforcement of English court judgments in their jurisdictions
[i] The United Kingdom (UK) is the shortened name for the United Kingdom of Great Britain and Northern Ireland and includes England, Wales, Scotland and N.I. This note covers English law and jurisdiction only. Scotland and N.I. have their own legal systems.
[ii] Notice to stakeholders withdrawal of the United Kingdom and EU rules in the field of civil justice and private international law. https://ec.europa.eu/info/sites/info/files/notice_to_stakeholders_brexit_civil_justice_rev1_final.pdf
[iii] At the time of publication the draft Withdrawal Agreement of 25 November 2018 has been rejected by the UK Parliament on 15 January 2019
[iv] Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)
[v] UK Government Guidance published 13 Sept 2018 on Handling civil legal cases that involve EU countries if there’s no Brexit deal https://www.gov.uk/government/publications/handling-civil-legal-cases-that-involve-eu-countries-if-theres-no-brexit-deal/handling-civil-legal-cases-that-involve-eu-countries-if-theres-no-brexit-deal
[vi] See the commentary on the LMA and ISDA websites: https://www.lma.eu.com/ and https://www.isda.org/2019/01/22/brexit-faq/
[vii] Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
[viii] UK Government Guidance published 13 Sept 2018
[xi] See also the commentary on standard LMA and ISDA asymmetric wording: https://www.lma.eu.com/ and https://www.isda.org/2019/01/22/brexit-faq/
[xii] https://assets.hcch.net/upload/expl37final.pdf, para 32
[xiii] Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018