The Impact of Brexit on Jurisdiction, Enforcement and the Applicable Law in International Commercial Litigation
On 29 March 2017 the British Prime Minister served formal notice under Article 50 of the Treaty on European Union (TEU) notifying the European Counsel of the UK’s intention to leave the EU. On this date, the deadline of Art 50 (3) TEU started to run. Pursuant to this provision, the EU treaties shall cease to apply to the UK two years after service of the formal notice unless a corresponding withdrawal agreement is concluded, or the deadline is extended. Currently, the Brexit deadline is 31 October 2019. On 4 September 2019, the House of Commons has passed a bill which could force the British Prime Minister to ask the EU for a deadline extension until 31 January 2020 unless parliament approves a withdrawal agreement or votes in favour of a hard Brexit by 19 October 2019. This bill has passed the House of Lords on 6 September 2019 and it may or may not become law by 9 September 2019.
2. EU law in cross-border disputes and the advantages of the current system
Brexit has a significant impact on international private and civil procedure law. These areas have been comprehensively harmonized and modernized over the last 20 years by European legislation. The main areas relevant in cross-border disputes concern:
- the international jurisdiction of the Member State courts,
- the recognition and enforcement of decisions,
- the law governing the parties’ (contractual and non-contractual) obligations, and
- the service of documents and the taking of evidence.
Currently, there is an extensive body of EU Regulations governing jurisdiction, recognition and enforcement of judgements in civil and commercial matters (Brussels I Recast Regulation 1215/2012); the applicable law to contractual and non-contractual obligations (Rome I Regulation 593/2008, Rome II Regulation 864/2007) as well as the cross-border service of documents and taking of evidence (Service Regulation 1393/2007; Evidence Regulation 1206/2003).
Because of its EU membership, the UK is also party to international conventions in the area of civil procedure, most notably the 2007 Lugano Convention that is modelled after Brussels I and binds the EU, Norway, Iceland and Switzerland and the 2005 Hague Convention on Choice of Court Agreements which secures the validity of choice of court agreements and the recognition and enforcement of judgements based on such clauses in the EU, Mexico, Singapore, Denmark and Montenegro.
The current system ensures legal certainty and predictability for parties litigating within the EU and achieves harmony of decisions across the EU. Choice of court agreements are given priority and litigants from within the EU are protected. A judgement rendered in a Member State can be enforced all over the EU as it is treated as if it was given in the Member State of enforcement.
3. Brexit – current EU Regulations no longer apply
Brexit will cause a break from this established and modern system. In fact, EU Regulations covering this area will no longer apply.
3.1. Jurisdiction and recognition and enforcement after Brexit
If the withdrawal agreement in the currently published form is concluded, the current rules on jurisdiction, recognition and enforcement under Brussels I will remain in force during the transition period (31 December 2020) and thereafter for disputes in which proceedings have already been initiated prior to the end of the transition period.
After the end of the transition period or in case of a hard Brexit immediately, Brussels I will be replaced by the 1968 Brussels Convention and other bilateral (enforcement) treaties. This does not only mean the revival of out-of-date exequatur proceedings when enforcing a foreign decision, it also creates a confusing, non-uniform regime for international jurisdiction and cross-border enforcement of decisions which is less sophisticated than the current system.
The UK will also cease to be a member to the 2007 Lugano Convention and the 2005 Hague Convention as they have been signed by the EU on behalf of the Member States and the UK is only bound through its EU membership. The UK government currently intends to (re-) join these conventions. However, they are not equivalent to the Brussels I regime. Thus, exequatur proceedings are still required in order to enforce a foreign judgement and the special protection of choice of court agreements does not extend to B2C or tort cases.
3.2. Governing law after Brexit
Irrespective of whether a withdrawal agreement can be reached or not, the framework for the law governing the parties’ contractual and non-contractual obligations will remain unchanged for the time being. The UK has incorporated the two Rom Regulations into national law. Therefore, the respective rules may remain applicable. However, given that the UK will no longer be bound by judgements of the CJEU on these matters, it can be expected that this area of private international law will develop differently in the UK and the EU.
3.3. Service of documents and taking of evidence after Brexit
If the withdrawal agreement is concluded, the current rules on cross-border service of documents under the Service Regulation and taking of evidence under the Evidence Regulation will remain in force during the transition period (31 December 2020) and thereafter for judicial and extrajudicial documents or requests for the taking of evidence received by the relevant authority before the end of the transition period.
After the end of the transition period or in case of a hard Brexit immediately, the Service and Evidence Regulations will cease to apply. They will be replaced by the Hague Service Convention of 1965 and the Hague Convention on Taking of Evidence Abroad of 1970 where applicable or – in connection with Austria – the Austro-British Treaty on Mutual Legal Assistance of 1931. It is to be expected that the application of such outdated rules will lead to difficulties and delays in the cross-border service of documents and the taking of evidence.
4. Arbitration – unchanged
Recognition and enforcement of arbitral awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Awards 1958, which has over 150 state parties, including Austria and the UK. This remains unchanged after Brexit. Thus, arbitration agreements and the cross-border recognition and enforcement of arbitral awards are in general not affected by Brexit.
Overall, Brexit will result in significant changes in international private and civil procedure law. While the Brexit has a lesser impact on international private law due to the UK’s decision to incorporate the Rome I and Rome II Regulations into their national law, the impact on international civil procedure law is rather significant. The relapse to the Brussels Convention or national laws results in the application of highly outdated provisions and legal uncertainty. It remains to be seen whether and to what extend corresponding bilateral agreements will be concluded to improve the somewhat uncertain situation. The currently planned accession of the UK to the 2007 Lugano Convention and the 2005 Hague Convention should be seen as positive first steps. These Conventions are, however, not as practical and up-to-date as the Brussels Regulation, especially in terms of recognition and enforcement of foreign decisions. Until there is clarity on these issues, one should always consider the conclusion of arbitration agreements as international arbitral awards continue to be recognized and enforced in over 150 countries around the world.
6. Contacts and Background
If you would like more information on the implication of Brexit, please contact:
Christian Klausegger, Partner
Elisabeth Tretthahn-Wolski, Attorney at Law
Anna Förstel, Associate
For a more detailed analysis of the impacts of Brexit in German please see the recent article by Elisabeth Tretthahn-Wolski and Anna Förstel in the Österreichischen Juristenzeitung.
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