The legal landscape for UK businesses dealing with other businesses in EU Member States has changed. As you might expect, the post Brexit rules are in a state of flux but in spite of that there are practical considerations that businesses can look at now to try and reduce the impact on them should they become involved in a dispute with another business or individual in an existing EU Member State. Where will any disputes be resolved and what law will apply?
- Are your agreements in writing and if so do they have a jurisdiction and choice of law clause? This is the most important point for you to consider.
- Whilst the UK was a Member State of the EU there were specific rules about which Member State’s courts had jurisdiction over a dispute between parties in different Member States. The basic rule was that the Courts of the country where the defendant was domiciled had jurisdiction. Since 1st January 2021 that is no longer the position and different rules apply.
- In order to avoid uncertainty in the application of the new rules, UK businesses would do well to consider including a jurisdiction/choice of law clause in any contract they enter into. If the contracts already exist businesses can try to renegotiate them by including such a clause.
- There is a specific practical advantage in having a jurisdiction/choice of law clause. Once you have issued proceedings against an EU based defendant in an English or Welsh Court (different rules may apply in Scotland or Northern Ireland) you need to serve those proceedings on the defendant. That is simplified by getting the contractual wording right.
What steps can you take to reduce delay in resolving disputes?
- Getting proceedings (i.e. a claim) served is something that will affect the time it takes to resolve a dispute. From April the old procedure is likely to be changed so that if you have the right wording in your contract you will be able to serve out of the jurisdiction without first obtaining the Court’s permission. That will save both time and cost.
- Given the effect of the pandemic on hearing dates in the English courts it is likely to take some time to obtain the Court’s permission (where required) to serve proceedings out of the jurisdiction on a foreign Defendant. But that is just the start. You then need to physically serve the proceedings. The only way to do that post Brexit is under the Hague Convention where you lodge the papers to be served (together with translations in the language of the foreign Defendant) with the High Court in London and they check that all is on order before transferring them to the Court of the foreign Defendant for service under its rules. Practical experience shows that this may take many months and even up to a year. In the meantime, the proceedings are stalled.
- One way to avoid this delay is to include provision for the arbitration of any dispute in London preferably under London Court of International Arbitration rules with English law applying. Arbitration is a mixed blessing and, in our view, normally best confined to case where large claims are likely to be in issue and confidentiality is important.
The pros are:
- it can be quicker than ordinary court proceedings as the contract states how the arbitrator is selected. The arbitrator then sets the timetable in conjunction with the parties
- it is relatively easy to enforce an arbitral award as most countries in the World are signatories to the United Nations Convention on the Recognition and Enforcement of Arbitral Awards (New York 10 June 1958)
- Confidentiality - arbitrations are held in private so the world at large does not hear the details of your dispute
The cons are:
- Arbitrations are expensive. The parties have to pay the arbitrators who are usually senior lawyers and additionally any associated costs including the cost of the venue where hearings take place
- Under English law the scope for appealing is more limited than making an appeal from the usual law courts
How do you enforce the judgment of an English Court in EU Member States?
- It is very important for businesses to make themselves aware of potential issues in enforcing judgments. A judgement which cannot be enforced in practical terms becomes a useless piece of paper.
- Prior to Brexit there was a regime for the reciprocal enforcement of the judgments of another EU Member State in England and vice versa. That regime has gone. In its place you have to know the local rules as to enforcement of foreign judgments as they will apply. Ideally you should take local advice both as to requirements, cost and timings before you even launch proceedings. This will add to the overall cost.
- Where a foreign Defendant is seeking to enforce the judgment of an EU Member State in England the English Courts will commonly recognise EU judgments. Judgments can be challenged, for example on the basis of residence requirements or because it is argued that the foreign EU court lacked jurisdiction or failed to apply the correct national law. The ability or failure of a defendant to participate in the foreign proceedings may also be a factor.
If you would like to talk to us about any issues raised in this article please contact David Gore Consultant David.firstname.lastname@example.org or call +44 20 3701 7395.
Back to square one
The new normal may change. The UK applied in April last year to join the Lugano Convention (which includes all EU Member States as signatories as well as Iceland Norway and Switzerland). The EU Commission’s decision whether to agree is imminent. If the UK is allowed in, then the reciprocal enforcement rules that existed pre-Brexit will largely be re-instated.
Avoiding tactical games
Under EU law tactical games can be played in relation to the issue of proceedings. So for example if an English Claimant issued proceedings here a Defendant to those proceedings in a different Member State might issue parallel proceedings in its country. Under then prevailing EU law the English Claimant could not apply for a halt to the proceedings in the foreign court; but the English courts can frequently prevent such spoiling tactics by granting what is called an anti-suit injunction.
Given the changing legal landscape post Brexit, all businesses would do well to dust off their existing contracts and check whether they have effective dispute resolution clauses that will simplify their ability to bring and defend claims in a jurisdiction of choice appropriate to their commercial requirements.
Articles are for general guidance only and discuss the legal position in the UK at the time of publication unless stated otherwise. You must take legal advice and not rely on the information provided in our articles before taking action. We do not update our articles and therefore, past articles may not reflect the current legal position. Where we refer to Court decisions facts are stated as reported by the Court.