Legal Briefing

Brexit and dispute resolution – intra-UK and in the European Union

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Scotland | 02 August 2016

The UK’s vote on 23 June 2016 to leave the European Union raises a wide variety of legal issues and questions. With the UK Government unlikely to trigger Article 50 of the Treaty on European Union until early 2017, and then at least a further two-year negotiation window to determine the future relationship between the UK and the EU, it will be some time before the structure of the future UK/EU relationship is agreed or even much clearer. The flip side of the coin is that, until Brexit happens, it is very much business as usual.

Impact of Brexit and the intra-UK position

This article will look at the potential practical impact of Brexit on dispute resolution throughout the EU, and whether and how disputes within the UK might be affected. At EU level, the focus will be on key issues for any parties involved in actual or potential disputes, namely choice of governing law, selection of jurisdiction and the cross border enforcement and recognition of judgments in (or indeed from) other EU member state courts.

It is also important to bear in mind that, regardless of Brexit, those issues can also arise in wholly intra-UK disputes, where there is a choice of forum between the courts of Scotland, Northern Ireland or England and Wales. It will remain important to ensure that the most appropriate jurisdiction is selected for such disputes, both pre and post-Brexit. Selection of the wrong UK forum can result in actions being thrown out with wasted time and costs.

Brexit considerations
Key issues

In any dispute, the two key issues are the governing law and jurisdiction. These issues have been harmonised across the member states of the EU, with a high degree of certainty provided to parties that (generally speaking) their choice of governing law and jurisdiction will be upheld and applied in any member state court. Pre-Brexit that certainty will remain in place, but businesses and their advisors should be considering if and how that position may change when the UK leaves the EU.

Governing law

Presently, all member states apply the Rome I and Rome II Regulations (593/2008/EC and 864/2007/EC, the ‘Rome Regulations’) to determine, for the purposes of civil and commercial matters, the governing law applying to contractual and non-contractual obligations respectively. The practical impact of the Rome Regulations is that, in the vast majority of cases, a choice of governing law will be upheld by courts across all member states.

At present it is not possible to second guess whether the UK and EU will agree to continue to apply the same rules post-Brexit, such that they would continue to be enforced by the UK courts. While that approach may provide more certainty and continuity, there is no reason to believe that the Scottish courts, if they had to revert to using Scots law’s choice of law rules in international disputes, would take anything other than a practical commercial approach towards upholding commercial parties’ choice of governing law clauses. The only likely exception would be if it were to create injustice (for example to consumers or employees).

It is worth bearing in mind that the Rome Regulations apply to all disputes coming before EU member state courts, regardless of whether the proposed governing law is the law of a member state. The courts of the remaining EU member states will therefore still have to apply Scots, English or Northern Irish law to a dispute where the Rome Regulations would lead them to that result, including where the parties have agreed that one of those laws should govern their relationship.

Jurisdiction and enforcement

While most parties would wish to avoid a dispute or resolve it outside of a court room, a significant benefit of selecting a specific jurisdiction to resolve any dispute is that the parties can have certainty as to the efficiency and robustness of the chosen forum.

Jurisdiction rules are broadly harmonised across the EU by the Recast Brussels Regulation (EU 1215/2012, ‘the Regulation’) which allocates jurisdiction between member states in civil and commercial matters. Where the parties have not agreed upon a particular jurisdiction, the general rule is that a person domiciled in a member state must be sued there, with special rules for various types of dispute including contractual and tort/delict claims, and exclusive jurisdiction rules for certain disputes relating to property, companies and IP.

The Regulation provides that any agreement between the parties to prorogue jurisdiction will be respected, with exclusive jurisdiction granted unless stated otherwise, subject to the court giving the defending party in insurance, consumer or employment disputes notice of their rights to contest jurisdiction.

The Regulation also seeks to avoid unnecessary parallel proceedings between member state courts by providing that any court other than the court first seized (ie where the action was first started) must stay/freeze proceedings until the court first seized determines whether it has jurisdiction, unless there is an agreed exclusive jurisdiction clause in which case the court agreed upon may proceed.

Another important feature of the Regulation is that it also provides for the mutual recognition and enforcement of member state court judgments. This is generally achieved swiftly via a straightforward administrative registration process, which again provides parties with commercial certainty.

It is possible that the UK and EU will agree that the Regulation’s requirements should continue to apply to all disputes raising UK-EU jurisdiction, recognition and enforcement questions, and set those out in a bilateral treaty. That may be a sensible outcome given the fundamental need for certainty over jurisdiction and reciprocity of enforcement.

Otherwise, there are alternative regimes that have been highlighted as possible options. These may not be as user-friendly as the Regulation, but would at least provide a good degree of comfort and broad level of certainty about jurisdiction choices and enforcement. One option would be the UK acceding to the 2007 Lugano Convention, which governs jurisdiction and recognition/enforcement issues arising between EU member states and Norway, Iceland and Switzerland in a way that is broadly similar to, though less detailed than, the Regulation.

An alternative fall-back could be the UK acceding to the 2005 Hague Convention on Choice of Court Agreements, which currently only applies between the EU and Mexico but other non-European countries are expected to sign up. This would provide certainty that any agreement between the parties giving one of the contracting states exclusive jurisdiction would be respected, and also allow for the mutual enforcement and recognition of the judgments of each contracting state. However, each contracting state would continue to apply its own jurisdiction rules where the parties had not agreed on jurisdiction in advance.

Mutual recognition of jurisdiction choices and in particular the enforcement of judgments requires a high degree of co-operation between states. Brexit means that there can be no absolute certainty on what the UK-EU position will be going forward. However, it is to be hoped that there will be the political will to give UK and EU parties certainty that there will continue to be respect for their jurisdiction choices and mutual recognition of judgments in their favour.

If a replacement regime cannot be agreed, national laws and courts will be the ultimate arbiters of these issues. From a UK perspective there is every reason to expect that parties’ clear commercial choices would still be honoured, and that recognition and enforcement of judgments from EU member state courts would not become unduly burdensome. However, it should be noted that (unlike the Rome Regulations’ choice of law rules), the Regulation only covers questions of jurisdiction and recognition as between member states. Whether a member state court will decline jurisdiction in favour of a UK court, or recognise or enforce a UK court’s judgment, after the UK leaves the EU will therefore be a question for that member state’s domestic rules. It therefore cannot be guaranteed that it will be business as usual across the EU post-Brexit.

Intra UK – jurisdiction and forum non conveniens

While Brexit considerations may dominate thinking on choice of law and jurisdiction provisions for the foreseeable future, it should not be forgotten by businesses and their advisers that, regardless of Brexit, the UK contains three separate and distinct legal jurisdictions. That fact is often overlooked by advisers, particularly those outside of the UK. While forum shopping is more regularly thought of in an international context – ie between competing jurisdictions both within and outside the EU – it should not be forgotten that jurisdiction and recognition issues can still arise within the UK.

Allocation of jurisdiction between the nations of the UK is governed by the Civil Jurisdiction and Judgments Act 1982, on the basis of similar rules to those set out in the Regulation (See in particular Parts II and III of the Act and Schedules 4 and 8). In short, jurisdiction can usually be founded on the defending party’s place of domicile, where the actual or threatened wrong has or could take place, or where property is physically located. However, if the parties have agreed to grant exclusive jurisdiction to a particular forum, that will in most cases be binding – with exceptions for consumer and employment contracts.

In cases where jurisdiction could be founded in one or more UK court(s), the party bringing the action will nominally have a choice of forum. However, the defending party is not powerless to object to the selection of a particular court as unsuitable, even if it does technically have jurisdiction. When there is a dispute as to which court should hear the case, the common law principle of forum non conveniens will be applied. This principle allows the courts to decide which of the possible jurisdictions would be the most appropriate to decide the case in the circumstances, with the interests of justice being the paramount consideration. Recent English Court of Appeal cases have confirmed that a court can strike out claims of its own motion, even when no challenge is submitted, if it believes the court in another part of the UK would be better placed to deal with the dispute (Cook v Virgin Media Ltd; McNeil v Tesco plc (2015)) . It therefore should not be assumed that claimants in intra-UK cases have an absolute right to bring proceedings wherever they choose to bring them (For more on forum non conveniens in intra-UK cases, see the  article in this journal by our colleague Gill Grassie: ‘Spoilt for Choice? Selecting the correct UK court for IP, media & technology disputes’).

At present, a UK court cannot decline to hear a case on forum non conveniens grounds if the Regulation provides that it has jurisdiction. However, if there is no similar restriction in any post-Brexit UK-EU agreement, the defence will once again become available where both a UK court and an EU member state has jurisdiction over the dispute. In that case the lessons of intra-UK disputes would gain much wider application.

Conclusion

In what may now feel like an uncertain world it is worth taking stock. Firstly, most existing or looming disputes are likely to be resolved before Brexit actually takes place. Secondly, it is possible that post-Brexit transitional provisions will be agreed to allow ongoing litigation to continue under the relevant pre-Brexit regimes. Thirdly, parties should, if anything, be even keener to set out their choices of governing law and jurisdiction clearly in writing. Even if there may be some increased doubt as to the enforceability of such clauses in certain courts, it would be reasonable to expect that those choices will be respected in the vast majority of cases.

Of course resolution by court action is not the only possibility. Parties to cross-border disputes may increasingly want to consider using arbitration to resolve their disputes under specified laws and in specified countries. Arbitration awards are readily enforceable. Arbitration clauses may therefore allow some forward planning to avoid the potential uncertainties that may be faced for international disputes post-Brexit. The need to consider which UK jurisdiction is the most appropriate forum for any dispute will remain a key consideration for intra-UK agreements and litigation regardless of Brexit.