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Disputes after Brexit - a bumpy ride?

  • Legal Development 16 November 2020 16 November 2020
  • UK & Europe

  • Brexit

Whether the UK and EU agree a post-Brexit deal or not, the UK will leave the EU's jurisdiction and enforcement regime on 31 December, if only for a short period. The result will be turbulence for some organisations with European disputes on their hands, but a smooth ride for others, and any disruption may be short-lived. We explain why.

While we all wait to see if the UK and EU can agree a post-Brexit deal, litigators are aware that for them it would come, in a sense, too late.  After years of lobbying for the UK to remain in the so-called Brussels regime  -  a comprehensive set of rules on jurisdiction and enforcement rules operating across the EU  -  it became clear several weeks ago that this was not going to happen.  At best, the UK will leave the regime at the end of this year and be allowed to re-enter it at some future stage, leaving an awkward gap in between.  It would most likely do this by re-joining the Lugano Convention 2007 as an independent contracting state, and the procedure for doing that involves an approximately three month wait (Arts 72(4) and 73(2)).  In theory some special agreement could be reached, extending the Brussels regime to the UK without reference to the Convention, and with more immediate effect, but this assumes that cross-border judicial cooperation is top of the UK's and EU's agenda.  The evidence suggests that it is not, at least where commercial litigation is concerned. 

How much disruption this will actually cause is not clear, though.  In principle, the UK's departure from the regime could lead to increased parallel litigation in the UK and EU and difficulty in enforcing English judgments in Member States (and the reverse).  But lawyers have been aware of these issues for years now  -  ever since the vote for Brexit, in fact  -  and have had plenty of time to deal with them in one way or another.  The easiest way of doing that is to choose arbitration rather than litigation, which neatly side-steps Brexit issues because international arbitration is independent of the EU.  The choice of arbitration is increasingly easy to make now, because some of the procedures that used to be exclusive to court proceedings are now available in arbitration too.  The LCIA, for example, has just updated its arbitration rules to allow 'early determination'  -  similar to summary judgment, but ordered by an arbitrator rather than a judge.  This allows organisations that are owed money by clients or borrowers, for example, to collect the debt easily without committing themselves to lengthy legal proceedings (Art 22.1)  -  see our article: The new LCIA Rules: should arbitration now be the go-to dispute mechanism for corporate debt claims?

However, arbitration is not for everybody.  Each institution's rules have their advantages and disadvantages, and there are certain things that arbitrators cannot (or will not) do that judges have no qualms about  -  striking out parties' cases, for example, for breach of procedural orders.  Default judgment is also not available in arbitration, whereas in the courts it is available through a simple bureaucratic procedure. 

Fortunately for those who have not chosen arbitration, or are not claiming under a contract at all, there are workarounds in litigation that are already used when the defendant is on another continent.  Where appropriate, an English court will grant an anti-suit injunction, for example, restraining foreign proceedings, and judgments can usually be enforced under local procedural laws where there is no handy Convention or bilateral agreement in place.  (This is how US judgments are enforced in the UK.)  There are also helpful transitional arrangements in the Brexit Withdrawal Agreement, allowing disputes that are already being litigated at the end of this year to continue to benefit indefinitely from the Brussels regime, regardless of when judgment is given and local enforcement proceedings begin (Art 67(2)). 

More fundamentally, parties will find that a choice of English law will continue to be respected in the EU next year, not because of any agreement reached during Brexit negotiations, but because European rules on governing law do not discriminate between systems of law originating within or outside the EU.  Instead, the principle of 'universal application' applies (Arts 2 and 3 respectively of Rome Regulations I and II).

What lies ahead, then, will be discontinuity in some respects, but continuity in others, so while some will experience a bumpy ride, others will experience no turbulence at all.  In any case, what discontinuity there is should soon be over when long-term arrangements with the EU are put in place or, looking further ahead, new global rules on jurisdiction and enforcement come into their own  -  see our article: A new safety net for English law judgments after Brexit.


Additional authors:

Giles Hutt

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