As in so many other areas, the effect of the decision to leave the European Union in the referendum on 23 June 2016 on litigation in England and Wales in still highly uncertain. There are a number of issues that the UK government will need to consider during their negotiation of the terms of the Brexit deal that will affect litigation in England and Wales. We will provide periodic updates on developments as they arise, including on our Brexit Updates blog.

There are many reasons why parties choose English law to govern their relationships. English law is certain and predictable, whilst at the same time, providing flexibility to allow the law to develop.  The recognition of the primacy of parties’ intentions is at the core of English contract law, and the standard of the English judiciary is very high. None of this has been changed by the referendum result.

However, it is clear that the Brexit vote has brought with it a period of uncertainty for litigants and potential litigants. Uncertainty brings with it potential time delays and increase in costs. Parties should consider whether their commercial contracts need revision and should enforce judgments as soon as possible but – more importantly – should not panic as, depending on the outcome of the Brexit negotiations, the UK could in practical terms be in the same position it was in pre Brexit.

Service of Proceedings

Under The Recast Brussels Regulation (Regulation 1215/2012) (“The Recast Brussels Regulation”) and the 2001 Brussels Regulation (Regulation 44/2001), the EU Service Regulations (Regulations (EC) 1393/2007) automatically apply and provide that in most instances, no permission is needed to serve proceedings commenced in England in another EU country. However, depending on the outcome of the negotiations, this may no longer be the case and permission of the court may be needed, as is the case now when proceedings are to be served outside of the EU. The courts are well used to dealing with such applications, usually on paper, but there could be a very substantial increase in the volume of such applications resulting in delays.

Governing Law Clauses

The Rome I Regulations (Regulation (EC) 593/2008) and the Rome II Regulations (Regulation (EC) 864/2007) require the courts of EU member states to respect party autonomy as to the choice of law. This means that English governing law clauses will generally be upheld by the courts of Member State, subject to some limited circumstances.

In the absence of these regulations, the common law rules would apply. Whilst there may be some uncertainty as to the impact on governing law clauses, in practice, and given the common law’s history of upholding parties’ choice of governing law, it is unlikely that Brexit will have a significant impact. 

There may be a difficulty with contracts that stipulate the EU as the territorial jurisdiction, for example distribution agreements. It is likely that such contracts would, following the UK’s formal exit from the EU, be interpreted as excluding the UK from the contractual territory. The effect that this has on the contract and on the parties’ obligations will ultimately be a matter of interpretation, but parties should analyse their contracts to consider clarification of such matters.

Jurisdiction and Enforcement of Judgments

Currently, jurisdiction and enforcement of judgments are covered under The Recast Brussels Regulation. The general rule is that a defendant should be sued in the courts of the Member State in which it is domiciled. However, the parties are also free to choose the jurisdiction (save certain exceptions) and the courts of member states must recognise and enforce these judgments.

The UK could sign to be a member of the Lugano Convention 2007 (“The Lugano Convention”) which would provide the protection of parallel proceedings; however, it would still leave the UK slightly exposed as it does not provide all the existing protections that The Recast Brussels Regulation does. Currently, the EU as a whole is a party to the Lugano Convention as are Switzerland, Iceland and Norway, but the UK would need become a party to it in its own right. An alternative to The Lugano Convention would be for the UK to become a party to the Hague Convention on Choice of Court Agreements 2005 (“The Hague Convention”) which came into force between the EU member states and Mexico in November 2007. The Hague Convention provides mechanisms for the allocation of jurisdiction in cases where parties have agreed to an exclusive jurisdiction clause. As it is only in respect of exclusive jurisdiction clauses, this would only partly protect UK parties.

Parties could look to include arbitration clauses since arbitration will not be affected by Brexit. The UK is a party to the New York Convention on the recognition and enforcement of foreign arbitral awards in its own right. The UK, and London in particular, will remain a centre of excellence for arbitration and alternative dispute resolution generally, through the LCIA and other organisations, because of the presence of experienced arbitrators and lawyers and the wide use of English as the language of international business.

England has been a widely respected jurisdiction for many years, even before it became a member of the EU, and it is extremely likely that parties will continue to use England as their chosen jurisdiction. Parties may wish to revise their jurisdiction clauses if they are not exclusive to provide an extra level of protection. Also, parties with judgments that they are seeking to enforce in other member states should look to enforce them sooner rather than later to avoid the uncertainty and what could potentially be a more expensive and time consuming mechanism following negotiations.

Force Majeure Events and Material Adverse Change (MAC) Clauses

Whilst some may have anticipated the result of the referendum vote and drafted Brexit break clauses in their commercial contracts accordingly, those without such protection should now consider whether a contract can be forfeited based on Brexit constituting a force majeure. Litigation on this point is anticipated as parties find that they are unable to fulfil their duties under the contract as a result of the UK leaving the EU.

Parties may also try to argue that Brexit has triggered a MAC clause in their contracts. Many MAC clauses are forward looking and, as a result, until the UK-EU negotiations have been finalised it will be difficult to determine what changes may indeed be “material” or “adverse”. Parties may also find themselves unable to rely on a MAC clause in contracts that were entered into when the referendum was on the horizon.

Ultimately the parties’ ability to rely on force majeure and/or MAC clauses in their contracts will largely turn on the precise construction of the contract and its interpretation.

Cross Border Debt Recovery

At the moment, being a member of the EU enables the UK to follow an effective and simple procedure for the recognition and enforcement of debts when assets are located elsewhere in Europe.

UK claimants are currently able to use various streamlined and cost-effective procedures for cross border debt recovery, such as the European Order for Payment for uncontested debts owed by other EU parties or The European Small Claims Procedure for civil and commercial claims valued at €2,000 or less. It is uncertain how Brexit will affect these instruments as it will depend on what is negotiated.

If you would like any more information or have any concerns regarding the impact of Brexit on your litigation matter, please contact Matthew Blower on blower.matthew dorsey.com.

Trainee Solicitor Christina Samaan provided significant assistance in the creation of this article.