Brexit: Jurisdiction and Cross-Border Enforcement

The EU-UK Trade and Cooperation Agreement (TCA) of 24 December 2020 made no long term provision for jurisdiction (that is, where a claim should be heard) or the enforcement of court judgments between the UK and the EU following the end of the Brexit transition period on 31 December 2020. We consider, below, how the landscape has now changed in relation to contracts and their enforcement where one party is based in the UK and the other in an EU Member State.

Governing law

Many businesses choose the laws of England and Wales to govern their contractual relationships. The reasons for doing so: respect for the parties’ freedom of contract, certainty and clarity, are, fortunately, not impacted by the end of the transition period.

The law governing contracts made under English law did not change substantively as a result of Brexit, since it primarily comes from English common (i.e. case) law, rather than from legislation.  Where EU law does impact on contracts made under English law, such as for consumer contracts, the position in the immediate term mirrors EU law, as explained in “Part 1: the potential disruptors”.

The courts in the UK and across the EU will continue to respect the parties’ express contractual choice of governing law. The rules applicable, set out in the Rome I regulation, are not impacted by Brexit and should continue to be applied as previously.

However, in relationships with a counter-party in an EU Member State, the end of the transition period does change the rules applicable to contractual disputes and where those disputes should be heard. The rules which set out how judgments are enforced as between the UK and the EU have also changed.

Jurisdiction

Brussels Recast, the favourable regime which provided for cross-EU recognition of contractual jurisdiction agreements (and also for the enforcement of judgments across the EU) no longer applies as between the EU and the UK. There is, therefore, an increased risk of disputes about which country’s courts have jurisdiction to determine a dispute.

The UK had pursued accession to the Lugano Convention (which covers jurisdiction and the enforcement of judgments between the EU and Norway, Switzerland and Iceland) as a “next best” option to Brussels Recast. However, accession required the consent of all contracting parties, including the EU, which has not, to date, been forthcoming.

The UK has, however, acceded, in its own right, to the Hague Convention (previously the UK was a party through its membership of the EU) with effect from 1 January 2021 (Hague). Hague, to which all EU member states are parties (together with Mexico, Montenegro and Singapore), requires the court designated in an exclusive jurisdiction agreement to hear the case and generally prevents the courts of other contracting states from hearing parallel proceedings. It goes some way to plugging the gap left by Brussels Recast, but it is not as comprehensive. Doubts have been expressed about Hague’s application in two key areas:

• For Hague to apply, the jurisdiction clause must be exclusive: it does not apply to non-exclusive jurisdiction clauses (or to non-contractual claims). Doubts have been expressed as to whether asymmetric jurisdiction clauses, which are common in banking and finance documents, and which require one party to sue in a certain jurisdiction, but give the other the option of where to sue, will be covered by Hague, or whether they will be viewed as “non-exclusive”.
• EU Member State courts will not necessarily apply Hague to exclusive jurisdiction clauses in contracts entered into before 1 January 2021 (although the English Courts are likely to do so). Hague does not apply to contracts entered into prior to 1 October 2015.

Even where Hague does not apply, we would expect the courts in EU Member States to respect an express contractual choice of jurisdiction, but they will apply their own local rules when considering the question and so there is scope for divergence of approach across the EU.If you are concerned, either when entering into a contract with an EU counter-party, or where a dispute has, or may, arise, then please seek specialist legal advice as soon as possible. This may now also involve your lawyers speaking to lawyers in the relevant EU jurisdiction(s) involved.

Enforcement of Court Judgments

Brussels Recast, which established an effective, streamlined procedure for the mutual recognition and enforcement of court judgments across the EU, no longer applies to the enforcement of UK court judgments in EU Member States, or the enforcement of EU Member State court judgments in the UK (unless the judgment is granted in proceedings commenced prior to 1 January 2021). Similarly, the European Enforcement Order regime for the speedy enforcement of uncontested money judgments across the EU will not be available for UK court judgments going forwards.

If you currently have the benefit of an unenforced judgment which may need to be enforced in either an EU or Lugano Convention contracting state, we would recommend that you take specialist legal advice on your options.

The UK’s accession to Hague provides some protection, but the regime is not as beneficial, or as comprehensive, as under Brussels Recast. Hague generally requires any judgment by the court specified in an exclusive jurisdiction clause to be recognised and enforced in other contracting states. But, as noted above, there are a number of limitations and uncertainties around the contracts and jurisdiction clauses to which Hague applies. In addition, Hague does not provide for the enforcement of interim protective measures such as freezing injunctions.

Where Hague does not apply, we expect the English Court, absent unusual circumstances, to continue to recognise and enforce judgments granted by the courts of an EU Member State. Similarly, most EU states will enforce foreign judgments under their own national laws. However, there are likely to be additional procedural hurdles, resulting in increased cost and time, and local law input will be required in the relevant enforcement state due to the lack of uniformity across the EU in the rules and procedure that will be applied.

Arbitration

Arbitration, including the enforcement of arbitral awards under the New York Convention, is unaffected by Brexit. Use of an arbitration agreement, therefore, potentially provides a safe harbour for parties concerned about enforcement where it is appropriate for their contractual circumstances.

Conclusion

Whilst the English courts will retain many of their existing attractions for the resolution of cross-border disputes, there is likely to be an increased risk of disputes about jurisdiction where there is an EU element and the process for the enforcement of UK judgments in EU Member States will be less straightforward and not as all-encompassing as it was pre-Brexit. The challenge of enforcement remains even where both English law and the jurisdiction of the English courts are chosen in the contract.  When entering into a contract with an EU based counter-party (or any overseas counter-party) with English court jurisdiction we would always recommend the inclusion of an agent for service of process clause.

Arbitration remains a safe harbour for dispute resolution in UK/EU contracts where appropriate to the contract in question.

Parties entering into contracts with an EU element should seek specialist legal advice before drafting these contracts in relation to the risks involved and the mechanisms available to avoid these. Similarly, parties should take early legal advice on any potential dispute with an EU element to enable an appropriate litigation strategy to be formulated.

Whilst it had been hoped that the UK would be allowed to accede to the Lugano Convention, which provides a regime similar to the one previously in place under Brussels Recast, that now appears unlikely - see article on this here.

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