Brexit and disputes – what you need to do now

Out-Law Guide | 27 Nov 2020 | 4:56 pm | 8 min. read

UK businesses should consider what action they can take now to avoid being potentially disadvantaged in cross-border commercial disputes following the end of the Brexit transition period.

The expiry of the transition period, at 11pm UK time on 31 December 2020, will have an impact on a number of important issues relating to the resolution of cross-border commercial disputes – specifically disputes involving parties or assets located in an EU member state or certain other states which are party to conventions of which the UK has been a member through its EU membership; principally Iceland, Norway and Switzerland – these countries being three of the four EFTA states (the EFTA states).

Brexit will affect: how UK court proceedings can be served; which courts have jurisdiction to deal with the dispute; and whether and how any UK court judgment given will be enforced.

While there are generally methods and strategies for navigating the challenges presented by the withdrawal of the UK from the existing European regimes in these areas, some cases will become more difficult. There are some transitional provisions which apply under the UK/EU Withdrawal Agreement to prolong the operation of EU rules on these issues in certain circumstances. Where available, however, these require particular steps to be taken before 31 December 2020.

Impact of Brexit – the prompt for action now

Within the EU, a well-established and streamlined process for the allocation of jurisdiction between different countries' courts and for cross-border enforcement of judgments is set out in the Brussels 1 Recast Regulation (Brussels Recast); and the process for serving proceedings across the EU is set out in the EU Service Regulation. Subject to transitional arrangements, these regulations will stop applying to matters concerning the UK after 31 December 2020. 

In addition, the UK will cease to be party to a number of other international instruments as a result of its departure from the EU. These include the European Enforcement Order (EEO) regime, for the enforcement of uncontested – such as default – judgments across the EU, except in Denmark; and the Lugano Convention 2007, to which the UK has been a party as a result of EU membership and which governs questions of jurisdiction and enforcement between the UK and the EFTA states.

It is now increasingly apparent that there is unlikely to be an overarching EU/UK deal on these issues before the end of the transition period. In addition, it is now too late for the UK to achieve its 'next best case scenario' of accession in its own right to the Lugano Convention, which – although not perfect – would go a considerable way towards filling the 'gap' left by Brussels Recast in relation to jurisdiction and enforcement across the EU, as well as maintaining the position as regards the EFTA states. Re-joining the Lugano Convention requires EU consent, which may not be given; and even if it is given, that would be followed by a 3 month 'time lag' before the UK would actually be a party to the Convention again.

There is therefore going to be at least a period of time from 1 January 2021 onwards when there will be gaps in the jurisdiction and enforcement regimes. The only regimes which will apply between the UK and EU or the EFTA states during this period will be:

  • the Hague Convention on Choice of Court Agreements (Hague 2005), to which the UK has been party through EU membership and is re-acceding in its own right with effect from 1 January 2021. Hague 2005 will not apply at all in the context of disputes involving EFTA state parties or assets. It will apply only in limited circumstances involving EU member states and contractual exclusive jurisdiction clauses in favour of UK courts. In particular, Hague 2005 does not apply to all types of contract; there is also an ongoing debate as to whether it will assist where the jurisdiction clause in question was agreed before the UK re-joins the Convention on 1 January 2021, and it will not in any event assist where the jurisdiction clause was agreed before 1 October 2015, when the UK originally joined through the EU;
  • in very limited cases, bilateral arrangements with the UK; and
  • where these do not apply, different states' national laws.

More detail on these topics is set out in our guide to Brexit and dispute resolution.

While the replacement arrangements discussed above will provide workable solutions in many cases, this more patchwork approach clearly has the potential to be more time consuming and costly than the current regimes; and some cases and jurisdictions may present less easily surmountable hurdles, particularly around enforcement.

Similarly, service of UK court proceedings in the EU and EFTA states post-31 December 2020 will be affected, as existing service rules in the UK refer to factors such as whether the Brussels Recast Regulation or Lugano Convention apply. It will, for example, more often be necessary in England, Wales and Northern Ireland to obtain the court's permission to serve proceedings out of the jurisdiction: such permission will generally be required unless there is an exclusive jurisdiction clause in favour of the English or Northern Irish courts. This involves an additional step in the litigation process and therefore an extra cost. In Scotland too, additional steps may be required more often.

As a result, it is important to consider now whether there are any steps you wish to take before 31 December 2020 to take advantage of existing regimes while you still can.

Steps to take before 31 December 2020:

Do a stock-take of pre-action disputes

Consider whether you have any disputes, currently at pre-action stage, in which you might need to enforce a judgment against an opponent in the EU after 31 December 2020, or where you are concerned that another party might start proceedings against you in an EU court. If so, consider whether you may wish to institute proceedings before 31 December 2020, so that the Brussels Recast rules on jurisdiction and enforcement will apply. Although the position is not absolutely clear, in England and Wales and Northern Ireland issuing proceedings before 31 December 2020 is likely to be enough, while in Scotland it is probably also necessary to serve the proceedings before that date. 

Instituting proceedings before 31 December 2020 may also assist where the EFTA states are involved, but this is less clear, as the UK/EU Withdrawal Agreement does not discuss the ongoing application of the Lugano Convention in such circumstances, although the UK and Norway have reached an agreement to address issues of enforcement between them. 

While it is unlikely to be advisable to begin proceedings which you are not otherwise ready to litigate on these grounds alone, there may be some cases where instituting proceedings now is appropriate. Alternatively, you may wish to consider whether arbitration, which is unaffected by Brexit, would be a more suitable method of dispute resolution, and if so, whether the other party to the dispute would agree to this.

This requires specialist advice, often including foreign law advice as to the chances of successful enforcement of a judgment in the relevant jurisdiction if you were to need to enforce under that jurisdiction's national laws.

Consider how you will serve proceedings

If you do wish or need to start UK court proceedings, or indeed have already started such proceedings, consider now the steps you will need to take to serve them validly on an opponent in the EU or EFTA states. This is important given the potential for increased complexity in this area. 

In England, Wales and Northern Ireland, if your claim is for breach of a contract, check the contract to see whether service can be effected on an agent within the jurisdiction, in accordance with the relevant court rules – note that the position is different in Scotland, and the relevant court rules on service should be consulted. If the contract does not contain a clause setting up an agent within the jurisdiction for the receipt of service, or your claim is not a contractual claim, take advice on whether it would still be possible to use other methods to serve the claim form or writ within the jurisdiction, for example on a branch office or a place where the defendant carries on business activities.

If none of these options apply and you will need to serve out of the jurisdiction, there will be no change to the UK procedural rules you will need to follow until 31 December 2020; for example, it is unlikely before that date that you will need to obtain the English or Northern Irish court's permission to serve within the EU or EFTA states. However, there are certain transitional issues which mean it may be more difficult to prove that the proceedings have actually been served, which may be particularly problematic if limitation or prescription periods are in issue. This will need to be navigated with care and specialist advice.

Check for unenforced judgments

If you have an unenforced UK judgment which you may wish to enforce in an EU member state or one of the EFTA states after 31 December 2020, take advice as soon as possible.  A judgment given already in a contested matter is likely to be enforceable in the EU after 31 December 2020 as the proceedings will, by definition, have commenced before that date. 

However, as noted above, it is unclear whether the same will be true for enforcement in some of the EFTA states. In addition, enforcement of uncontested judgments, such as default judgments, may be harder in the future in some jurisdictions without the assistance of the EEO regime, but by applying for an EEO certificate under that regime before 31 December 2020, if appropriate, you would still be able to rely on the regime thereafter. 

Review dispute resolution provisions

Now is a good time to review both precedent and existing contractual dispute resolution provisions. 

If, for example, your standard form agreements contain an exclusive jurisdiction clause in favour of the courts of a UK jurisdiction, consider with the benefit of legal advice whether that remains appropriate. For contracts which are to be entered into on or after 1 January 2021, such clauses are likely to remain suitable in most cases, because they will generally be covered by the Hague 2005 Convention. However, as noted above, Hague 2005 does not apply to all types of contract, and may not apply to exclusive UK jurisdiction clauses agreed before 1 January 2021. Where Hague 2005 does not, or might not, apply, local law advice may be needed on a case-by-case basis as to how easy it would be to enforce a UK judgment in the likely jurisdiction for enforcement, and you might wish to note this in your precedents. You might also be advised to consider an arbitration clause as an alternative.

As a result of the issue identified above about whether Hague 2005 will apply to pre-1 January 2021 jurisdiction clauses, you may want to prepare to "re-agree", on or shortly after 1 January 2021, any pre-existing exclusive jurisdiction clauses on which you wish to continue to rely, provided of course that counterparties are amenable.

It is also now preferable, when dealing with EU or EFTA state counterparties, to include in contracts a service of process clause providing for service of any proceedings on an agent of the counterparty in the jurisdiction, to avoid any potential issues in relation to the service of documents in the EU/EFTA states.

Take advice

This is a complex and fast-moving area, and strategic decisions about what steps to take, whether now or in the future, require specialist advice. 

For more information or for assistance, please contact Julian Diaz-Rainey; Richard Dickman; Michael Fletcher; Jacqueline Harris; Andrew Herring; or David Kirkpatrick.