Publication
Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | November 2016
Exclusive jurisdiction clauses are a common feature of cross-border trade. The existing regime for enforcement of exclusive jurisdiction clauses in the UK and throughout the EU contains some areas of uncertainty but is, overall, sufficiently robust to be used with confidence. Similarly, while any new regime post-Brexit will not be perfect, it will be robust enough for everyday use and may even avoid some of the problems of the existing regime.
These current imperfections cannot be compared with the future post-Brexit arrangements because, of course, those arrangements have yet to be determined. Nevertheless, the parameters of negotiations to agree those arrangements are foreseeable. In particular, they will likely involve a triangulation between three possibilities.
Wherever the UK ends up within this triangle, in general, English courts will in all probability continue to respect an exclusive choice of the courts of another country and courts within the EU will continue to respect the choice of English courts.
If the UK seeks an arrangement that is close to the status quo, it may request a special status as a non-Member State within the Brussels Regulation regime. If this is not politically feasible, perhaps because it would require accepting the continued primacy of the CJEU, the Lugano Convention would be a near alternative. But the EU may not be willing to allow the UK to remain within the existing regime, or something close to it. In that case, the UK could unilaterally decide to sign the Hague Choice of Courts Convention and to rely on its prior membership of the Brussels Convention. This gives a regime that includes a fair degree of reciprocity, especially for exclusive jurisdiction agreements.
The Brussels Convention remains in effect for territories excluded from the Brussels Regulation, but otherwise the Brussels Convention was ‘superseded’ by the Brussels Regulation (see Article 69 of the Brussels Regulation). As a result, it is not entirely clear that the UK would automatically fall back to the Brussels Convention if it is no longer bound by the Brussels Regulation. But, in a sense, it is irrelevant whether there is some doubt over this fallback position: it still gives the UK leverage in any negotiation, in that it would argue that there is a viable network of international agreements that could apply and so any agreement with the EU should be pitched somewhere between the existing regime and what could replace it.
The UK may prefer a solution that allows it to retain its freedom of manoeuvre, at the cost of a looser relationship with the existing international regime. This is the third option, where the UK opts out of international agreements and relies on its domestic rules of conflicts of law and the corresponding rules of other countries. It replaces the deficiencies of the Brussels regime with the limitations of a unilateral position that avoids reciprocity. It is not only an alternative fallback position for the UK in any negotiation – it may be a favoured option if the UK wishes to prioritise control over co-operation.
These three positions represent the likely outer limits of what might be agreed. We consider how exclusive jurisdiction agreements will work for regimes falling within these limits.
Any of the Brussels Convention, the Lugano Convention, the common law or some amalgam of those will provide for English courts to stay their proceedings in favour of another country chosen by the parties. The modalities of expressing that agreement and allowable exceptions may vary slightly from the current position. For instance, if English courts were no longer bound by international conventions, there might be more scope for stays to be refused on discretionary grounds – although the English courts would no doubt take a commercial approach to the exercise of any discretionary powers.
Similarly, whether the UK is a Brussels Convention state, a Lugano Convention state, or simply a non-Member State within the ambit of the Brussels Regulation, EU Member States will surely, in general, continue to respect exclusive jurisdiction clauses selecting the English courts. It may be that this is via their own national conflicts of law rules rather than international convention. It may be that this leads to increased scope for ‘torpedoes’ or other delaying tactics if the UK becomes just another non-Member State. However, if the UK’s negotiated position is outside the Brussels regime, then it is likely that it will once again be able to use
anti-suit injunctions. This powerful weapon to compel compliance with an exclusive jurisdiction clause was largely removed from the arsenal of the English courts by the Brussels Regulation, as set out above.
The net effect is that wherever the UK ends up, outside or within the Brussels Regulation or Convention or a similar regime, the legal risk of foreign non-compliance with English exclusive jurisdiction clauses will be little changed.
The other legal risks identified above – that is, the imperfections in the current system – may actually be reduced by any post-Brexit arrangement. English courts have supported asymmetric jurisdiction clauses of all types. If English courts post-Brexit are not subject to decisions of the CJEU, that removes the risk that they will be bound by a future CJEU decision not to enforce those clauses. Note that this does not improve the outlook for asymmetric jurisdiction clauses in courts outside the UK and these clauses fall outside the scope of the Hague Choice of Courts Convention. The extension of prospectus liability set out above only applies when the court that would otherwise have jurisdiction is located in a Member State. If UK issuers and arrangers are located in a non-Member State, this risk is inapplicable.
There is a trade-off. A position close to the status quo accepts the legal risks in the current consensual system. Moving towards a less consensual, more competitive, approach gives the opportunity to eliminate the existing risks but might create new awkward situations. Taking advantage of other international conventions adds another dimension to any negotiations that could help preserve freedom of action while limiting any new risks.
Exclusive jurisdiction clauses will continue to operate in the post-Brexit world. There will be uncertainties and inconsistencies – but these will be of a similar order of magnitude to those in the existing international regime and will not prevent the continuing orderly use of these clauses in international trade.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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