Impact of Brexit on Choice of Law, Jurisdiction and Enforcement

Choice of law

Before Brexit, the UK was bound by the rules for choice of law set out in the Rome I Regulation (593/2008) (with respect to contractual obligations) and in the Rome II Regulation (864/2007) (which provides an ability for parties to adopt a choice of law for non-contractual obligations).

The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 (the “Regulations”) were approved by Parliament in February 2019. Under the Regulation, both Rome I and Rome II, the UK continues to apply the rules set out in Rome I and Rome II to determine the proper law of the contract and the law governing non-contractual obligations. The Regulations set out some minor exceptions arising from the different status of the UK following Brexit where they may apply differently to Rome I and Rome II, for instance in the case of non-derogable mandatory rules or certain insurance contracts. But, apart from these exceptions, the Regulations continue to apply the rules set out in Rome I and Rome II.

Given the stated desire of the UK Government to preserve legal certainty upon Brexit, we believe that it is likely that English law will continue to mirror the provisions of Rome I and Rome II. In any event, the provisions of Rome I substantially reflect the position which would otherwise apply as a matter of English common law with respect to choice of law.

The Rome I Regulation does not rely on reciprocity and accordingly, subject to a few specific exemptions, EU Member State courts will continue to uphold English choice of law clauses. Similarly, the Rome II Regulation also does not rely on reciprocity and where the parties have chosen English law to govern non-contractual obligations, EU Member State courts would continue to uphold that choice.

Choice of jurisdiction

Before Brexit, the UK was bound by the rules for choice of jurisdiction set out in the Brussels I Recast Regulation (1215/2012) (the Brussels Regulation). In general the Brussels Regulation provides that parties should be sued in the courts of the EU Member State where they are domiciled. However, where the parties have agreed that the courts of a particular EU Member State have exclusive jurisdiction, only those courts will have jurisdiction. If proceedings are brought in the courts of another EU Member State then those other courts should stay proceedings pending determination of jurisdiction by the chosen court.

The Brussels Regulation is an EU Regulation which was directly applicable in the UK and therefore ceased to apply following the repeal of the European Communities Act 1972 at the end of the implementation period. It was also inherently reciprocal. In the absence of any replacement agreement with respect to choice of jurisdiction and save for specified circumstances set out in the Brussels Regulation or where the Hague Convention applies (see below), it will be for the domestic laws of each EU Member State to determine whether or not they will give effect to a clause giving jurisdiction to a UK court and for UK domestic law to determine whether or not a clause giving jurisdiction to an EU court would be effective.

The UK has acceded in its own right to the Hague Convention on Choice of Court (Hague Convention) with effect from the end of the implementation period. The Hague Convention is an international agreement pursuant to which the courts of contracting states agree to uphold exclusive jurisdiction agreements provided that the nominated court is in one of the contracting states and the agreement complies with certain prescribed standards. It is limited in that it applies only to certain types of exclusive jurisdiction clauses (it is uncertain whether it would apply to asymmetric jurisdiction clauses). In terms of coverage, the contracting states of the Hague Convention comprise the Member States of the EU, Mexico, Singapore and Montenegro. It has been signed (but not ratified) by the USA and China. It does not currently apply to EFTA countries such as Norway and Switzerland. 

Another possibility is that the UK accedes to the Lugano Convention. The Lugano Convention is an international agreement between the EU and EFTA countries. States which are members of neither the EU or EFTA can accede to the Lugano Convention with the agreement of all parties. Although acceding to the Lugano Convention would replicate the general jurisdictional arrangements of the Brussels Regulation, it does differ in that the Lugano Convention would not require a court in a contracting state to give precedence to an agreement to give exclusive jurisdiction to the courts of another state. As such, the Lugano Convention does not provide that, where proceedings are commenced in an EU Member State court in an apparent breach of an exclusive jurisdiction clause, that court is required to stay its proceedings to allow the chosen court to rule on jurisdiction. This increases the risk of delay. The UK submitted its application to accede to the Lugano Convention on 8 April 2020. However, acceding to the Convention requires the consent of all of the current contracting members to the Convention and they have yet to publish their decision on whether the UK will be allowed to accede to the Convention at the end of the implementation period.

With respect to existing contracts which incorporate a submission to the English courts, the Withdrawal Agreement, provides that the Brussels Regulation will apply to all legal proceeding started before January 1, 2021. Jurisdiction will be determined in those cases according to the Brussels Regulation – even to the extent that proceedings started after 1 January 2021 that relate to earlier proceedings may be stayed in favour of those proceedings according to the Brussels Regulation rules. That is, the UK courts might be obliged to stay a claim brought in the UK courts in 2021 or later in favour of a claim in a foreign court that was instituted before 1 January 2021.

Enforcement of judgments

Previously, under Articles 36 and 39 of the Brussels Regulation, a judgment given in an EU Member State was recognised and enforceable in all other EU Member States without any special procedure or declaration of enforceability being required. There are few defences available which could impede enforcement – essentially limited to issues including public policy; failure of service of the claim; or where the judgment is irreconcilable with an earlier judgment.

It was not possible to preserve the existing reciprocal enforcement of judgment regime created by the Brussels Regulation via the EU (Withdrawal) Act.

However, acceding to the Hague Convention provided an alternative regime for the enforcement of judgments between the contracting states, although, the enforcement regime is more limited than that provided under the Brussels Regulation. Notably the Hague Convention does not apply to “interim measures of protection” so (for example) judgments granting an interim freezing order of a defendant’s assets could not be enforced under the Hague Convention. In addition the enforcement of judgment regime will only apply to the extent that the parties have entered into a qualifying exclusive jurisdiction agreement as outlined above.

In the absence of the Brussels Regulation, the Hague Convention or another reciprocal regime for the enforcement of judgments, enforcement of a non-EU judgment in an EU Member State is a matter for the local law in the enforcing state. This is not to say, however, that enforcement of such judgments will be unduly burdensome, although the procedure may not be as straightforward.

As a matter of English common law, enforcement of foreign judgments in England (where there is no reciprocal enforcement treaty) requires the judgment creditor to commence a fresh cause of action against the judgment debtor in the English courts with the foreign judgment being the cause of action. This will generally be slower than the enforcement of judgments from EU Member State courts, but not so much as to make enforcement of such judgments impossible. For example, judgments from US courts are regularly enforced in England without undue difficulty, despite the fact that the UK and the US have no reciprocal enforcement agreement.

Similarly, for example, Germany and France have procedures under their own domestic law for the recognition and enforcement of judgments from third countries so that, although it may take longer than enforcement under the Brussels Regulation, enforcement should not be unduly difficult. In both jurisdictions, the concepts underpinning the principal bars to enforcement are not dissimilar to those under the Brussels Regulation including where the judgment is incompatible with public policy/essential principles of domestic law or where the original court did not have jurisdiction.

The Withdrawal Agreement provides that the Brussels Regulation will apply to judgments given after the end of the transition period provided that the proceedings were originally started before January 1, 2021.

Service of process

Before Brexit, English court proceedings were able to be be served on defendants in other EU Member States in accordance with Regulation EC No. 1393/2007 on the service in the Member States of judicial and extra-judicial documentation in civil or commercial matters (the Service Regulation), which was relatively quick and cost effective. The Service Regulation permits a variety of methods of service including service between designated state central bodies (Article 4); postal service where proceedings are sent by the EU Member State (Article 14); and direct service where permitted under the law of the EU Member State (Article 15). As to the latter, it should be noted that several EU Member States do not permit direct service.

As no formal arrangements between the UK and the EU were put in place by the end of the implementation period, claimants may instead effect service on defendants in most other EU Member States in accordance with the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Hague Convention on Service Abroad). The Hague Convention on Service Abroad provides that each contracting state designate a Central Authority to receive and execute requests for service originating in other contracting states. In some cases this is likely to be slower than service under the Service Regulation.

However, parties to any contract containing a submission to English jurisdiction should include within commercial agreements a contractual provision authorising service on a process agent at an address within England and Wales. Such service, in accordance with the Civil Procedure Rules (CPR 6.11), is quicker and simpler than service under the Service Regulation and is unaffected by Brexit.

Arbitration

The New York Contention sets out a common global regime for the recognition of arbitration agreements, and the recognition and enforcement of foreign arbitral awards.

The UK is party to the New York Convention in its own right and will remain so upon Brexit. All EU Member States are also signatories to the New York Convention. The UK’s withdrawal from the EU has no impact on the validity or enforcement of English arbitration agreements nor on the recognition and enforcement of English-seated arbitration awards in EU countries (or elsewhere) and vice versa.

The current prohibition on English courts issuing anti-suit injunctions against EU Member States no longer applies to English courts.

Choice of law, jurisdiction and enforcement – practical steps

We do not recommend that changes are made to choice of law provisions as a consequence of Brexit. There remain good reasons for parties to choose English law as a governing law and that choice should continue to be respected in EU Member States via the application of Rome I.

If the contract is unlikely to require enforcement in an EU Member State then Brexit will not impact upon any analysis of choice of jurisdiction or enforcement at all. It is important to remember that the UK has favourable regimes for the enforcement of judgments with a number of non-EU jurisdictions.

If the contract is likely to require enforcement in an EU Member State following Brexit, there may be some advantage to agreeing that the courts of England (or other UK courts) have exclusive jurisdiction so that the provisions of the Hague Convention relating to choice of jurisdiction and enforcement would apply.

It is possible that enforcement of English judgments in other EU member states will, at least procedurally, be more complicated, although this should not undermine the reasons parties choose the English courts in the first place.

It should also be noted that Article 16 provides that the Hague Convention only applies where an exclusive jurisdiction agreement was agreed after the entry into force of the Hague Convention for the chosen state and shall not apply to proceedings instituted before its entry into force for the state of the court seised. The UK Government has made it clear that it considers the relevant date for entry into force of the Hague Convention to be 1 October 2015, when the UK joined the Convention as part of the EU. However, other countries may take the view that the change in the UK’s status means that the relevant date is when the UK acceded in its own right. As such, for transactions entered into prior to the UK’s accession to the Hague Convention it may be prudent to subsequently re-confirm the choice of exclusive jurisdiction to obtain the benefit of the Hague Convention.

Express address for service/process agent clauses should be included for service in England where overseas parties (including those resident in EU Member States) have agreed to submit to the jurisdiction of the English Courts (as is existing best practice in relation to any contract where parties are located outside the relevant jurisdiction for service purposes).