Impact of the Brexit agreement on legal procedures for cross-border disputes

Despite the fear of a “No-deal Brexit”, aBrexit agreementon the future relationship between the United Kingdom and the European Union wasreached on 24 December 2020. As the report was drafted a week before the deadline and consists of 1246 pages, thereis still significant uncertainty about its content and its implications, particularly with regard to legal procedures for cross-border disputes. For creditors from the European Union there are uncertainties about the enforceability of the execution of commercial contracts.The Brexit agreement does not contain any specific provision on this subject. TCM Belgium succeeds in reaching an amicable solution in 99% of cases and can avoid legal action. For the 1% in which legal proceedings are required, it becomes essential to be aware of the most recent developments.What law is applicable, which court has jurisdiction, can a judgment be executed?Although the situation still contains many uncertainties, we provide answers to these questions taking into account the current circumstances.

Difference between ongoing legal proceedings and proceedings as of January 1, 2021

Forlegal proceedings commenced before January 1, 2021, the old systemwill continue to apply. These proceedings are already explained in more detail in our articles “The Brexit and receivables in the UK” of 27 Dec. 2016 and “No-Deal Brexit and claims on debtors in the UK” of 29 Oct. 2018. However, it is recommended not to prolong ongoing proceedings in order to avoid discussion. For legalproceedings initiated after January 1, 2021, the situation is morecomplex.

Applicable law

For applicable law, nothing really changes.The UK must respect European law(Rome I Regulation)as this convention is universally applicable and does not require reciprocity. In addition, the provisions of Rome I have beenincorporated into UK national law as retained EU law. This legislation contains provisions which generally oblige the courts of the EU Member States to respect the contractual choices of the parties. In practice, if a clause specifies English law, the courts of an EU member state must comply with this choice. Conversely, a UK court must respect the fact that a contract stipulates that the law of an EU member state is applicable. If the applicable law is not determined, the legislation will prescribe the applicable law. However, considering the current circumstances, it isadvisable to specify the applicable law unambiguously in your contractsto avoid discussion.

Jurisdiction

Until 31 December 2020, the jurisdiction of the courts for commercial contracts was governed by the Brussels I Convention. Brussels I implies that an exclusive provision of jurisdiction must be respected and, in default of this, the jurisdiction is determined. Unlike Rome I, Brussels Idoes require accession and the UK has not transposed this legislation into national law. As a result, from 1 January 2021, there is no similar legislation in force in the UK. To address this problem,the UK has applied to join the Lugano Convention,which contains nearly equivalent provisions to Brussels I. However, this will require the consent of all EU member states, which may take some time or could never happen. In the absence of another solution, theUK has entered into theHague Choice of Court Conventionwhich states that a clause which declares a court to have exclusive jurisdiction must be respected by other courts. The two main limitations to this Convention are that itonlyapplies to contracts with anexclusive jurisdiction clauseand thatit only applies to clausescreatedafter its entry into force. This date is subject to discussion as the UK says it is 1 October 2015 and the EU applies 1 January 2021. In theabsenceof an unambiguous exclusive jurisdiction clause,the law of the court seized will determine which court has jurisdiction. This ensures that the competent court in each country may be different.

Execution and recognition of foreign judgments

A similar situation exists for the execution and recognition of foreign judgments. Again,Brussels I is no longer applicable, which means that it is necessaryto fall back on the Hague Convention. Only judgements of an exclusive competent court under application of the Hague Convention can be executed without additional proceedings.If the Hague Convention does not apply, a judgement of an EU Member State will be enforceable in accordance with the local law of the UK where enforcement is sought(and vice versa). In most cases, it will require a new procedure to execute the judgment. Bilateral treaties between the UK and an EU member state will hopefully simplify this situation.

How to deal with this uncertainty?

As discussion may arise about the competent court and additional procedures are required for the execution of an English judgment, it is important to consider which applicable law and which court to specify. Therefore, we recommend thatexisting contracts be reviewed and, if possible, include an applicable law clause and an unambiguous exclusive jurisdiction clause.These clauses should naturally also be incorporated in new contracts. Keeping in mind the current circumstanceswe advise to prescribe both the applicable law and the court of the customer’s country. In case of a contract with a UK customer, this means that the UK court has jurisdiction and must apply UK law. It is always preferable for a court to apply its local law which it knows best. British law is also generally considered to be reliable for commercial contracts.

Conclusion

Our reasoning is theoretical, and it is still doubtful how this will work in practice. It is certain that bilateral agreements will play an important role until there is a universal solution for the EU and the UK. It is unclear whether accession to the Lugano Convention will be the solution. Until then, it is important toinclude unambiguous clauses specifying the applicable law and the competent court to avoid discussion. If you have any questions about this topic or if you are interested in the evolution of the situation, pleasecontact us.

Sources:

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)
Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I)
Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Lugano)
Convention of 30 June 2005 on Choice of Court Agreements (Hague Convention)
https://www.dlapiper.com/en/luxembourg/insights/publications/2020/11/brexit-choice-of-law-jurisdiction-enforcement-and-service/
https://www.charlesrussellspeechlys.com/en/news-and-insights/blogs/brexit-implications-for-you-and-your-business/commercial-contracts/
https://www.nortonrosefulbright.com/en/knowledge/publications/a6ec9370/impact-of-brexit-on-choice-of-law-jurisdiction-and-enforcement
https://www.pinsentmasons.com/out-law/analysis/brexit-and-dispute-resolution
https://brexit.bakermckenzie.com/2019/08/21/brexit-choice-of-law-and-jurisdiction/

Despite the fear of a “No-deal Brexit”, aBrexit agreementon the future relationship between the United Kingdom and the European Union wasreached on 24 December 2020. As the report was drafted a week before the deadline and consists of 1246 pages, thereis still significant uncertainty about its content and its implications, particularly with regard to legal procedures for cross-border disputes. For creditors from the European Union there are uncertainties about the enforceability of the execution of commercial contracts.The Brexit agreement does not contain any specific provision on this subject. TCM Belgium succeeds in reaching an amicable solution in 99% of cases and can avoid legal action. For the 1% in which legal proceedings are required, it becomes essential to be aware of the most recent developments.What law is applicable, which court has jurisdiction, can a judgment be executed?Although the situation still contains many uncertainties, we provide answers to these questions taking into account the current circumstances.

Difference between ongoing legal proceedings and proceedings as of January 1, 2021

Forlegal proceedings commenced before January 1, 2021, the old systemwill continue to apply. These proceedings are already explained in more detail in our articles “The Brexit and receivables in the UK” of 27 Dec. 2016 and “No-Deal Brexit and claims on debtors in the UK” of 29 Oct. 2018. However, it is recommended not to prolong ongoing proceedings in order to avoid discussion. For legalproceedings initiated after January 1, 2021, the situation is morecomplex.

Applicable law

For applicable law, nothing really changes.The UK must respect European law(Rome I Regulation)as this convention is universally applicable and does not require reciprocity. In addition, the provisions of Rome I have beenincorporated into UK national law as retained EU law. This legislation contains provisions which generally oblige the courts of the EU Member States to respect the contractual choices of the parties. In practice, if a clause specifies English law, the courts of an EU member state must comply with this choice. Conversely, a UK court must respect the fact that a contract stipulates that the law of an EU member state is applicable. If the applicable law is not determined, the legislation will prescribe the applicable law. However, considering the current circumstances, it isadvisable to specify the applicable law unambiguously in your contractsto avoid discussion.

Jurisdiction

Until 31 December 2020, the jurisdiction of the courts for commercial contracts was governed by the Brussels I Convention. Brussels I implies that an exclusive provision of jurisdiction must be respected and, in default of this, the jurisdiction is determined. Unlike Rome I, Brussels Idoes require accession and the UK has not transposed this legislation into national law. As a result, from 1 January 2021, there is no similar legislation in force in the UK. To address this problem,the UK has applied to join the Lugano Convention,which contains nearly equivalent provisions to Brussels I. However, this will require the consent of all EU member states, which may take some time or could never happen. In the absence of another solution, theUK has entered into theHague Choice of Court Conventionwhich states that a clause which declares a court to have exclusive jurisdiction must be respected by other courts. The two main limitations to this Convention are that itonlyapplies to contracts with anexclusive jurisdiction clauseand thatit only applies to clausescreatedafter its entry into force. This date is subject to discussion as the UK says it is 1 October 2015 and the EU applies 1 January 2021. In theabsenceof an unambiguous exclusive jurisdiction clause,the law of the court seized will determine which court has jurisdiction. This ensures that the competent court in each country may be different.

Execution and recognition of foreign judgments

A similar situation exists for the execution and recognition of foreign judgments. Again,Brussels I is no longer applicable, which means that it is necessaryto fall back on the Hague Convention. Only judgements of an exclusive competent court under application of the Hague Convention can be executed without additional proceedings.If the Hague Convention does not apply, a judgement of an EU Member State will be enforceable in accordance with the local law of the UK where enforcement is sought(and vice versa). In most cases, it will require a new procedure to execute the judgment. Bilateral treaties between the UK and an EU member state will hopefully simplify this situation.

How to deal with this uncertainty?

As discussion may arise about the competent court and additional procedures are required for the execution of an English judgment, it is important to consider which applicable law and which court to specify. Therefore, we recommend thatexisting contracts be reviewed and, if possible, include an applicable law clause and an unambiguous exclusive jurisdiction clause.These clauses should naturally also be incorporated in new contracts. Keeping in mind the current circumstanceswe advise to prescribe both the applicable law and the court of the customer’s country. In case of a contract with a UK customer, this means that the UK court has jurisdiction and must apply UK law. It is always preferable for a court to apply its local law which it knows best. British law is also generally considered to be reliable for commercial contracts.

Conclusion

Our reasoning is theoretical, and it is still doubtful how this will work in practice. It is certain that bilateral agreements will play an important role until there is a universal solution for the EU and the UK. It is unclear whether accession to the Lugano Convention will be the solution. Until then, it is important toinclude unambiguous clauses specifying the applicable law and the competent court to avoid discussion. If you have any questions about this topic or if you are interested in the evolution of the situation, pleasecontact us.