Going to court across the border post Brexit: just two more things
With a hard Brexit looming on the fast approaching horizon, a lot of companies doing business across the Channel are looking at their contracts to check what, if anything, makes less sense in 2021 than it did in 2020.
One of the five tips we recently gave on Brexit-related contract review concerned the choice of applicable law governing agreements and competent counts presiding over any contractual dispute. With this contribution, we want to take a closer look at this point, typically the object of one of the final ‘boilerplate’ clauses in any given commercial agreement.
So taking into account Brexit…
… is it still OK to select the Laws of England and Wales as governing law?
Short answer: yes.
On the issue of the law governing parties' contractual and non-contractual obligations, the Rome I and II Regulations provide uniform conflict-of-laws rules in order to avoid undue forum-shopping. In theory, all national courts of EU Member States (excluding Denmark) apply the same rules determining the applicable law.
After the Transition Period, the Rome I and Rome II Regulations will be incorporated into domestic law. This will create certainty and continuity between the current EU and UK legal frameworks as English governing law clauses will be recognised by the courts of EU member states so there is little risk in keeping these clauses or inserting them into future contracts.
So far for the easy part of the equation. But…
… should you steer clear of UK counts having jurisdiction over your contracts?
Short answer: maybe not.
To be clear: there is no rule against opting for the exclusive or non-exclusive jurisdiction of English courts post Brexit. But doing so (especially in case of non-exclusive or assymetric jurisdiction) may give you some procedural headache if you have to enforce your hard fought UK legal victory across the pond.
Here’s the main issue. Please bear with us.
Until today, the UK is a party to The Hague Convention on Choice of Court Agreements 2005 ("The Hague Convention") as an EU Member State. This is true since 1 October 2015 and will continue to be true until the end of the transition period, i.e. December 31. Come 2021, the UK government has indicated that the UK will accede, in its own right, to The Hague Convention in the event of a hard Brexit. Accession to The Hague Convention is an advantage for parties who choose the exclusive jurisdiction of the English courts because it would keep UK court decisions enforceable across the EU.
With some caveat.
The UK government has said that the Hague Convention will apply to contracts entered into after 1 October 2015, the date that the UK acceded to the Convention as an EU Member State. However, the EU takes a different position, stating that the Hague Convention will only apply to contracts entered into from 1 January 2021, the date the UK will accede to the Hague Convention in its own right.
Parties who have entered into contracts with exclusive jurisdiction clauses in favour of a court in the UK after 1 October 2015 should seek legal advice to assess whether those clauses will be enforceable in EU Member States under The Hague Convention or whether that Member State’s national rules will apply.
As to non-exclusive jurisdiction clauses and asymmetric jurisdiction clauses, those will (in any event) not receive the same reciprocal protection under The Hague Convention. Here Member State laws will prevail, making it generally less attractive to select that type of clauses going forward for UK contracts that may require court ruling enforcement in the EU.
A final thought: the saving grace of arbitration clauses
A lot of these litigation woes and procedural sleepless nights can be avoided by investing in a solid arbitration clause in your main contracts.
Indeed, arbitral awards are enforceable on both sides of the North Sea by virtue of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As both the UK and the EU are members of the New York Convention, arbitration may see its stock value on the legal market rise significantly as a useful method to sidestep the enforcement quandary that a hard Brexit may create.