Northampton, 2019-09-04

At present, there is a wealth of EU legislation which relates to the law governing an agreement between parties and the court, which will rule on any dispute arising from that agreement. However, as the UK’s leaving date from the EU draws ever nearer, these rules are subject to change and therefore need to be considered by companies entering into commercial contracts.

Please note that this article has not looked at the enforcement of judgments entered into by a UK court or a court in a member state, though this area is covered by the soon to be repealed legislation.

The situation at present

Prior to the UK’s exit date from the EU, the country will still be party to the key European legislation meaning that current practice will continue until this date. Where proceedings are issued prior to the exit date, different legislation exists to deal with governing law and jurisdiction.

In terms of the law, which governs a contractual arrangement between parties, this is currently dealt with by Regulation (EC) No 593/2008 (“Rome I”) which states that within the EU, the parties to any contractual arrangement have the choice as to the national law which governs their relationship. Whilst this is the default position under Rome I, a country, when hearing the dispute or that is subject to all elements of the contract, may apply any overriding provisions of their own national or EU law which are considered crucial to the public interest. Where no election of governing law has been made, Rome I sets out the relevant law to be applied.

Jurisdiction of a contractual dispute is currently dealt with under Regulation (EC) No 1215/2012 (“Brussels Recast”). This legislation not only contains rules regarding when a member state court shall have jurisdiction over a dispute, but also contains a provision that where identical proceedings are brought by the parties in two member state courts, the court where the proceedings are raised second, will stay their proceedings until such time as the first court has determined whether it has jurisdiction to deal with the dispute. If the first court determines that it has jurisdiction to deal with the case, then any other courts are required by Brussels Recast to discontinue the action in their court.

Where there is a question of jurisdiction with a non-member state, the Hague Convention on Choice of Court Agreements 2005 (“the Convention”) may be able to assist in limited circumstances, where the contract contains an exclusive jurisdiction clause which relates to a state signed up to the Convention. At present, the contracting states are the member states of the EU, Mexico, Singapore and Montenegro. The UK is currently party to the Convention by virtue of its EU membership.

Withdrawal from the EU

The UK is due to leave the EU on 31^st October 2019, with or without a deal. Clearly the rules going forward will depend on whether a deal can be reached and if so the contents of that deal, though there will likely be a transitional period during which the EU rules will still apply to the UK whilst the finer points of our legal relationship are decided upon. As we are unaware of the contents of any deal proposed, the remainder of this article focusses on the position if we were to leave with no deal in place.

Some decisions have already been made about the EU legislation which is to remain post-Brexit. Rome I will be retained, albeit with some minor amendments to allow the rules to operate efficiently once the UK is no longer a member state. This means that, subject to the exceptions which allow the overriding provisions to take effect, it is likely that English governing law clauses are likely to be upheld both by English courts and EU courts. However, it should be noted that there may be issues to come in the future where English law and EU law depart from either EU interpretation of Rome I or the repealing of English laws, which were previously compliant with EU regulatory requirements.

Whilst Rome I is being retained, Brussels Recast has been renounced and shall no longer bind the UK following the exit date. This means that the rules concerning jurisdiction contained within will no longer apply.

In readiness for a no deal Brexit, and in order to ensure some level of certainty regarding jurisdiction, the UK has provisionally acceded to the Hague Convention in its own right. The intention is that all of the contracting states will uphold exclusive jurisdiction clauses. However, there is a concern to do with the point at which an exclusive jurisdiction clause was entered into. Whilst the UK will be treating their accession to the Hague Convention as beginning in October 2015 (the date at which the EU, and by that virtue the UK, joined), there is question over whether the EU will recognise clauses entered into before the date at which the UK formally signs up to the Convention, which will only be after exit day. This will therefore lead to uncertainty about whether these clauses are effective and should be upheld, though companies should ensure that all contracts entered into after the exit date contain an exclusive jurisdiction provision to ensure certainty in the event of a dispute.

Where a clause is not upheld, or is non-exclusive in nature, the Hague Convention will not apply and therefore it will be for national courts to determine whether they have jurisdiction to hear a case based upon their own law. This in itself creates a lack of certainty, not helped by the UK’s disapplication of Brussels Recast, which means that if proceedings are commenced first in the UK and thereafter in another member state, the court in that member state may still continue with proceedings even where there has been no decision by the UK court as to whether they have jurisdiction to hear the dispute. Though it is hoped that a member state court applied to second would not look to continue proceedings when a UK court has been applied to first without having due cause, any continuance of proceedings would result in great expense and even lengthier proceedings for the parties.

Conclusion

Whilst this article has attempted to briefly summarise the position moving forward with regards to governing law and jurisdiction, this is an overly complex area dealt with by many pieces of legislation. Moreover, whilst the UK Government can make assurances about the action our courts will take following Brexit, it is more difficult to ascertain the attitudes the EU courts will take, not being privy to these discussions. As with much of Brexit, the outcome therefore remains to be seen.

Author: Rebecca List, Attorney at law

Tollers LLP