The UK’s long-awaited exit from the EU took place on 31 December 2020, following years of uncertainty. The EU-UK Trade and Cooperation Agreement (TCA) was finalised, mere days before the UK’s historic exit. What does this post-Brexit trade deal mean for litigants and businesses with EU trading ties? What does Brexit mean for parties who have chosen the English courts to resolve their disputes?
Whilst an aura of uncertainty remains regarding the approach for businesses to adopt at this stage, our team set out some key updates, and practical tips your business could implement now to ensure that you do not fall foul of the relevant rules relating to service and/or enforcement in any civil cases with a European dimension:
1.) There will be no substantial changes to rules regarding choice of law clauses.
The European rules governing applicable law (the Rome Convention, Rome I Regulation and the Rome II Regulation) have been incorporated into UK domestic law. This means that parties who would ordinarily select English Law to govern its contracts should continue to do so. Such applicable law clauses will continue to be respected by EU member states.
2.) Exclusive jurisdiction clauses in favour of the English Courts will be recognised by EU member state courts provided the contract was entered into on or after 1 January 2021. Non-exclusive jurisdiction clauses, meanwhile, are permissible subject to local laws.
In relation to existing contracts, EU member states will apply their own law in recognising a jurisdiction clause and determining which Country’s court has jurisdiction.
3.) Permission from the Court to serve proceedings on a Defendant in an EU member state will now be needed in the same way as for Defendants located outside of the EU (under the Civil Procedure Rules, Rule 6). This requires a separate application to be made and the “full and frank” disclosure to the Court of all information, including any which might weigh against the application.
A change to these rules, which would see the requirement for permission to serve removed where there is a governing law and jurisdiction clause in favour of the UK court, is pending.
In any event, it is clear that the process of serving parties with Court documents or pleadings, who are domiciled in the EU, adds delays and costs to commencing legal proceedings.
4.) Arbitration agreements and their enforceability are not impacted
5.) A UK Judgment can be enforced in an EU member state the same way as before provided the proceedings were brought before 1 January 2021. Where a claim is brought after this date, local rules will apply. This may mean issuing fresh proceedings in local courts.
Legal advice should be sought from local lawyers as to enforcement and how easy it may be to enforce a UK Judgment in an EU country, say if that is where the other party’s assets are located.
Practical considerations for your business
- If you regularly contract with EU based parties, it is still sensible to have governing law clauses in favour of England and Wales if preferred. This will be upheld in EU member states.
- Given the shift in the rules on service to EU based parties, it may be worth having contractual provisions in place to circumvent any issues (i.e., specifying that valid service is effected on a UK based agent, for instance). There will likely be an increase in the number of UK based cases requiring the permission of English Courts to serve outside of the jurisdiction. Such a clause would allow flexibility and save time and costs.
- Consider re-drafting any non-exclusive jurisdiction clauses in future contracts, given that these will be treated differently by the Courts.
- Review existing jurisdiction clauses with any European counterparties and ensure you consider where any enforcement action may be necessary.
- If the nature of your contract (and any disputes arising from the same) lends itself to arbitration, it may be worth ensuring an arbitration clause (or hybrid clause) is included within your contract. Brexit does not affect the rules and enforceability of arbitration.
- If you have an on-going dispute and/or proceedings have already been issued, you will largely benefit from the law, pre-Brexit. This does not mean any future contracts should not be drafted with the above in mind.
It is clear that this is a developing area and changes to the law are likely to be frequent over the coming months.
How can we help?
Disputes governed by English and Welsh law, with jurisdiction in favour of the English Courts will be impacted by Brexit where one or more of the parties is based in an EU member state. If you are looking for advice in relation to drafting relevant clauses in future contracts, or in relation to English-based proceedings governed by English law where one party may be domiciled abroad, do not hesitate to contact our experienced team who may be able to assist you.