Towards the Uncertainties of a Hard Brexit: An Opportunity for International Arbitration

On 2 February 2017, Her Majesty’s Government published its long-awaited White Paper setting out Britain’s broad objectives in forthcoming Brexit negotiations with the EU. This blueprint towards a ‘hard Brexit’ confirms the UK’s intention to ‘take control of its own law’, bring an end to the jurisdiction of the CJEU, as well as to leave the single market and the customs union. The existing relationship with the EU should be replaced by ‘a new and equal partnership, not partial or associate membership nor a model already enjoyed by other countries’. The White Paper further warned the EU negotiators that ‘no deal for Britain is better than a bad deal for Britain’ and highlighted the UK Government’s willingness to build a ‘Global Britain’, ‘free to strike trade agreements with countries from outside the European Union’.

Whether this blueprint towards a hard Brexit will lead to a Britain which is ‘stronger, fairer, more united and more outward-looking than ever before’ has yet to be seen, but a hard Brexit may well offer new opportunities to commercial and investment arbitration.

Brexit, with or without a deal, should not be effective before 2019 at the earliest. The UK Government has announced the triggering of Article 50 TFEU before the end of March 2017, and is likely to obtain Parliament’s approval beforehand, as prescribed by the recent ruling of the UK Supreme Court ([2017] UKSC 5). It will then be highly likely that the negotiations between the EU and the UK will last at least the two-year period provided for by this provision. 

The implications of Brexit on international disputes and the drafting of international contracts may therefore be seen as relatively remote. That, however, would mean forgetting that many of the dispute resolution clauses of the contracts concluded today will be relied upon in years to come, ie after the UK’s withdrawal from the EU. In this context, drafters of international contracts with UK-EU aspects seeking legal certainty would be well advised to opt for international arbitration rather than litigation, since a hard Brexit will have an uncertain, and potentially significant, impact on private international law (which has been progressively harmonised at EU level).

Indeed, as further developed in a previous post on the Kluwer Arbitration Blog, save for a specific convention with the EU/Lugano Convention’s parties, the UK will be considered as a third state for the application of the Brussels I recast regulation and the 2007 Lugano Convention. Even though the UK Government ‘recognises that an effective system of civil judicial cooperation will provide certainty and protection for citizens and businesses’, the conclusion of this convention appears difficult to reconcile with the UK Government’s refusal to ‘comply with the EU’s rules and regulations without having a vote on what those rules and regulations are’ and its intention to bring an end to the jurisdiction of the CJUE (which ensures the coherence of the EU’s common judicial area). As a result, the rules that will be applicable to the recognition and enforcement of English judgments, the jurisdiction clauses designating English courts, as well as parallel proceedings with English courts, are likely to raise complex legal questions and be subject to uncertainties. In contrast, the legal consequences of Brexit on international commercial arbitration should be limited and foreseeable, since this field has been harmonised at an international rather than at EU level and is expressly excluded from the Brussels I recast regulation and the Lugano Convention.

The 1958 New York Convention will continue to ensure the recognition and enforcement of arbitration clauses and awards in the more than 150 signatory countries (including the UK and the remaining EU Member States). In addition, the enforceability of English-seated arbitration clauses will be enhanced following Brexit, since English courts will unequivocally regain the ability to immobilise proceedings in member state courts brought in breach of an arbitration agreement. It is indeed still unclear whether the findings of the CJEU in the West Tankers case (C-185/07), ie the prohibition of anti-suit injunctions within the EU, continue to apply following the ‘clarification’ of the scope of the arbitration exception by the Brussels I recast regulation. In the Gazprom case (C-536/13), rendered after the recast, the CJEU upheld the possibility for arbitral tribunals to order anti-suit injunctions but did not agree with its Advocate General who pleaded for a general admissibility of anti-suit injunctions, whether ordered by arbitral tribunals or domestic courts. Brexit should put an end to these discussions since the UK Supreme Court ([2013] UKSC 35) has confirmed the English court’s power to issue anti-suit injunctions save for the ‘European inroad’.

In addition, a hard Brexit should also offer new opportunities for investment arbitration. The White Paper has confirmed the UK Government’s eagerness to conclude new free-trade agreements, with the EU, the United States and Commonwealth nations in particular. Given the UK’s tradition in this regard, and the importance of London in the investment arbitration market, these free-trade agreements are likely to provide for arbitration with regard to investor-state disputes. The White Paper’s precision that ‘almost all of the UK's 90+ Bilateral Investment Treaties have Investor-State Dispute Settlement Provisions’ seems to corroborate this conclusion.

Concerning the potential EU-UK free-trade agreement, the White Paper states that ‘ensuring a fair and equitable implementation of our future relationship with the EU requires provision for dispute resolution’ while merely indicating that ‘the correct approach for the agreement underpinning the future relationship between the EU and the UK will be a matter for negotiation’. It provides various examples of dispute resolution mechanisms in other international agreements as ‘illustrations’ (such as the arbitration panels of CETA and NAFTA, the ad hoc arbitration tribunals of Mercosur or the Dispute Settlement Body of the WTO). Given the growing mistrust of private arbitration mechanisms seen in the EU in the wake of CETA’s adoption (in particular, during Wallonia’s short-lived blocking), it appears likely that the EU-UK dispute resolution mechanism will rely, in one way or another, on a public body.

The views expressed herein reflect only the views of the author.

For a more detailed analysis of the consequences of Brexit on private international law and international arbitration, see our recent article (in French): Fog in Channel – Continent Cut Off, Journal des Tribunaux, 2017/2, pp 24ff.

Guillaume Croisant is a teaching assistant in conflict of laws at the Université Libre de Bruxelles and an associate lawyer in the dispute resolution team of Linklaters LLP.