Brexit Negotiations Series: ‘The Effect of Brexit on the Resolution of International Disputes – Choice of Law and Jurisdiction in Civil and Commercial Matters’

Over the last decades, England has become a prime, if not the prime centre for settling international disputes: International companies choose English law more often than any other law as the governing law. And they choose to settle their disputes more often before English courts than before other courts. The question of how Brexit will affect the legal framework for the resolution of international disputes is, therefore, of quite some importance – both for UK and EU companies. This post explores the ramifications of Brexit for choice of law and jurisdiction in civil and commercial matters and makes suggestions for the future legal framework, taking into account the UK government’s two most recent Brexit White Papers of 2 February and 30 March 2017.

Current legal framework

Choice of law and jurisdiction is currently regulated by three EU Regulations. The law applicable to contractual and non-contractual obligations is determined with the help of the Rome I Regulation (No 593/2008) and the Rome II Regulation (No 864/2007). Jurisdiction is governed by the Brussels Ia Regulation (No 1215/2012). All three Regulations apply throughout the EU (with the exception of Denmark), and there is broad agreement that they establish a fairly clear and predictable legal framework for the settlement of international disputes, especially because choice of law and choice of forum clauses will be enforced under the same conditions across the EU.

Future legal framework: Baseline (‘Hard Brexit’)

Now, what happens if the UK leaves the EU? Of course, the above mentioned three Regulations will cease to apply. But which provisions will take their place? The details are disputed and a full discussion is beyond the scope of this post. Let me only say so much: I don’t think that the Rome Convention on the law applicable to contractual obligations of 1980 or the Brussels Conventions on jurisdiction, recognition and enforcement of judgments of 1968 may become effective and applicable again after Brexit. UK courts will, therefore, have to resort to their national (statutory or common) law to determine the applicable law and to determine jurisdiction once the Rome I, the Rome II and the Brussels Ia Regulations cease to have effect. Courts in the remaining Member States, by contrast, will continue to apply the Rome I and II Regulations. And they will also continue to apply the Brussels Ia Regulation to the extent that it applies to third states. To the extent that the Brussels Ia Regulation does not cover third state cases, Member State courts will apply their own national rules to determine jurisdiction. In particular, they will apply their own national rules of jurisdiction to determine the validity of a choice of forum clause in favour of English courts.

As a consequence, choice of law and jurisdiction will no longer be subject to the same regime in the UK and the rest of the EU once Brexit becomes effective. This will make it harder for parties to predict which law will apply to international disputes and which court will be competent to hear a case. The worst thing, however, is that parties cannot trust anymore that choice of law and choice of forum clauses will be equally enforced in the UK and the remaining Member States. Since different legal regimes will prevail, the enforceability of such clauses will essentially depend on where a law suit will eventually be brought.

Future Legal Framework: ‘Soft Brexit’ Scenario

What are the alternatives to the just described ‘hard Brexit’ scenario? I think that one may consider essentially four options. These will be presented as four separate alternatives. However, they are not necessarily mutually exclusive.

1^st Option: Agreement on continued application of EU framework

The first – and most straightforward – option would certainly be to aim for an agreement between the UK and the EU that the Rome I, the Rome II and the Brussels Ia Regulations will continue to apply even after Brexit. This might look counter-intuitive at first sight, but the idea of the ‘Great Repeal Bill’ proves that the UK government has the intention to keep at least some European rules post-Brexit. And since judicial cooperation was not on the agenda of the Brexiteers, preserving the status quo as regards choice of law and jurisdiction would probably not do much political harm.

The problem with the continued application of the current framework is, of course, that it requires the EU’s consent. And the EU might withhold that very consent for various reasons, notably for the purpose of setting an example vis-à-vis other Member States that toy with the idea of leaving the EU. In addition, the EU’s consent to continue applying the existing EU instruments will almost certainly depend on the UK accepting the jurisprudence of the CJEU in one form or the other. However, it was – and still is – one of the central aims of Brexit and the UK government ‘to bring an end to the jurisdiction of the CJEU in the UK.’ So, one would have to find a new arrangement to ensure uniform application and interpretation. One potential model is the mechanism enshrined in Protocol No 2 to the Lugano Convention of 2007, which requires the courts of non-Member States to ‘pay due account’ to CJEU decisions (as well as decisions from other contracting states) and could be an acceptable compromise for both the UK and the EU.

2^nd Option: Negotiation of a new Treaty with the EU

The second option is as straightforward as the first even though more difficult to implement. It consists of negotiating a new treaty with the EU on issues of choice of law and jurisdiction and, of course, recognition and enforcement. This option probably comes closest to what the UK government has in mind when it speaks of a ‘new strategic partnership with the EU’ and the aim of building a new relationship with the help of a new Trade Agreement. It would also allow the UK to improve the current legal framework where it is perceived to be deficient from a UK perspective. For example, it might try to renegotiate the current European position shaped by various ECJ judgments as regards the doctrine of forum non conveniens and as regards the use of anti-suit injunctions.

However, the negotiation of a ‘new deal’ will be time-consuming. Considering how many years it took to negotiate the existing EU instruments and considering that judicial cooperation will not be the top priority during the upcoming negotiations, it is unlikely that a new ‘deal’ could be signed and entered into force on the day of Brexit. Also, the UK and the EU would have to find a way to deal with and settle disputes arising under the new regime. The UK government suggests that one could think of creating a new settlement mechanism along the lines of other international agreements, such as GATT, NAFTA or CETA. Yet, it is rather unclear whether the EU would be willing to build a new court system alongside the CJEU to deal with issues of choice of law and jurisdiction.

3^rd Option: Unilateral application of EU instruments

The third option becomes attractive if the first two options fail. In this case the UK could simply decide to apply the Rome I, the Rome II and the Brussels Ia Regulations unilaterally. This is in line with the UK government’s idea of a ‘Great Repeal Bill’ which is supposed to ‘convert…the body of existing EU law…into domestic law.’ However, the problem with this option is that it does not work for jurisdiction (and, I may add, it does not work at all for recognition and enforcement of judgements): The Brussels Ia Regulation is a measure of international civil procedure and, therefore, rests on the principle of reciprocity.

Unilateral application, however, works well as regards choice of law. And since the ‘Great Repeal Bill’ will most likely require UK courts to give ‘historic CJEU case law…the same binding, or precedent status as decisions of the UK Supreme Court,’ unilateral application of the Rome I and II Regulations will go a long way to preserve the status quo. The problem that remains, though, is that unilateral application of both Regulations can ensure long term uniform application only if the UK courts are also required to follow or give ‘due account’ to future CJEU decisions. Should they not be so required, the third option will remain incomplete and only create the illusion of uniformity in the long run.

4^th Option: Negotiation and adoption of international treaties

This brings me to the fourth option: The UK could replace the current European regime with a more global regime by negotiating new treaties with non-EU countries, for example in the framework of the Hague Conference on Private International Law. This, however, will take time and, therefore, is no short-term solution. A short-term solution, however, would be to sign existing international treaties such as the Lugano Convention of 2007 and the Hague Convention on Choice of Court Agreements of 2005. This would help to avoid at least some of the negative effects described earlier. However, it would not go all the way to preserve the benefits of the status quo: The Lugano Convention of 2007 has not (yet) been aligned with the Brussels Ia Regulation. The substantial improvements that the recast has brought about, some of which were introduced because the UK lobbied hard for them, would, therefore, not extend to the UK. The Hague Choice of Court Convention, for its part, covers only choice of forum clauses and does not deal with other grounds of jurisdiction. And it only covers certain choice of forum clauses. Finally, the Convention is by no means – at least not yet – the global Convention it was meant to be. In fact, it is to this day only in force and applicable in the EU (with the exception of Denmark), Mexico and Singapore.

Conclusions

The preceding analysis shows that there is no easy and no perfect way out of the problems Brexit will create. The best short-term option for both the UK and the EU would probably be to agree on the continued application of the existing EU instruments within the framework of the withdrawal agreement or in a separate agreement. If this turns out to be not possible, the second-best short-term option for the UK will be to apply the Rome I and Rome II Regulations unilaterally and to sign the Lugano Convention of 2007 and the Hague Convention on Choice of Court Agreements. In the medium and long-term, the UK is probably well advised to apply a global strategy and to foster the conclusion of more international treaties in the framework of the Hague Conference on Private International Law.

Giesela Rühl is Professor of Civil Law, Civil Procedure, Private International Law, International Civil Procedure, European Private Law and Comparative Law at the Friedrich Schiller University of Jena (Germany).

This post is part of the ‘Brexit Negotiations Series’, a series of posts based on contributions at the ‘Negotiating Brexit’ conference that took place in Oxford on 17 March 2017.