Brexit Negotiations Series: ‘The Effect of Brexit on the Resolution of International Disputes - The Impact of Brexit on International Commercial Arbitration’

The role of London as a center for international commercial arbitration is unlikely to be affected by Brexit. The sources of law governing arbitration (the 1958 New York Convention and the 1996 Arbitration Act) will remain unaffected by Brexit and the ‘arbitration exception’ in the Brussels-I Recast regime (Article 1(2)(d)) confirms the autonomous status of arbitration.

Notwithstanding the foregoing, however, one should not overlook the fact that arbitration is not immune from the debate on conflicts of jurisdictions and mutual trust in Europe, and that Brexit may, in fact, result in a progressive vanishing of trust in UK-seated arbitrations by domestic courts in EU Member States. More specifically, these courts may be induced to fear, and react to, the possibility of a failure to apply the EU’s mandatory laws by UK-seated arbitral tribunals.

The extent to which the foregoing is likely to happen will depend primarily on the extent (if any) to which UK law will progressively depart from EU law, but it will also depend on the perception by domestic courts in EU Member States of the risk of disregard of EU law by UK-seated arbitral tribunals. 

This issue may be raised ex post, at the stage of recognition and enforcement (in a EU Member State) of an award rendered by a UK-seated arbitral tribunal that overlooked the application of EU law.

However, the issue may also be raised ex ante, at the stage of the assessment of the validity of the arbitration agreement, either by arguing that the matter is not ‘arbitrable’ (an approach which has been adopted at times, for instance, by Italian and Belgian courts), or by adopting a pre-emptive approach based on a prognosis of disregard of EU law by the arbitral tribunal (an approach which has been adopted, for instance, by German courts, but also by English courts with respect to non-EU seated arbitral tribunals).

Of course, the possibility of an ex ante intervention by courts of EU Member States can be criticized per se and, in any event, should be coordinated with the duty that arbitrators are bound to render an enforceable award. In this regard, however, the difference in the language used by the Arbitration Rules of the LCIA, compared (for instance) to those of the ICC, may support the arguments favoring a pre-emptive intervention by EU-based courts. Indeed, the LCIA’s Rules (Art 32.2), unlike the ICC Rules, contain a reference only to the duty to make every reasonable effort to ensure that any award is legally recognized and enforceable ‘at the arbitral seat’ (unlike the ICC Rules, Art 41, which impose on the tribunal ‘every effort to make sure that the award is enforceable at law’).

After Brexit, the LCIA’s reference to the ‘arbitral seat’ (based in the UK) may be perceived as failing to assure the application of the EU’s overriding mandatory laws and may therefore offer to domestic courts based in EU Member States an argument in favor of retaining jurisdiction notwithstanding an arbitration clause choosing a UK-seated arbitration based on the LCIA’s Rules.

The resulting uncertainty would clearly have a negative impact on London as a center for international commercial arbitration.

Marco Torsello is Associate Professor of Comparative Private Law at the University of Verona (Italy).

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.