Parties who do cross-border business often declare English law applicable in commercial contracts, accompanied by a jurisdiction clause making the English courts (exclusively) competent to hear claims arising out of the business relationship. In light of Brexit, the question arises what the position of decisions given by the English courts will be in the EU, and vice versa, post-Brexit. The draft withdrawal agreement published on 14 November 2018 does not offer a permanent solution. Therefore, the impact of Brexit on UK court decisions is still uncertain and could hold unexpected and unwanted consequences for parties bound by an exclusive jurisdiction clause.
English law is often chosen by parties to govern a cross-border commercial contract, even when parties have no connection to the UK. English law is generally considered comparatively stable, predictable, and as having an emphasis on the text of the contractual arrangements between parties. English law provides a lot of freedom to contracting parties and generally adheres to contractual obligations. There is a limited scope for public policy or similar principles to interfere with contractual obligations.
The main factors that make English law an attractive choice for contracting parties, therefore, have little to do with the UK’s membership in the EU or the influence of EU law. Most of the important contractual issues, such as offer, acceptance, applicability, and implication of general terms and conditions, breach, and damages are derived from substantive English law, and are for the most part not affected by EU law and a Brexit. However, a choice of law clause for English law currently means English law including the applicable EU law. After Brexit, EU law will no longer automatically apply, which can in some circumstances lead to a different outcome based solely on English substantive law.
Recognition and Enforcement of UK Court Decisions
Like governing law clauses, jurisdiction clauses for English courts are commonly incorporated into contracts between commercial parties who are located in different countries. English courts have a reputation for being reliable, sophisticated and, most importantly, commercially orientated. However, proceedings before English courts are generally perceived as expensive.
Currently, decisions from English courts are automatically recognized and can be enforced in other EU member states based on Regulation (EU) 1215/2012 (Brussels Recast Regulation). If a Brexit is ultimately avoided, the Brussels Recast Regulation will continue to apply. However, if the UK leaves the European Union, the UK will in principle no longer be subject to the Brussels Recast Regulation.
On 14 November 2018, the Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (Draft Withdrawal Agreement) was published. Title VI of the separation provisions (part three) of the Draft Withdrawal Agreement contains provisions on judicial cooperation in civil and commercial matters. Article 67 states that in the United Kingdom, as well as in the EU in situations involving the United Kingdom, the provisions of the Brussels Recast Regulation regarding jurisdiction and recognition and enforcement of decisions shall continue to apply for legal proceedings instituted before the end of the transition period. The transition period is currently set to end on 31 December 2020, but can be extended. However, the fate of the Draft Withdrawal Agreement remains uncertain, as it still needs the required majority vote in the UK Parliament to be finalized.
Without a permanent deal on this subject, decisions by English courts rendered in proceedings instituted after the transition period will only be enforceable in other EU countries under the rules each individual country applies for recognition and enforcement of non-EU court decisions. In general, this will mean that decisions from UK courts will not be automatically recognized and enforceable in other EU member states but will be subject to a stricter regime for recognition and potentially time-consuming proceedings. Furthermore, court decisions from EU member states will no longer be automatically recognized and enforceable in the UK.
To counter this, the UK and the EU could negotiate a permanent deal that involves the UK acceding to a convention on enforceability of court decisions. In this regard, there are several options. In theory, the EU and the UK could agree that the Brussels Recast Regulation will continue to apply to the UK indefinitely after the transition period. The UK could also join a convention to which the EU has already acceded. The most probable option would be the Lugano Convention of 2007, which also applies between the EU, Norway, Switzerland, and Iceland. This convention allows for enforcement on broadly the same terms as the Brussels Recast Regulation. Another possibility for the UK would be to join the 2005 Hague Convention on Choice of Court Agreements. This convention, however, applies only in case of an exclusive jurisdiction clause in a contract.
The exact arrangements under which the United Kingdom will leave the European Union remain uncertain. Parties involved in cross-border business who use contracts governed by English law and with an exclusive jurisdiction clause for the English courts should be aware of potential issues when it comes to recognition and enforcement of English court decisions in other EU member states after the transition period, and potentially change their contract clauses accordingly.