On 23 June, the UK is holding a referendum on whether to remain or leave the European Union. What does this mean for a country with international commerce and cross-border litigation?
International and cross border disputes involve individuals or organisations based in different countries or where some of the events relevant to the claim took place in another jurisdiction. It is common for these types of disputes to arise out of international commerce and to be based on a breach of contract or a tort, such as negligence or deceit. According to reports, over 80% of claims issued in the Commercial Court in England and Wales involve at least one international party. This is because England has a leading reputation for the provision of international legal services, particularly in litigation and arbitration, and a set of rules often based on European legislation apply.
The courts of England and Wales have jurisdictional competence to resolve many disputes. Some commercial agreements contain a jurisdiction clause, in which the parties pre-determine prior to entering into a contractual relationship which court(s) have jurisdiction to hear disputes arising from the agreement. If there is no effective jurisdiction clause, the question of the correct forum for the settlement of a dispute is relatively complex. The first point to note is that if the defendant is domiciled in the EU, usually European regulations and conventions determine which court has jurisdiction, such as the Brussels I Regulation.
If the UK leaves the European Union, it is unclear what would happen. If the UK were to position itself like countries such as Switzerland by joining the European Free Trade Association and becoming a member of the Lugano Convention, not much change would result. Alternatively, the UK could negotiate agreements with other countries. As a further alternative, English common law rules could determine the jurisdiction of the courts. Relevant factors to determine jurisdiction (depending on which procedure applies) would include where the defendant is domiciled, whether the defendant can be served with court papers within England or Wales, for example where an individual is on a temporary visit, and whether the claim falls into a category of disputes over which the courts of England and Wales are prepared to exercise their jurisdiction. By way of example, if the dispute derives from a breach of contract, permission to serve a defendant may be given if the contract was entered into or breached in England or Wales.
Many commercial agreements contain a governing law clause, specifying the system of law applicable to the interpretation of an agreement and the resolution of a dispute arising out of the agreement. In other words, the governing law determines the rights and obligations of the parties as set out in substantive law. In the absence of an express governing law clause, the framework used by a court to determine the applicable law will depend on whether the court is in a member state of the EU.
In contractual disputes, the Rome I Regulation or the Rome Convention apply to all EU member states. Interestingly, the application these instruments does not depend on the nationality or domicile of the claimant and/or defendant. The general rule the courts will apply is that parties to the dispute have the autonomy to choose which law applies. In circumstances where the parties have not chosen the governing law, the instruments provide a set of rules to determine the applicable law. The Rome II Regulation – applicable to EU member states from 11 January 2009 onwards - allows parties to choose the law that applies for non-contractual obligations, such as tort.
Following a Brexit, the Rome I and II Regulations would not apply. However, with respect to contractual disputes, the UK has common law principles similar to the Rome 1 Regulations and the Rome Convention (contractual obligations). As a result, the situation would not dramatically change. This is not the case for non-contractual obligations as common law is not parallel to Rome II and there would be uncertainty surrounding the applicable system of laws.
Legislation and interpretation
In relation to external trade, it’s fair to say that EU legislation and policy is the main driver of UK law and policy, although the UK retains some freedom of action in these areas. What will happen to the substantive law if the UK votes to leave? Let’s take the Consumer Rights Act 2015. It derives from a series of EU Directives and predominantly the Consumer Rights Directive 2011/83/EU. It is unlikely that this important piece of legislation will suddenly disappear from the statue books. But what it does mean is that the European Court of Justice will no longer have a role to play in its construction. What about the principles of statutory construction based upon consideration of the overall purpose of the EU Directives? Will the Courts no longer have regard to that principle? What about decisions of the ECJ regarding Directives that have been incorporated into UK law? Presumably they will cease to carry any weight or at least the weight that was attached to them pre-Brexit. Will it now be open to argument that they were wrongly decided because they followed EU law? What about EU Guidance, for example the Guidance on the Distance Sales Directive provided by the European Commission Directorate-General for Justice and Consumers? Presumably it will simply be ignored as being tainted with Europeanism.
If the UK votes to leave Europe, there will be a period of uncertainty as to the procedure, law and interpretation involved in resolving international disputes. However, it is likely that the UK will seek to maintain the status quo either by becoming signatories of alternative conventions, reliance on common law principles or entering into bi-lateral and multi-lateral agreements with other countries.