On 23rd June 2016 the UK is holding a referendum on leaving the European Union (EU). If the UK votes to leave there will be a notice period, of at least two years, before the UK actually exits in order to clear up the legislative uncertainty which currently exists regarding what the decision to leave actually means. It is therefore thought that the actual Brexit date will not be before 2018.

To what extent is EU Law relevant to disputes with a cross-border element?

In order to facilitate access to justice and judicial cooperation between member states, EU law has laid down rules which apply to parties in member states litigating disputes with cross-border elements. The cross-border element may exist, for example, because the dispute arises between parties domiciled in different member states, or because the subject matter of the dispute has a particular connection with a member state, for example, because it is the place where contractual obligations are to be performed.

The four principal areas relevant to parties litigating disputes dealt with by EU rules concern:

  • The courts which are to have jurisdiction over the dispute;
  • The law which is to govern the parties obligations (both contractual and non-contractual);
  • The recognition and enforcement of court judgments; and
  • The service of court documents and the taking of evidence.

Current position

Jurisdiction

On the issue of jurisdiction, EU rules lay down detailed provisions which determine which courts are to have jurisdiction and these are now largely contained in the Brussels Regulation1. The general rule is that the defendant should be sued in the courts of the member state where it is domiciled. If, therefore, the claimant is domiciled in England but the defendant is domiciled in Italy, the presumption is that the defendant should be sued in its home state, Italy. The parties are, however, free to agree that the courts of a particular country are to have jurisdiction (and the rules give effect to that choice) subject to various qualifications, for example in relation to disputes about real property or concerning the constitution of companies.

Recognition and Enforcement of Judgments

On the issue of the recognition and enforcement of judgments2, the EU rules provide a framework which enables a judgment given in one member state to be registered and enforced in another member state, as if it were a judgment of that member state. There are only very limited grounds on which registration and enforcement can be resisted.

Governing law

With regard to the law governing parties' obligations, the EU rules set out in Rome I3 and Rome II4 provide a framework to harmonise the rules which apply to contractual and non-contractual obligations with the aim of ensuring that member states apply the same law to the same dispute. Broadly, in matters concerning contractual obligations, Rome I gives effect to the parties' choice of law and provides rules to determine the applicable law where no choice has been made. Rome II provides a similar mechanism for ascertaining the applicable law for disputes arising out of non-contractual obligations, for example, claims in tort.

Service of documents and taking of evidence

The procedure for service of judicial and extra-judicial documents between member states (including Denmark) is also governed by EU rules5, as is the taking of evidence6. The aim of these rules is to improve and expedite the transmission of judicial and extra-judicial documents between member states, and to simplify and accelerate cooperation between member states with regard to the taking of evidence in one member state for use in proceedings in another member state.

Position post Brexit

For those litigating disputes with a European dimension, the current rules provide a relatively comprehensive framework setting out how issues relating to jurisdiction, the recognition and enforcement of judgments, governing law and the service of documents and taking of evidence will be dealt with by the courts of member states. While Brexit will change this, the extent of the change is currently unclear. It all depends on the arrangements entered into between the UK and EU member states, should a Brexit occur.

Jurisdiction and the recognition and enforcement of judgments

Most commentators agree that there are a range of possible scenarios following a Brexit regarding the UK's future relationship with Europe. A Brexit could result in the UK becoming a member of the European Free Trade Association (along with Norway, Iceland, Liechtenstein and Switzerland (EFTA7 )), and, through EFTA becoming a party to the Lugano Convention which is very similar to the Brussels Regulation and which governs jurisdiction and the enforcement of judgments between EU member states and EFTA countries (other than Liechtenstein). If that were to happen the position in relation to jurisdiction and the enforcement of judgments would remain largely unchanged. The alternative would be for the UK to revert to negotiated bilateral and multilateral agreements with other countries. The UK could also decide to ratify the Hague Convention on Choice of Court Agreements which provides an optional worldwide framework of rules on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. The EU (along with Mexico) has recently ratified the Hague Convention, so if a Brexit were to occur there is a framework in place regulating these issues which the UK could sign up to.

Governing law

On the issue of the law governing parties' contractual and non-contractual obligations, a Brexit will give rise to uncertainty as the framework under Rome I and II for determining the applicable law would no longer apply. There is no Lugano-style Convention similar to Rome I and Rome II and therefore, if the UK did decide to apply for EFTA membership following a vote for Brexit, the UK's existing conflict of laws rules would apply.

If an issue arose relating to governing law before the English courts following a Brexit, at least in respect of contractual obligations, it is unlikely that the existing position will change. This is because the English courts would revert to English common law principles which are similar to those found in Rome I. However, the position is not so clear with regard to the governing law in respect of non-contractual obligations as Rome II does not reflect the English common law so closely.

The courts of member states would be free to apply their own choice of law rules (rather than the rules set out in Rome I and Rome II), to disputes which may have a UK element. Again, to achieve some element of certainty and reciprocity, it will be necessary for the UK through bi-lateral or multi-lateral agreements to try and replicate the arrangements which presently exist under Rome I and II.

It is important to note that the EU rules on jurisdiction8 and governing law9 do not extend to arbitration, and therefore, a Brexit will have little immediate impact on this area of dispute resolution. This is also the case with regard to the enforcement of arbitration awards which is governed by the New York Convention and not by the Brussels Regulation.

Service of documents and taking of evidence

Following a vote for Brexit, the Regulations covering the service of documents and the taking of evidence will no longer apply to the UK. For service of documents, the UK is likely to rely on the Hague Service Convention (which it became a signatory to before the Service Regulation came into effect) for service of documents on member states if they are signatories to the Convention. If not, bi-lateral or multi-lateral agreements will need to be made.

So far as the taking of evidence is concerned, the position will depend on where the evidence is to be taken and used. There are a number of statutes and Conventions which could apply including the Evidence (Proceedings in Other Jurisdictions) Act 1975 and the Hague Convention on the Taking of Evidence Abroad, as well as other bi-lateral conventions. In the absence of existing reciprocal arrangements, bi-lateral or multi-lateral agreements will need to be put in place.

What will be the effect on civil justice cross-border measures?

The civil justice co-operation measures in relation to jurisdiction and enforcement of judgments that presently exist between EU and EFTA member states provide a degree of certainty on important issues that often arise between parties litigating disputes with a cross-border element. A Brexit will undermine that certainty although the extent to which it will do so will depend on the steps taken by the UK Government to address the position and the speed with which it is able to do so. On matters concerning jurisdiction and the recognition and enforcement of judgments there is likely to be little change in practice if the UK becomes a party to the Lugano Convention even if it is not prepared, like Switzerland, to become a member of the EEA.

Generally, disputes between parties who are both based in EU member states, where the subject matter of the dispute 'relates' to an EU member state, are unlikely to be affected by a Brexit. The Brussels Regulation and Rome I and Rome II will continue to apply to these disputes where relevant, as will the relevant Regulations relating to service of documents and the taking of evidence.

However, disputes where one party is based in the UK and the other party is based in an EU member state, or the dispute itself has some connection to an EU member state, may be affected by a Brexit. Much depends on the specific facts of the dispute, where the proceedings are issued, and more importantly on the arrangements entered into by the UK on any withdrawal.

Disputes between parties outside the EU, where the subject matter of the dispute has no connection with a member state, will not be affected by a Brexit. Where relevant, existing common law principles, statutes, agreements and/or Conventions concerning these disputes will continue to apply.

Overall, the picture remains one of uncertainty at this stage. If the UK votes to leave the EU on 23 June it will still be some time before there is likely to be any clarity on how civil justice co-operation measures currently in place with EU member states will be affected.