Deal or no-deal, Brexit will have very little impact on arbitration. The Arbitration Act 1996, which sets out a robust and arbitration friendly legal framework for English seated arbitrations, will be unaffected, as will the 1958 New York Convention, which governs enforcement of arbitration awards across 160 states (the UK being a party to the New York Convention in its own right, independent of its membership of the EU). All the features of London which make it attractive as a seat for international arbitration remain unaffected, as does the substance of English contract law, which usually accompanies a choice of London seated arbitration.
What about English High Court litigation?
The outlook for court litigation is less clear. The current EU wide arrangements, under the Rome I and II and Recast Brussels Regulation, coupled with the Lugano Convention (which deals with jurisdiction and enforcement of court judgments between the EU and Iceland, Norway and Switzerland) are favourable, promoting mutual recognition of court judgments and respect for decisions of the courts of other Member States.
The UK should retain the Rome I and Rome II rules on applicable law, which determine which country’s law applies, irrespective of what form Brexit may take. These rules do not require reciprocity to operate and therefore the UK can unilaterally chose to continue to apply them, without requiring the consent of other Member States.
However, in a no-deal scenario, the Recast Brussels Regulation will cease to apply to the UK from 1 November 2019 (subject, potentially, to transitional arrangements), and it is not clear what might replace it. This means that the current rules governing jurisdiction (which country’s courts hear a dispute) and the enforcement of court judgments between EU member states (contained in the Recast Brussels Regulation) would no longer apply, nor would the Lugano Convention, which currently governs jurisdiction and enforcement between the EU and Iceland, Norway and Switzerland. In these areas, English law would revert to the domestic rules currently applicable to the rest of the world outside the EU.
So what might happen next? The UK and EU could agree a deal to keep the UK within the Recast Brussels Regulation, but there is no sign of this at present. Or, the UK could seek to re-accede to the Lugano Convention after Brexit as a party in its own right independent of EU membership, but that would require the consent of all contracting states.
The UK Government has acceded to the Hague Convention on the Choice of Court Agreements (which currently governs jurisdiction and the enforcement of judgments between the EU, Mexico, Singapore and Montenegro) as a party in its own right (independent of the UK’s current accession through its membership of the EU), although this is suspended until “Exit Day”. But, the Hague Convention regime is not as comprehensive as that currently available through Brussels Recast. It only covers exclusive jurisdiction clauses (non-exclusive and asymmetric jurisdiction clauses are not covered), does not apply to orders for interim relief (and so would not cover worldwide freezing orders issued on an interim basis in support of court litigation or arbitration proceedings) and there is debate as to whether it will apply to agreements entered into prior to Exit Day. Where gaps in cover exist, parties will be reliant on local law in the relevant EU Member State and there is considerable scope for side disputes around the applicability and scope of the Hague Convention.
A positive change for English arbitration law?
The good news, for arbitration, is that there may be one element of English arbitration law that changes as a result of Brexit, and that change would be positive.
The English Courts have long had the power to grant injunctions (known as anti-suit injunctions) restraining a party from commencing, or continuing, proceedings in a court or tribunal overseas where those proceedings were being conducted in breach of a contractual agreement as to where disputes should be resolved (an exclusive jurisdiction or arbitration agreement).
That power was limited, as a result of the Brussels Regulation, where the offending proceedings had been issued in the courts of another EU Member State in breach of an exclusive jurisdiction or arbitration agreement. The Brussels Regulation had been superseded, with effect from 10 January 2015, by the Recast Brussels Regulation, and there had been a degree of uncertainty, since the Opinion of Advocate General Wathelet in Gazprom, in which the AG had suggested that West Tankers, the leading decision on the question, would no longer apply following the coming into force of the Recast Brussels Regulation in 2015. However, that uncertainty was removed (at least pre-Brexit), by the High Court decision in Nori Holding Ltd v PJSC BOFC, where the High Court confirmed that there is nothing in the Recast Brussels Regulation to cast doubt on the continuing validity of the ECJ (now CJEU) decision in West Tankers. So, whilst the UK remains within the EU, the English Courts will not grant an anti-suit injunction restraining court proceedings commenced in another EU Member State in breach of the terms of an arbitration agreement between the parties.
As with most Brexit related questions, how Brexit will impact on the English Court's ability to grant anti-suit injunctions remains to be seen. It is possible, and many have suggested likely that, following the decision in Nori Holding, the English Courts may not need to follow West Tankers post Brexit, opening the door to anti-suit injunctions restraining proceedings brought in EU Member State Courts if the UK does not enact measures with similar effect to the Recast Brussels Regulation.
If the UK were to follow Denmark, Iceland, Norway and Switzerland in signing up to the Lugano Convention (which mirrors the wording of the previous Brussels Regulation), or to make a similar, bespoke arrangement (as the UK Government expressed a hope to conclude in June 2018), the position on anti-suit injunctions is, however, likely to remain unchanged.
Whilst Brexit has opened up the possibility of the return of anti-suit injunctions within the EU to the armory of the English High Court when supervising London seated arbitrations, as with most things Brexit related, only time will tell how matters ultimately transpire. If the anti-suite injunction does return, however, this may well weigh heavily as a factor for choosing London as the seat of arbitration, rather than choosing a seat in an EU Member State jurisdiction.
What should I be thinking about now?
During the current period of uncertainty, it is more important than ever to consider carefully the choice of dispute resolution mechanism for contracts with an EU element, to understand and anticipate the jurisdictions where you might need to enforce (or have enforcement action brought against you) and consider whether arbitration or court proceedings will offer better protection in your particular contractual and commercial circumstances.
At present, anti-suit injunctions are not available to restrain proceedings brought or threatened in the courts of any other EU Member State in breach of a jurisdiction or arbitration agreement. Parties in such circumstances are not, however, left without any remedy where court proceedings have been issued within the EU in breach of a contractual agreement to arbitrate. They can:
- Seek similar relief to an anti-suit injunction, by way of partial award, from their arbitral tribunal, once constituted, which can be enforced in any EU Member State through the New York Convention 1958; and/or
- Seek to recover damages or an indemnity in respect of any losses caused as a result of proceedings being commenced in breach of an arbitration (or jurisdiction) agreement.
It is also open to the claimant to apply to the EU court in question, which, in Nori Holdings was Cyprus, to stay its own proceedings.