What will change in the short term?
Following the UK’s referendum decision to exit from the EU and British Prime Minister Teresa May’s recent announcement that she would trigger the process to leave the EU by the end of March 2017, absent any express agreement to the contrary, the legal framework governing the relationship between the EU and the UK will cease to apply by the end of March 2019. What this means for the resolution of disputes with a UK involvement will depend on the model of exit negotiated by the UK. Here, we examine three areas of interest.
Enforcement of judgments
The enforcement of Irish judgments in the UK, or UK judgments in Ireland, is relatively straightforward under the current EU procedure.
Post-Brexit there will be a number of options available to the UK, including entering into agreements with other countries and/or the EU on the reciprocal enforcement of judgments. Although the shape of the UK’s exit from the EU is little more than speculation at this stage, one outcome will be for the UK to seek to accede to the Lugano Convention, 2007 in its own right. This model allows for a straightforward process for reciprocal enforcement between contracting states which, although less streamlined than under the present EU procedure, would provide certainty with regard to enforcement of UK judgments in Ireland and vice versa.
If the UK does not accede to a convention on the reciprocal enforcement of judgments or agree a formal regime with the EU, then enforcement of UK judgments in Ireland (and Irish judgments in the UK) will be subject to international conflict of laws rules. Accordingly, judgements will still be capable of enforcement but it will likely add time and cost to such cross-border enforcement.
Claimants can now take advantage of this to press on with existing cases and/or commence litigation while the position for cross-border enforcement is clear. A renewed focus on ADR may help to expedite resolution. On the other hand, defendants may seek to tactically delay, taking advantage of the approaching expiry of the pre-exit window to increase pressure on their opponents.
Until the UK actually exits the EU, the current provisions for enforcement of reciprocal judgments remain in place. For parties currently engaged in Irish litigation that may require enforcement in the UK, the window of certainty may not last for more than two years from March 2017.
The questions of whether the Irish courts or UK courts have jurisdiction in a civil or commercial dispute involving Irish or UK subject matter is currently governed by the EU Recast Brussels Regulation. This provides a comprehensive regime on jurisdiction and seeks to avoid the risk of multiple sets of proceedings across the courts of the EU.
Following the UK’s exit from the EU, and absent any express agreement to the contrary, the Recast Brussels Regulation will cease to apply to the UK. There are alternative frameworks which the UK may be in a position to opt into, including the Lugano Convention referred to above. This also covers jurisdiction in civil and commercial matters within the EU and European Free Trade Association (EFTA) countries, Switzerland, Norway and Iceland.
The other option is the Hague Convention on Choice of Court Agreements. The Hague Convention only deals with the validity and effectiveness of exclusive jurisdiction agreements (and enforcement of judgments made in such cases) so would not provide a means of ascertaining jurisdiction in the absence of an express agreement between the parties.
The main benefit of the present EU regime is that it provides certainty and an additional safeguard against a tactical jurisdiction delay. The Recast Brussels Regulation provides that if a court has jurisdiction pursuant to an exclusive jurisdiction clause, that court may continue to hear the matter even if there are existing proceedings in another country. In contrast, the Lugano Convention provides for a mandatory stay of proceedings in the second court if proceedings on the same subject matter (and with the same parties) have already been issued elsewhere in a Lugano Convention state. There could ensue a significant delay, depending on the jurisdiction, while the first court involved determines whether it has jurisdiction.
If the UK accedes to the Lugano Convention, it will be necessary for parties to move quickly to issue proceedings in Ireland to avoid a potential ‘torpedo’ delay action in another country.
If the UK does not enter into an arrangement equivalent to the Recast Brussels Regulation, there would be an increased risk of parallel proceedings in the UK and Irish Courts, together with the added risk of conflicting judgments and increasing costs.
It is extremely important to review clauses in key contracts to ensure that the appropriate choice of jurisdiction and choice of laws clauses are still effective and will achieve the desired outcome. Arbitration clauses should also be carefully reviewed to ensure that the choice of Arbitration destination are still appropriate to the contract.
Contract termination – could Brexit represent an opportunity to terminate contracts?
Many commercial contracts contain a force majeure clause. The purpose of such clauses are to free both parties from their contractual obligations when an extraordinary event beyond their control occurs. The scope varies significantly but some provisions, such as those tied to legislation, could potentially allow a party to suspend or delay performance if Brexit results in a particular consequence e.g. inability to trade in goods in the EU.
Crucially, such clauses usually only provide relief to the extent the force majeure event actually hinders, delays or prevents performance and only for the duration of the event, but the wording of the actual clause will decide when relief is triggered and for how long. In other words, they will not provide blanket-relief for non-performance nor will they usually be triggered simply because performance has become significantly more expensive.
Hardship/Material adverse change clauses
Some contracts, especially long-term projects, include clauses addressing hardship, material adverse change or specific change events. These may become relevant following Brexit and may allow a party to trigger a right to renegotiate, adjust or even terminate their contract.
Where the terms of a contract provide no assistance, in extremely limited circumstances the doctrine of frustration may assist. This doctrine provides that a frustrating event may discharge a contract altogether where it is so fundamental that it ‘strikes at the root of the contract’, rendering performance impossible (such as for illegality) or radically different from what the parties had contemplated.
Importantly, in the context of Brexit, frustration will not assist a party whose performance merely becomes significantly more onerous or expensive. The doctrine will not apply if the frustrating event (such as Brexit or an event connected to it) has already happened or was not entirely beyond the contemplation of the parties when they entered into the contract.
Taken together, the occasions when the consequences arising from Brexit will give rise to a genuine frustrating event which discharges a contract are likely to be extremely rare. However, it would be prudent for all businesses engaged in cross border activity to review their contracts and be aware of these risks (or opportunities).