On 23 June 2016 the UK voted to leave the EU. The current legal framework will not change until negotiations between the UK and the EU are finalised but there will be an impact upon the following:-
The current rules to determine which Court has jurisdiction to hear the dispute within the EU are contained in the Recast Brussels Regulation. This will not apply when the UK leaves the EU. The Regulation was introduced to create certainty as to the question of which Court would have jurisdiction in the absence of an agreement. The default rule is that the Courts where the Defendant is domiciled have jurisdiction subject to certain exceptions, namely cases relating to property, employment, consumer and insurance. As it is not certain how soon new provisions will be negotiated, parties should ensure that they include clear jurisdiction clauses when negotiating future contracts.
Note: If proceedings are commenced in more than one country’s Courts (parallel proceedings), at present, if the Courts are both those of an EU member state, it is generally the Court first seised of the dispute to decide the jurisdiction, subject to the same exceptions, the main one being when there is an exclusive jurisdiction clause and that country’s Court can determine the jurisdiction.
Brexit may lead to the end of the primacy of the Court of Justice of the European Union, at present the highest Court in the English jurisdiction. Presumably the Supreme Court of England and Wales will be expected to fill this role.
2. Governing Law
Current EU law for the choice of governing law is set out in Rome I and Rome II which has regulations for contractual and non-contractual obligations respectively. These will not apply when the UK leaves the EU. Rome I and Rome II give the parties the right to choose the governing law but this may not be applied if the parties’ intentions are not clear and in default it will be the law of the country where the contract is closely connected, normally the habitual residence or if a company, the central administration of the performing party. However, this may be overruled if there are mandatory legal rules in place where the dispute is being heard, for example, the law on employees’ rights or if the law chosen is incompatible with public policy. In Rome II (which relates to non-contractual obligations), the governing law will be the country where the damage occurs.
Much will depend upon what the UK seeks to negotiate but because of the clarity and simplicity of the regulations, the UK may seek to adopt Rome I and Rome II, with the English Courts as the final arbiter of how these are applied. This will lead to the disparity of rules decided in England and decided in other European states.
If Rome I and Rome II are not adopted, it is assumed that the English Courts would revert to the rules applying before these in The Rome Convention which are similar to Rome I, therefore, the position on the law governing contractual obligations is unlikely to change much however, this would not be the same for non-contractual obligations as set out in Rome II as different treaties would apply.
3. Service of Proceedings
Generally there is no need to obtain permission of the English Court to serve proceedings on a Defendant domiciled in another EU member state (the Civil Procedure Rules 1998, Rule 6.33 (2)). However, when the UK leaves the EU, Claimants wishing to serve English proceedings in the EU may need to apply for permission to do so. In contractual disputes, it may be prudent to have clauses in the contract for the jurisdiction of the English Court and a clause appointing an agent for service of legal process in England. However, the UK may accede to the Lugano Convention and this would restore most of the lost procedures and extend the procedures to non-EU signatories.
4. Enforcement of Judgments
The Recast Brussels Regulation gave a streamline method of recognising and enforcing Judgments within the EU. This will not apply when the UK leaves the EU. In the absence of any international agreement, enforcement of English Judgments within the EU would depend upon the laws of each member state. Also, the English Courts would no longer automatically recognise and enforce the Judgments of the Courts of an EU member state. If the UK accedes to the Lugano Convention, it has broadly similar provisions to the Recast Brussels Regulation, albeit missing certain streamlining procedures, for example, Judgment creditors would no longer be able to expedite international enforcement by obtaining a standard form certificate from the English Court that could be directly enforced across the EU. Instead, it would be necessary to apply for a declaration of enforceability in the state in which enforcement is sought.
Until we know exactly how the UK will negotiate with the EU upon leaving, we are not certain of the implications upon contract law for disputes. Whilst parties negotiating contracts can, to some extent, plan ahead, the future will be uncertain. It is difficult to anticipate what rules will be adopted or agreements made. For parties having existing disputes with other parties in EU countries, then they should seek to obtain Judgment as soon as possible and take advantage the Recast Brussels Convention for enforcement before this no longer applies.
Arbitration has not been mentioned due to the UK being a party to the New York Convention 1958 which will continue to apply.