On 23 June 2016, the British public voted 51.9% in favor of leaving the EU (“Brexit“). Legal practitioners, as well as businesses that are or may at some point be involved in disputes, are recommended to consider how this referendum will affect them.
This article discusses some of the implications of the referendum for international commercial arbitration: what it means for ongoing London arbitrations (at 1.), what it means for future disputes (at 2.), and what it means in the long run for London as an arbitration forum for commercial disputes (at 3.). We will be considering, in a separate article, what impact Brexit may have on investment treaty arbitration and this is therefore not within the scope of this discussion.
1. What does the referendum mean for my current London arbitration?
Despite the tumultuous uncertainty that has dominated the press in recent weeks, the legal impact on any present commercial arbitral proceedings with their seat in London (whether subject to English law or not) in practical terms is nil. No official decision to leave has yet been taken and therefore the formal legal process to disentangle the UK from the EU legal framework has not yet begun.
There has, however, been unbridled speculation regarding what the future impact of a Brexit may be, and this has created unavoidable legal uncertainty. Opinions are divided amongst academics, politicians and legal commentators, whilst legal practitioners have tended to err on the side of caution by adopting a (sensible) “wait and see” attitude. To complicate matters further, public opinion in the UK has arguably shifted in the aftermath of the referendum result and the two major political parties have faced leadership crises. Clients are understandably questioning what effect all this market, legal and political turmoil means for them and the future of their businesses.
In reality, the vast majority of arbitrations currently on foot in London will likely be concluded well before any change to the legal landscape emerges. The process of negotiation triggered by a decision made for the purposes of Article 50 of the 2009 Lisbon Treaty lasts up to two years (and potentially longer if all 27 member states agree). On Wednesday 13 July 2016, Theresa May became the new leader of the Conservative Party and Prime Minister of the UK. Whilst Mrs May has gone on record as saying “Brexit means Brexit”, she has also indicated that no Article 50 trigger will be deployed, and therefore set the two year countdown going, until the beginning of 2017 at the earliest.
2. What would a Brexit mean for my future disputes?
A Brexit may have procedural implications for future commercial disputes (which are tied to the seat of arbitration, and thus discussed in the next section), but also implications concerning substantive law. Concerning the latter, the first question in an arbitration is about which law governs the dispute. A Brexit is not likely to have immediate consequences here, although parties are well advised to verify whether they have clear choice-of-law clauses in place. If they do, and if the parties have e.g. chosen the law of England and Wales, then such a choice will be honoured by EU member states regardless of whether the UK is a member or not.
Where parties do not have choice-of-law clauses, the governing law is currently determined by the Rome I Regulation (to which the UK has acceded), in particular Art. 4. This regulation would no longer apply after a Brexit (unless the UK and the EU agree otherwise), meaning that UK courts would have to apply UK conflicts of laws rules instead. In individual cases, this may lead to different results than the Rome I Regulation. On the other hand, for London-based arbitrations, a Brexit would also resolve – for good or ill – an issue that has been the subject of scholarly debate, i.e. whether the Rome I Regulation is applicable in arbitration disputes at all.
In itself, a Brexit would provide little reason for parties to avoid English governing law for arbitral disputes, whether London seated or otherwise. English law tends to be chosen largely due to reasons unconnected with the UK’s present membership of the EU. There is uncertainty in aspects of the future of the English legal landscape, but the core pillars of the English legal system are secure having been developed through centuries of judicial decision making and the application of common law principles.
However, after a Brexit, EU regulations would no longer apply, and EU directives would no longer bind the UK lawmaker. Conversely, the UK would lose its strong influence in the EU drafting process. In the long run, therefore, British law and EU law may develop quite differently from each other, and legal practitioners and businesses will be well advised to not necessarily take EU laws and standards for granted in UK-related transactions in a post-Brexit scenario. As an example – particularly relevant for post-M&A disputes – the UK lawmaker may choose in due course to adopt a deregulatory approach towards company law, thereby removing some of the current restrictions in respect of English registered companies. However, at present it is felt that there is little appetite for such marked change.
3. In particular, should I still pick London as an arbitration forum?
Notwithstanding the Brexit effect, London has been facing challenges to its primacy as an international arbitral seat both from the increasing strength of Asia-Pac institutions in Singapore and Hong Kong, and those on the continent. However, London remains a well-established and sophisticated financial centre, and Brexit will have no impact on the continued use and support of the Arbitration Act 1996, a domestic piece of legislation. The English judiciary are known for their independence and commercial pragmatism and the attraction of this support to London-seated arbitrations will not be affected by Brexit negotiations.
Importantly, Brexit will have no impact on the UK being a signatory to the New York Convention, and so as far as both the recognition and enforcement of arbitral awards is concerned, the UK’s membership (or not) of the EU is irrelevant.
One particular upside of London as an arbitration forum (or downside, for those on the receiving end) has been the availability of anti-suit injunctions, as discussed in the (in-)famous West Tankers decision by the European Court of Justice. Insofar, a Brexit will mean little, since such injunctions are already permissible under the recast Brussels Regulation.
In terms of the practical considerations in a post-Brexit world, whilst any long-term prediction is merely conjecture at this stage, it is fairly likely that the UK will still operate on the basis of the free movement of goods and people across the EU. An entry visa may be required for EU visitors, but it is very unlikely that such requirements (if indeed imposed) would be onerous as this would threaten the strength of London as a financial centre. Nevertheless, any additional administrative requirements are an unattractive prospect.
In summary, in the short term, despite future uncertainty, the prospect of Brexit is unlikely to affect London seated arbitrations that are already in progress, and its impact on future commercial arbitrations is questionable. Any long term predictions now are merely that, predictions. As the negotiations towards a Brexit take shape, longer term predictions will become more meaningful, but for now in this unchartered territory there is little more available than speculation and questions.
It will be important to closely monitor developments as they unfold. For now, it is interesting to note that continental press coverage of Theresa May’s appointment as Prime Minister has been generally favourable and it is hoped that this may pave the way for a return to greater stability and calm in the wake of recent weeks’ volatility. In the meantime, on the bright side for London law firms with foreign clients, the weaker pound does lend itself to a competitive edge on fees.