London has long been an attractive forum for dispute resolution for international businesses.
This is due, in great part, to the centuries-long experience of the English courts and the commercial expertise of London arbitration. Legal certainty and commercial acumen have driven the choice of business people around the globe to opt for English law and jurisdiction in their contracts.
This dispute resolution expertise has been augmented over the last four decades with a substantial body of EU law, providing private international law solutions within a framework for judicial cooperation and enforcement, currently across 28 countries. Contracting parties, often domiciled in non-EU countries, have come to rely on English governing law and jurisdiction clauses to ensure commercially predictable and fair resolutions to their disputes.
As the UK moves closer to exiting the EU, how might this impact London’s pre-eminent dispute resolution business?
What changes after Brexit?
For proceedings involving entities domiciled in non-EU countries or in respect of arbitration proceedings generally, nothing will change (except possibly perceptions). In cross-border disputes involving at least one EU member state, Brexit will mean some changes. The chief cause of commercial concern is the loss of reciprocity in civil judicial cooperation. This relates to a whole host of matters formerly governed by the Brussels Regulation as recast (covering key issues such as primacy as between EU courts, jurisdiction, recognition and enforcement of judgments and cooperation such as the service of court papers). In a no-deal Brexit scenario, the UK Government’s guidance paper on handling civil legal cases (December 2018) confirms the UK would withdraw from all the current EU-specific rules on judicial cooperation from 29 March 2019 (assuming that is the date of departure) except Rome Regulations I and II relating to applicable law. The UK would become a “third country” (ie a non-EU Member State):
- UK courts would revert to applying the existing domestic common law that currently applies to non-EU countries. The UK Government has declared an intention to implement successor regimes to the repealed legislation (namely the Brussels Recast Regulation, the Lugano Convention and the EU/Denmark Agreement), although those are unlikely to be in place before a withdrawal date of 29 March 2019. For now, the UK Government has indicated that UK courts will continue to enforce EU Member State court judgments where proceedings were commenced before the withdrawal date (Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019).
- EU Member States will fall back on their national laws. As per the European Commission’s Notice dated 18 January 2019 (Brussels, 18 January 2019 REV1):
- On jurisdiction, since EU rules (and with them the Brussels Regulation Recast) no longer apply, national rules of the member state in which a court has been seized will be applicable. Transitional arrangements mean that for proceedings pending on the withdrawal date (29 March), which involve actions pending in an EU member state and a UK-domiciled defendant, the EU rules for international jurisdiction will remain applicable.
- On the recognition and enforcement of UK judgments, the position is similar: EU rules will not apply to proceedings commenced after the withdrawal date. Instead, the member state in which recognition and enforcement is sought will apply its national rules. This applies even where judgment is handed down or enforcement proceedings are begun before the withdrawal date (unless the UK judgment has already been exequatured).
- On judicial cooperation, including the service of documents or taking of evidence, this will no longer be dealt with under EU rules after withdrawal. However, such steps are largely protected where both the UK and the EU member state concerned apply the Hague Convention. Care must be taken if issues of judicial cooperation are unlikely to be completed as at the withdrawal date, with a review undertaken now as to whether the particular step continues under national law or other international convention.
So in practical terms, EU member state courts will continue to respect and uphold an English governing law clause and apply English law accordingly. But for any proceedings brought from the withdrawal date onwards, the UK would no longer be a party to the Brussels Recast Regulation and there would therefore be no obligation for an EU Member State to uphold an exclusive choice of forum clause, recognise that a UK Court was first seised or to automatically recognise and enforce English court judgments. While many countries will continue to give effect to exclusive English jurisdiction clauses, the Government’s suggestion that the interaction between UK and other EU countries’ domestic laws may not be clear naturally adds to the commercial uncertainty and may encourage alarmist views being expressed by contender jurisdictions.
There is comfort, however, in that parties facing proceedings may fall back on the Hague Convention on Choice of Court Agreements (the '2005 Hague Convention'). This Convention’s signatories include EU member states (and currently therefore the UK), Mexico, Singapore and Montenegro (China and the USA are signatories (respectively 2017 and 2009) but have still to accede to/ratify the Hague Convention). On 28 December 2018 the UK Government acceded to the 2005 Hague Convention with the intention to be bound by the Convention in its own right as of 1 April 2019 in the event of a no-deal scenario. If a deal is reached on the terms of the current draft Withdrawal Agreement (currently before the UK Parliament), then during the intended transition period (30 March 2019 to 31 December 2020), EU law (including the 2005 Hague Convention) would continue to apply to and in the UK, with the UK treated as an EU member state.
What are the real implications of Brexit for parties in shipping and international trade disputes?
At first glance, these changes to the current international judicial approach appear to present fresh commercial risks, yet much will depend on the specific circumstances of the contracting parties.
Where both parties are based in non-EU states, they can continue to avail themselves of the benefits of the English legal system and arbitral expertise with no impact on service of proceedings, judicial remedies or recognition and enforcement of judgments or arbitration awards.
Where one of the parties is based in the UK, when commencing and serving proceedings in a no-deal scenario a cautious approach will be needed until replacement regimes are fully in force. That said, many of the existing reasons for choosing English law and jurisdiction remain: again, the English courts and arbitral tribunals have built up a considerable wealth of expertise and authorities over many years. Indeed, some additional benefits may spring from these changes. Aside from the procedural aspects, when dealing with the substance of shipping and international trade disputes, many international conventions govern the rights and obligations of the parties to contracts of carriage. Hence conventions such as the Hague and Hague Visby Rules, the Limitation Convention, SOLAS, MARPOL, the CLC, Rome I, Rome II and the New York Convention on the Enforcement and Recognition of Arbitration Awards will remain as applicable to contracting parties as they are now.
A renewed remedy for parties choosing English jurisdiction post-Brexit would be the power of an English court to grant an anti-suit injunction even where an EU court was first seised, or an arbitration commenced, in breach of an exclusive English jurisdiction clause. Under the current Brussels Recast regime, anti-suit injunctions cannot be issued against an EU Court seised potentially in breach of a contractually agreed alternative forum. Anti-suit injunctions can be a powerful tool, in certain cases resulting in contempt proceedings against the parties / their directors. They can also have important effect where the parties have agreed an asymmetrical jurisdiction clause (binding one party to sue in an exclusive jurisdiction but allowing the other party to sue in any competent jurisdiction). English courts have upheld the validity of such clauses, true to English law’s commercial approach to give effect to the contractual bargain struck by the parties (See Mauritius Commercial Bank Ltd -v- Hestia Holdings Ltd  EWHC 1328 (Comm)). Other EU Member State Courts have taken different approaches (for instance in France) (X -v- Banque Privee Edmond de Rothschild Europe (Societe)  I.L.Pr. 12) such that the Court of Justice of the European Union could well consider these clauses unenforceable.
Will Brexit affect London arbitration? Who might be the chief competitors?
Brexit of itself should not threaten the future of international dispute resolution in the UK and in London in particular.
There are challenges from rising Middle East and Asian arbitration centres such as Dubai, Singapore and Hong Kong whilst within Europe, the global headquarters of the ICC in Paris will hope to take advantage of Brexit uncertainty.
Dubai’s Dispute Resolution Authority which provides both English language court and arbitral services has seen a 41% increase in its court cases in 2017 but arbitrations remain modest (in double digits) compared to other international arbitration centres.
297 new arbitrations were filed with the Hong Kong International Arbitration Centre in 2017 which continues to grow.
Nearly 2300 arbitration cases were filed with CIETAC in 2017 but it is doubtful, where neither party is Chinese domiciled, that entities would opt for CIETAC as an international dispute resolution forum.
The Singapore International Arbitration Centre (SIAC) has reported an almost fourfold increase in cases between 2006 (90) and 2016 (343).
US international arbitration remains strong - over 1000 international cases were referred to the American Arbitration Association (AAA) in 2017 - and represents a parallel legal offering but unlike SIAC, the DRA or HKIAC, is not as geared towards providing English law solutions outside of the UK.
The African Arbitration Association wants to expand African based international arbitration but recognises that it is disproportionately small compared to the number of Africa-related international disputes.
Australasian parties are strongly represented in HKIAC and SIAC cases which tend to be more favoured for arbitrations than Australia’s ACICA.
Parties in South America for the most part refer their international disputes to the ICC and the international branch of the AAA.
By comparison 810 new cases were filed with the ICC in 2017 which retains its position as one of the most respected dispute resolution bodies in the world.
Yet for shipping and international trade disputes, the sum of arbitration references across all London dispute resolution centres, maritime and trade associations is greater than anywhere else in the world.
In 2017, 1496 cases were commenced before the LMAA, 285 before the LCIA and whilst other fora have not published their statistics, hundreds of arbitrations will have been commenced with London-based trade associations such as GAFTA, FOSFA, RSA, SAL, ICA, LME, FCC, BCA etc.
The Future – UK remains advantageous
Brexit would have no impact on international parties to arbitration and only a minor impact on most parties to English Court actions.
However, there is a concern in terms of party perception. Our clients have found recently that some counterparties when negotiating contracts are seeking alternative law and jurisdiction clauses, or at least jurisdiction clauses (with English law still to apply). Even where the performance and enforcement of the contracts in question would be wholly unchanged if still subject to English law and jurisdiction clauses, other options are being sought. Where non EU counterparties are based in the Middle East or Asia, English law is often retained but the alternatives of Dubai, Singapore and Hong Kong are being more readily considered. As trade flows change and international arbitration expertise expands globally this is unsurprising.
Whilst the UK’s future constitutional status within the EU is ironed out, there are many advantages for continuing with English law and jurisdiction/arbitration provisions. The vast canon of English authorities, the depth of experience of judges and arbitrators, the sense of order, discipline and justice allied with a great trading history should maintain the UK and London amongst the vanguard of dispute resolution centres for international parties.