The UK has formally triggered Article 50. Time is ticking to negotiate the best deal possible for the UK. It is expected that most EU laws will be transferred into our legislative framework but what does this mean for businesses?
On 20 March, the House of Lords published a report entitled 'Brexit: justice for families, individuals and businesses?'. From a commercial perspective, the report considered the consequences Brexit might have on the applicability of Regulation 1215/12 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (Brussels Regulation (recast) (the 'Regulation').
At the time of writing, the Regulation provides:
- certainty and clarity about where a dispute should be pursued (including the court and country)
- the mechanism through which judicial decisions are recognised and enforced throughout the EU
- a framework for judicial co-operation throughout the EU
All of which provides reassurance to businesses and individuals in the EU that they can litigate with confidence irrespective of where they live or have offices.
The Prime Minister announced 'We will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain.'
At the time of writing, it is not clear how the Regulation will continue to apply to UK businesses and individuals after the UK leaves the EU on (or before) 29 March 2019.
The Regulation has clear benefits to businesses. It sets out reciprocal rules on enforcement and recognition of judgments throughout the EU as well as determining the correct jurisdiction i.e. which EU court should hear the dispute. As a result, businesses are willing and able to trade freely across the EU confident that if they needed to recover debts, they can do so easily using the reciprocal rules.
The Regulation provides a shield to businesses and individuals, preventing parallel proceedings being launched against them in a different EU member state. It creates a level playing field for claims (regardless of value) and applies equally to individuals, SMEs and PLCs.
The government consulted widely on the Regulation and received the message that post Brexit 'an effective system of cross-border judicial cooperation with common rules is essential to embed certainty and predictability for businesses particularly for those with a commercial aspect'
The government responded to say that although it understands the importance of the Regulation it is 'too early to say what extent [the recast regulation] will feature in any agreement' but 'these are important principles that will form part of the negotiations'.
The House of Lords was clear in its conclusion namely 'the predictability and certainty of the . reciprocal rules are important to UK citizens who travel and do business within the EU. an effective system of cross-border judicial cooperation with common rules is essential post-Brexit.'
Problems if reciprocal rules are not in place
Failure to agree the continuation of reciprocal rules post-Brexit would cause problems to those who trade with the EU. Although it would be possible to seek membership of the Lugano and the Hague convention, the protection it provides is inferior to the protection offered by the Regulation.
Choice of court : under the current Regulation, parties choices of court are upheld by the Regulation. Without such a clause there is a risk that proceedings could be issued in several courts in different countries which would then run in parallel with each other. The result? Mounting costs for litigants as well as uncertainty and inconsistent results.
Enforcement of judgments: it is important that judgments can be recognised and enforced across the EU. If the UK is unable to agree to continue the reciprocal enforcement provisions post-Brexit, there will be a risk that a business could obtain a judgment that is unenforceable.
The House of Lords concluded that there will be significant problems for business post-Brexit if the government fails to agree either how the Regulation will continue to apply post-Brexit or negotiates a deal replacing it: 'legal uncertainty, with its inherent costs to litigant, will follow Brexit unless there are provisions in a withdrawal or transitional agreement specifically addressing the Regulation'. They called for the government to publish a 'coherent plan' on the post-Brexit applicability of the Regulation.
If certainty is not achieved and the enforceability of a judgment of a UK court cannot be guaranteed, it is likely that litigation will either be diverted to EU courts or parties will choose to arbitrate instead. Whilst London is a global centre for arbitration, parties could choose to arbitrate elsewhere. In any event, the House of Lords concluded 'greater recourse to arbitration does not offer a viable solution to the potential loss of the [Regulation]'.
The government is set to reveal details of the Repeal Bill today. Brexit Secretary David Davis stated that the government is 'after a fully comprehensive deal that covers trade, covers security, covers all the aspects of our existing relationship and tries to preserve as much of the benefits for everybody as we can'.