Businesses and consumers need certainty over the laws that underpin trading across the borders of the EU and the millions of contracts they make each day which currently benefit from the legal certainty membership of the EU offers. The UK Government has now issued a paper on cross-border civil and judicial cooperation post-Brexit, released as part of a series of papers on the future UK-EU trading relationship.

Through a number of key EU Regulations – notably Brussels 1a, Rome I and Rome II Regulations – the UK’s membership of the EU provides a legal framework which determine the country whose courts will hear a civil or commercial dispute; which country’s law will apply; and which enables a judgement obtained in one country to be recognized and enforced in another country.

Dechert has provided an analysis of the potential impact of Brexit on dispute resolution more broadly, but the UK Government’s paper on cross-border civil and judicial cooperation highlights the value that this EU legislative framework provides to business and consumers and acknowledges that the UK will leave this system when it leaves the EU.

The UK paper looks at what could replace this system. The UK has committed to introducing the Rome I and II Regulations into UK law (covering the choice of law and applicable law in contractual and non-contractual disputes). However, without a reciprocal arrangement in the EU there could remain a gap – and ensuing uncertainty – in how cross-border trade disputes would be resolved.

There are existing international agreements that could deliver some of the benefits that the EU-regime offers but they do not provide all of the advantages of the current system. Moreover, the UK is only a member of some of the most useful Conventions by virtue of its membership of the EU, notably the 2007 Lugano Convention (covering jurisdiction and enforcement of judgements in civil and commercial matters) and the 2005 Convention on the Choice of Court Agreements (designed to ensure the effectiveness of exclusive jurisdiction clauses between parties to international commercial transactions). The UK would have to sign up to those Conventions in its own right if UK businesses are to benefit. Whilst the UK has declared its intention to seek continued participation in the Lugano Convention, the EU must also agree to that arrangement.

The UK’s latest proposals on future civil and judicial cooperation are limited to advocating a unique UK-EU regime that mirrors the existing framework. This may be possible to negotiate in a new UK-EU trade deal, but it is far from clear whether that framework would be in place at the point of Brexit and, if not, what arrangements would apply.

The issue of civil and judicial cooperation therefore goes well beyond how the UK and EU will agree that contracts agreed or disputes arising pre-Brexit will be addressed after Brexit. It goes to the heart of how businesses will resolve their differences in new contracts and new disputes immediately after Brexit and neither the UK nor the EU offer much in the way of firm answers.

The UK’s proposals on cross-border disputes affect not only those who are in a dispute, but those who may be in a dispute in the years to come. This uncertainty makes it all the more important that businesses understand the potential impact that the Brexit negotiations can have on their operations and to plan accordingly, for example through a review of jurisdictional clauses in existing and model contracts. Through this analysis, companies can effectively plan for any future Brexit deal or consider alternatives, such as arbitration clauses, which are likely to emerge largely unscathed by the Brexit process.