Choice of law post-Brexit

Will Brexit reduce London’s dominance as a litigation centre? Michael McParland QC examines the potential impact on use of English jurisdiction and choice of law agreements

‘One of the attractions of English law as a legal system of choice in commercial matters is its stability and continuity…’ Wood v Sureterm Direct Ltd [2017] UKSC 24, para [15]

The High Court in London is the leading court centre for international dispute resolution in Europe; a status achieved by the widespread use of English jurisdiction and choice of law agreements in international business transactions. Both of these private international law mechanisms are supported by EU rules or international conventions to which the UK belongs through its EU membership. Will Brexit reduce the attractiveness of these agreements and thus London’s dominance as a litigation centre?

The rules we leave behind

Unless some alternative and novel agreements are reached, upon leaving the EU the UK will immediately drop out of the Brussels I (Recast) Regulation (1215/2012). This Regulation grants a high degree of legal certainty for English jurisdiction agreements, has anti-abuse provisions to prevent contract-breakers avoiding their choice of jurisdiction, and provides a relative easy system of recognition and enforcement of English judgments based on such agreements. The UK will also cease to be a party to the Lugano II Convention (2007), which gives reduced levels of protections in the courts of Iceland, Norway, and Switzerland; and to the Hague Convention on Choice of Court Agreements (2005), which currently gives an even narrower range of protections in the courts of Mexico and Singapore.

The Rome I Regulation (593/2008) governs choice of law in contracts concluded as from 17 December 2009, and Art 14 of the Rome II Regulation (864/2007) enables parties to select the applicable law of non-contractual obligations since 11 January 2009. Both will no longer be directly applicable in English courts.

Parliamentary concern

Committees of both Houses of Parliament have expressed concern about the potential damage to the UK’s legal business and of diversion of work elsewhere by the loss of those instruments. The House of Commons Justice Committee said:

‘We recommend that protecting the UK as a top-class commercial law centre should be a major priority for the government in Brexit negotiations given the clear impacts on the UK economy of failure to do so. Protecting court choices and maintaining mutual recognition and enforcement of judgments are central to this objective: the government should aim to replicate the provisions of Brussels I Recast as closely as possible, perhaps using the EU-Denmark agreement as a blueprint. As a minimum, it must endeavour to secure membership of Lugano II and the 2005 Hague Convention in its own right. Rome I and II should be brought into domestic law.’ (House of Commons Justice Committee, 9th Report, Implications of Brexit for the justice system, HC 750. See also House of Lords EU Committee: 20th Report, Brexit: justice for families, individuals and businesses?, HL Paper 134.)

The government has also said:

‘We recognise that an effective system of civil judicial cooperation will provide certainty and protection for citizens and businesses of a stronger global UK.’ (HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, para 8.19.)

What will a red, white and blue Brexit look like?

Despite hopes that a new arrangement can be reached with the EU-27, for this exercise we should assume that a ‘Red, White and Blue Brexit’ will see the UK drop out of the Brussels I Recast regime, which was created to enhance the operation of the internal market which the UK is leaving. With no competence to negotiate its own admission to international conventions pre-Brexit, joining the Lugano II Convention might be more difficult and time-consuming than the UK would like; as this would require an application after re-joining EFTA or applying as a non-member and obtaining the consent of all signatories, which includes the EU (Lugano II, Arts 70-73). The Hague Convention is nowhere near as comprehensive as the Brussels I Recast, and will only affect exclusive jurisdiction agreements entered into after it entered into force in the UK, and shall not apply to proceedings instituted before that date (Hague: Art 16). Unfortunate ‘gaps’ in protections may well arise.

Attempts to steal a march

Consequently, a number of the UK’s competitors are seeking to take advantage. On 30 March 2017, the day after the UK’s Art 50 notice was given, the German Federal State of Hesse promoted a conference entitled Brexit: an opportunity for Frankfurt to become a new hub of litigation in Europe. This is part of their Frankfurt Justice Initiative, which proposes wide-ranging organisational and procedural improvements to bring its courts closer to the English system and thus more attractive to Anglophone businesses.

In Europe, such developments are supported by a burgeoning academic cottage industry which argues that Brexit creates substantial uncertainty regarding the recognition and enforcement of English choice of law and choice of jurisdiction clauses, and the enforcement of English judgments. Unless the UK and the EU agree on the continued application of the Rome I, Rome II and the Brussels I (Recast) or enter into a new treaty, Brexit will make it less attractive to settle international disputes in London. (A recent example is G Rühl, ‘Die Wahl englischen Rechts und englischer Gerichte nach dem Brexit. Zur Zukunft des Justizstandorts England’ (2017) 2 JuristenZeitung p 72.)

Is there anything positive that can be said in response? Despite the uncertainties, a few points can be made.

Don’t panic, Mr Mainwaring

First, regarding English choice of law agreements, any claims that agreement between the UK and the EU-27 on the continued application of the Rome I and II is required to avoid adverse post-Brexit consequences are misplaced. Neither depends on mutual reciprocity. EU courts will be obliged to give effect to English choice of law agreements under Rome I and II in exactly the same way as they did pre-Brexit. This is because the rules contained in both regulations are of ‘universal application’ and are not limited to a choice of law of EU member states. Consequently, Brexit will have little, if any, practical effect on the operation of English choice of law agreements in EU-27 courts.

In the UK, both Rome I and Art 14 of the Rome II Regulation can be transposed into domestic law via the so-called Great Repeal Bill. English courts will continue to apply an essentially similar regime post-Brexit. While differences between the ‘Catholic’ and ‘Protestant’ texts will eventually arise, this should not damage London in the foreseeable future.

In contrast, the Brussels I Recast Regulation depends upon reciprocity and sincere cooperation between member states. If the UK is not a member of the agreed scheme then transposing the Brussels I rules into UK domestic law is of no assistance.

Instead of the common, autonomous criteria for deciding whether parties can and did consent to English jurisdiction now found in Art 25 of the Brussels I Recast, EU-27 courts will apply their own national laws. The new anti-abuse protections in Art 31 that gave precedence to the courts of a member state selected by such an agreement will also no longer apply. Consequently we may see proceedings in EU-27 courts by disgruntled parties suing in their home courts and alleging that any English jurisdiction is invalid.

But the uncertainties in such circumstances can be exaggerated. Some EU-27 states have aligned their own national private international law rules with the common EU rules, and there may be little substantive difference in practice. Furthermore, when parties sue in countries willing to allow them to bring claims in breach of an English jurisdiction clause, then outside of the Brussels regime, English courts would be free to restrain them by issuing anti-suit injunctions and imposing fines and penalties for contempt. For some of London’s clients this may be a positive attraction. Indeed, the need to preserve anti-suit powers may give pause for considering whether joining an unmodified Lugano II is appropriate at all.

It is undoubtedly correct that the relative ease of recognition and enforcement of judgments under the Brussels I Recast would be a loss. But it is not the end of the world. While there are interesting arguments that the superseded international conventions (the Brussels Convention 1968 and the Lugano Convention 1988) might spring back to life, there are also old judgment recognition conventions with a number of our major European trading partners (such as (West) Germany, The Netherlands, Italy, Belgium, Austria and Norway) that may definitely revive in significance after Brexit.

Whether it is really the fear of disruption of their business with London and its markets that causes Europeans to honour English judgments, rather than the recognition of their enforceability under the Brussels Regime, remains to be seen. While short-term things may get messy, don’t bet against London anytime soon.

Contributor Michael McParland QC, Quadrant Chambers and author of The Rome I Regulation on the Law Applicable to Contractual Obligations (OUP 2015)

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Michael McParland QC

Michael, of Quadrant Chambers, specialises in private international law, author of The Rome I Regulation on the Law Applicable to Contractual Obligations (OUP, 2015), a California attorney and Member of the Chartered Institute of Arbitrators.