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Preparing for a No Deal Brexit: Dispute Resolution Clauses and Jurisdiction

As the uncertainty over a withdrawal agreement continues, businesses need to prepare themselves for what a no deal Brexit could mean to them.  In this article, we look at the possible impact of a no deal Brexit on jurisdiction agreements and dispute resolution clauses.

The EU sets out legislation governing how courts in EU member states must determine (a) whether they have jurisdiction to hear a dispute; and (b) what country’s law applies to that dispute.  EU law also lays down a relatively straight forward mechanism for enforcing English judgments in other EU member countries.

When negotiating commercial contracts, parties will often include a jurisdiction clause.  Where parties have negotiated such a contractual provision, current EU law will usually honour the parties’ decision.

When the UK leaves the EU, EU legislation will no longer apply.  Instead, the UK intends to ratify the Hague Convention on Choice of Court Agreements.  This Convention sets out rules in relation to the validly and effect of jurisdiction agreements as well as the cross border recognition and enforcement of judgments.  Where parties have included an exclusive jurisdiction clause in their contract, under the Hague Convention, the parties’ chosen court is obliged to deal with any dispute and the judgment of that court will be recognised and enforced in any of the other of the member countries.  The Conventions applies to the member states of the EU, Mexico and Singapore.

The UK is currently the only party to the Hague Convention by virtue of being part of the EU however, on 28 December 2018, the UK signed and ratified the Hague Convention.  The Convention will therefore apply to the UK from the date when the UK withdraws from the EU, without a withdrawal agreement.

Importantly, the Hague Convention only applies to contracts entered into after the Hague Convention came into force in that country.   What then is the impact on contracts entered into before Brexit?  Will the Hague Convention apply to those contracts?

In a ‘Notice to Stakeholders’ dated 18 January 2019, the European Commission confirmed that when the UK withdraws from the EU, the EU rules will no longer apply.  In proceedings commenced after Brexit, “recognition and enforcement will be governed by the national rules of the Member State in which recognition/ enforcement is sought”.  The guidance goes on to say that in some instances, international conventions such as the Hague Convention will apply provided that the both the EU/ EU Member States and the UK are parties to the Convention.  The European Commission advises that “all stakeholders … take this into consideration when assessing contractual choices of international jurisdiction”.

In a Q & A document dated 11 April 2019, the European Commission clarified that the Hague Convention “will only apply to exclusive choice of court agreements after its entry into force for the United Kingdom”.  A footnote states that the initial date of accession was 1 April 2019 but the UK has postponed that date until 13 April or 23 May 2019 (and now 1 November 2019).

The message coming from the European Commission is that exclusive jurisdiction agreements will only fall within the Hague Convention if they are entered into after Brexit.  This could mean that if parties to a contract agree on an exclusive jurisdiction provision, that choice may only be recognised if the contract is entered into after Brexit.   If the Hague Convention does not apply, parties could face battles over which country’s court has jurisdiction to hear a dispute and need to enforce any judgment under the domestic rules in an EU member state.  The result: disputes and enforcement of judgments will be more complex, costly and drawn out.

If you do business with a party based in an EU member state, it is important to understand the impact which Brexit could have.  You could look at including an alternative dispute mechanism into your contract, such as arbitration.  Another option is to insert a provision that the parties will review and revise any jurisdiction clause after Brexit (if appropriate).   You could review any contracts you currently have and decide whether or not those contracts need revising now or alternatively, wait and see what happens.

If you would like further advice, please contact our Dispute Resolution team on 01228 552600 or 01524 548494.

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