Brexit had surprised nations all over the world. It is now confusing lawyers all over the world whose clients are engaged in contracts or disputes with English choice of law or jurisdiction clauses.
Should they advise their clients to continue to choose English law, jurisdiction or arbitral seats in new contracts? Should they litigate or arbitrate under choices they made in existing contracts before anyone dreamed of Brexit; or does Brexit mean the recognition and enforcement of judgments or awards may be problematic?
The United Kingdom finally left the European Union on 31 January 2020. Little in the world of enforcement and recognition has changed to date. However, the UK is due to drop out of the EU regimes with which European lawyers are familiar on 31 December 2020. From then, we will enter unchartered territory.
This first blog explores the legal framework the UK and EU politicians agreed in 2019 to carry us through to the end of 2020 and what that framework tells us about the changes to enforcement and recognition of judgments from the beginning of 2021.
What is the Withdrawal Agreement and the Withdrawal Agreement Act?
The Withdrawal Agreement is a treaty between the EU and the UK which was agreed on 17 October 2019 as a result of Brexit negotiations. The purpose of the Withdrawal Agreement is to establish the terms of the UK’s withdrawal from the EU, including what happens to jurisdiction and enforcement of judgments as between the UK and the EU.
The European (Withdrawal Agreement) Act 2020 is an Act of UK Parliament. The purpose of the Withdrawal Agreement Act is to enshrine and implement the provisions of the Withdrawal Agreement into the domestic law of the UK. Having been given Royal Assent on 23 January 2020 and ratified by the Council of the European Union on 30 January 2020, the Withdrawal Agreement Act came into force on 31 January 2020.
What is the transition period?
The Withdrawal Agreement provides for a transition period to give businesses time to adjust to the new situation and time for the UK and EU governments to negotiate new trade, travel, business and legal arrangements.
How then does the Withdrawal Agreement affect the jurisdiction and enforcement of judgments between the UK and EU during the transition period and when is the transition period to and from?
The transition period commenced on 31 January 2020 and will end on 31 December 2020, as provided for by Article 126 of the Withdrawal Agreement.
Article 132 of the Withdrawal Agreement also provides that the transition period may be extended for up to one or two years by a one-off decision made before 1 July 2020 by the joint UK-EU Committee. Although, such an extension is effectively ruled out by section 33 of the Withdrawal Agreement Act. This prohibition could be overridden by further legislation; the possibility of which is perhaps more real given the global effects of the coronavirus pandemic. However, as it stands, the default position is that the transition period will end on 31 December 2020.
What is the effect on jurisdiction and enforcement of judgments during the transition period?
There are four key provisions of the Withdrawal Agreement which affect jurisdiction and enforcement of judgments:
- Article 127 provides that EU law will apply to and in the UK during the transition period, unless otherwise provided in the Withdrawal Agreement, and any reference to Member States in EU law will be understood as including the UK.
- Article 129 provides that the UK will also continue to comply and be bound by obligations stemming from international agreements to which the EU is party during the transition period.
- Article 67(1) provides that in the UK, as well as in the Member States in situations involving the UK, the Brussels (Recast) Regulation (No. 1215/2012) (“Brussels Recast”) will apply to:
- “legal proceedings instituted before the end of the transition period”; and
- “legal proceedings or actions” which although themselves are not instituted before the end of the transition period “are related to such legal proceedings pursuant to Articles 29 to 31 of the Brussels Recast Regulation”. Articles 29 to 31 of Brussels Recast concern the rules on lis pendens and related actions.
- Article 67(2) provides that in the UK, as well as in the Member States in situations involving the UK, Brussels Recast will apply to “to the recognition and enforcement of judgments given in legal proceedings instituted before the end of the transition period.”
Practically, the effect of these provisions is as follows:
- The rules on jurisdiction and recognition and enforcement of judgments between the UK and other EU Member States will continue to be governed by Brussels Recast during the transition period.
- The courts in the UK and EU Member States in situations involving the UK will continue to apply Brussels Recast to determine jurisdiction, provided the proceedings are issued before 31 December 2020 or they are related to such proceedings.
- The courts in the UK and EU Members States in situations involving the UK will also continue to apply Brussels Recast to recognise and enforce their respective judgments, provided proceedings are issued before 31 December 2020.
- The UK will continue to comply and be bound by obligations stemming from international agreements relating to jurisdiction and enforcement of judgments to which the EU is party during the transition period. This includes the Hague Convention on Choice of Court Agreements 2005 and the Lugano Convention 2007.
- The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The UK is currently party to the Hague Convention by virtue of its EU membership, however, that will cease at the end of the transition period. Whether the Hague Convention will continue to apply as between the UK and other Contracting states after the end of the transition period is covered in my next Brexit blog post – ultimately, it depends on whether the UK joins the Hague Convention in its own right.
- The Lugano Convention 2007 applies between EU Member States and EFTA countries Iceland, Norway and Switzerland. Again, the UK is currently party to the Lugano Convention by virtue of its EU membership, however, that will cease at the end of the transition period. The applicability of the Lugano Convention between the UK and other Contracting States after the end of the transition period is also covered in my next Brexit blog post.
Before the end of the transition period, commercial parties should review dispute resolution clauses in their contracts to assess whether the clause’s intended utility will be affected by Brexit. If parties are engaged in current disputes, they should consider whether it is appropriate to issue proceedings before 31 December 2020 in order to benefit from the ongoing application of the existing framework of the rules governing jurisdiction and enforcement, in particular, Brussels Recast.