Sponsored briefing: Post-Brexit prospects: London as a dispute resolution centre

Neill Shrimpton and Jessica Lee discuss the impact of Brexit on London as a dispute resolution centre

Over a year on since the UK formally withdrew from the EU on 31 January 2020, speculation continues as to the prospects of London remaining a key dispute resolution centre post-Brexit. The adverse impact of Brexit is already being felt in the UK financial markets after January 2021 saw the Amsterdam Stock Exchange displace the London Stock Exchange in terms of trading volume per day. However, it remains to be seen whether the uncertainty persisting post-Brexit with respect to issues such as the enforceability of English judgments in the EU will outweigh the favour historically given by contracting parties in choosing to apply English law to their contracts and to litigating their disputes in the English courts.

Why London?

The English courts have always been a popular choice amongst foreign litigants, particularly where multi-jurisdictional contracts are concerned. Attractions include that the English legal system is well-established and allows some predictability of outcome to the moderate comfort of parties; the quality of the English judiciary is highly regarded and they are perceived to be independent and incorruptible; the availability of experienced and high calibre legal professionals; English law has a reasonably navigable and practical set of procedural rules to ensure the efficient and fair disposal of proceedings; and, in recent years, the English judiciary has focused on the use of technology to streamline the dispute resolution process (see further below). For completeness, it should also be acknowledged that there have always been some drawbacks to litigating in England and Wales from the perspective of foreign litigants, particularly the cost of English litigation. However, bolstered by EU instruments including the Rome I and Rome II Regulations¹, the Brussels Regulation² and the Lugano Convention³ which ensure uniformity in the rules concerning governing law, jurisdiction and the recognition and enforcement of judgments across EU member states, London enjoyed a status as an attractive dispute resolution centre pre-Brexit. However, from 31 December 2020, those EU instruments (save for Rome I and Rome II, see below) ceased to apply, potentially reducing London’s lead over the competition as the dispute resolution centre of choice.

An independent annual report on the activity in London’s commercial courts between April 2019 and March 2020 reported nearly a 10% decline in activity, including a decline in the number of litigants from EU member states⁴. Is this an early indicator of the possible impact of Brexit on the English courts or is it still too early to tell?

Choice of law

One area that remains substantially unchanged is choice of law. The Rome I and Rome II Regulations on choice of law have been incorporated into English law by the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 (effective 31 January 2020) and so shall continue to be applied by the English courts. English governing law clauses should be given reciprocal effect in EU member states since the Rome I Regulation requires recognition to be given to the governing law contractually chosen by the parties whether it is the law of an EU member state or otherwise. Contracting parties may therefore be encouraged to continue to choose English law and have confidence that their chosen English governing law clauses will be given effect across the EU and similarly that the English courts will continue to apply the position existing under Rome I and Rome II pre-Brexit.

Regrettably (and hopefully for a short period only) the same cannot be said of the recognition and enforcement of judgments.

Enforcement

Pre-Brexit, litigants in the English courts could be confident that their hard-won English judgments would be enforceable throughout the EU under the Brussels Regulation. Following the end of the Brexit implementation period on 31 December 2020, the perk of reciprocal enforcement throughout the EU ended when the Brussels Regulation ceased to apply to English judgments for proceedings commenced after the end of 2020.

Many commentators hope that this will be remedied by the accession of the UK to the Lugano Convention. That would mean something close to a continuation of the pre-Brexit position. The UK applied for accession on 8 April 2020 and a vote is expected by member states in the next few weeks⁵.

While that decision remains pending, uncertain litigants will need to fall back on the 2005 Hague Convention⁶ to which the UK unilaterally acceded effective 1 January 2021 or rely on domestic conflict of law rules in member states. The Hague Convention applies to exclusive jurisdiction agreements and obliges participating states⁷ to give effect to such agreements and to recognise and enforce the resulting judgments. Notably, the Hague Convention does not provide for the reciprocal recognition and enforcement of interim orders such as freezing injunctions.

The UK has implemented legislation to ensure that exclusive jurisdiction clauses in agreements concluded between 1 October 2015 (ie the date the UK first became a contracting state to the Hague Convention as an EU member state) and 31 December 2020 are covered by the Hague Convention. However, there has been some suggestion by the European Commission⁸ that the courts of EU member states may not apply the same approach and will only consider the UK as a contracting state to the Hague Convention from 1 January 2021 when the UK acceded in its own right. This may leave an unfortunate gap in the UK’s enforceability regime with respect to exclusive jurisdiction clauses in contracts agreed between 1 October 2015 and 31 December 2020. Contracting parties may therefore wish to revisit their exclusive jurisdiction clauses and consider restating them post 1 January 2021 to ensure they continue to have effect under the Hague Convention while such uncertainty continues.

Comment

Pending resolution of the position on enforceability of UK judgments (which may in part be resolved by the UK’s accession to the Lugano Convention if member states vote in favour), there are good reasons for optimism that the litigious around the world will continue to look to London as a forum for resolving their disputes. As Master of the Rolls with responsibility for the civil court justice system, Sir Geoffrey Vos recently commented⁹ on the opportunity for the UK to take a lead in demonstrating how the use of technology can transform the way in which civil disputes are dealt with and referred to his vision to create a ‘single online funnel through which all disputes can pass’. Technological reforms to the civil justice system would give the UK a significant advantage over less efficient paper-based systems and support London in retaining its status as a key dispute resolution centre in Europe.

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1. Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II)
2. Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
3. Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters
4. https://www.lawgazette.co.uk/news/commercial-court-activity-dips-for-first-time-in-five-years/5104369.article
5. Recent reports suggest the EU Commission is opposed to the UK’s accession (see https://www.cityam.com/brussels-opposes-uk-entry-to-the-lugano-convention-legal-pact/). However, a unanimous vote of member states will determine the position and is expected within the coming weeks
6. Convention of 30 June 2005 on Choice of Court Agreements
7. Which include EU member states, Mexico, Montenegro and Singapore
8. See paragraph 3.3 https://ec.europa.eu/info/sites/info/files/brexit_files/info_site/civil_justice_en.pdf
9. During a speech at the Law Society’s webinar on Civil Justice and LawTech

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