This article is written by Shreya Shambhavi who is pursuing a Certificate Course in Banking & Finance Practice: Contracts, Disputes & Recovery from LawSikho.

Introduction

The UK formally left the EU on 31 January 2020 (“Brexit Day”). While the UK has agreed to the terms of its EU departure, both sides still need to decide what their future relationship will look like. This will need to be worked out during the transition period, which began immediately after Brexit Day (by enacting the European Union (Withdrawal Agreement) Act 2020) and is due to end on 31 December 2020. During this 11-month period, the UK will continue to follow all of the EU’s rules and its trading relationship with the EU will remain the same.

For the purpose of this note, we have considered, based on material available on the internet and based on my discussions with foreign counsels, the likely impact of Brexit from the perspective of the choice of English laws and the choice of English courts in guarantee contracts entered into by us with entities domiciled in EU member states and the likely impact on the enforceability of judgements passed by English courts in EU member jurisdictions. The information available on the internet is in the nature of views that have been expressed by the respective authors and are, of course, subject to judicial review. 

Choice of law

• Current scenario (till the expiry of the transition period)

During the transition period, Brexit will have barely any impact: EU law remains applicable to the relationship between UK and EU parties, and the Court of Justice of the EU retains jurisdiction for the interpretation of these rules.

• After the expiry of the transition period

Courts of all EU member states apply the same set of rules to determine the governing law of both contractual and non-contractual/tortious obligations in most commercial contexts – the Rome I Regulation [Regulation (EC) No 593/2008 of June 17, 2008] and Rome II Regulation [Regulation (EC) No 864/2007 of July 11, 2007], collectively called the “Rome Regulations”. The Rome Regulations require EU member state courts to respect governing law clauses agreed between commercial parties, subject only to certain exceptions. This is the case irrespective of whether the chosen law is the law of a Member State and irrespective of whether the parties are domiciled within the EU or in a non-Member State. The Rome Regulations are based on the principles of universal application without the requirement of reciprocity. 

The Rome Regulations will continue to apply in the remaining EU Member States. This means that Brexit should not affect the approach currently taken by the courts of EU Member States, which will largely continue to give effect to commercial parties’ choice of English governing law in their contracts. The United Kingdom has incorporated the contents of the Rome I and Rome II Regulations into domestic law by virtue of “The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019”, which will take effect upon the expiry of the transition period and so the English court will apply the same rules as currently to determine applicable law and should respect the chosen law of the parties to the contract. 

Choice of jurisdiction

• Current Scenario (till the expiry of the transition period)

Currently, the Brussels Recast, Hague Convention and the Lugano Convention set out a comprehensive set of jurisdictional rules to determine which court takes jurisdiction where a defendant is domiciled in an EU Member State or where an agreement confers jurisdiction on an EU Member State court regardless of the domicile of the parties. As per the terms of the Withdrawal Agreement, the jurisdictional provisions as applicable currently shall continue to apply till the end of the transition period and accordingly, there will be no change in status with respect to such clauses till the expiry of the transition period.

• After the expiry of the transition period

After the expiry of the transition period, neither the Recast Brussels Regulation nor the Lugano Convention nor the Hague Convention will apply to the UK, unless agreed otherwise, as the UK is currently a party to all of these by virtue of being an EU member only. The status of jurisdiction clauses will be largely dependent on the nature of the agreements concluded between the UK and the EU as well as the potential application of international conventions (such as the Hague Convention or the Lugano Convention). The positions have, accordingly, been articulated below based on the various potential scenarios.

1. In the event no agreement is concluded between the EU and the UK and in the event the UK does not become a signatory to either the Hague or Lugano Conventions.

The courts of the UK and each remaining EU Member State will apply their own rules of private international law to determine if they have jurisdiction over a particular dispute. There may be greater scope than before for parallel proceedings in the UK and an EU/Lugano State if no arrangement similar to the Brussels/Lugano convention can be agreed.

2. In the event no agreement is concluded between the EU and the UK and in the event the UK become a signatory to the Hague Convention and/or Lugano Convention.

Assuming the UK accedes to the Hague Convention, Brexit should not greatly affect contracts entered into with EU member domiciled entitles containing exclusive jurisdiction clauses in favour of English courts. There are, however, a few important exceptions to take note of in relation to the clauses of the Hague Convention – (1) in relation to issues of the jurisdiction where there is no party domiciled in the UK (or another Hague contracting state that isn’t also part of the EU), Article 26(6) of the Hague Convention provides that the Brussels Recast regime takes precedence over the Hague convention.

The upshot is that if proceedings are started in a EU27 court in breach of an exclusive English jurisdiction clause, and that EU27 court would have jurisdiction under the Brussels regime (for example because the defendant is domiciled there or it was the place of performance of the relevant contractual obligation); and (2) The Hague Convention applies to exclusive jurisdiction clauses entered into after the Convention comes into force. Since the UK, if it were to accede, is only likely to become a member in 2021, the question of enforceability of exclusive jurisdiction clauses entered into prior to 2021 is still unclear.

The UK is permitted to accede to the Hague Convention unilaterally and has submitted its accession instrument to do so (although the accession date is uncertain and depends on the nature of the UK’s departure from the EU).

The Lugano Convention addresses jurisdiction and enforcement between EU Member States, Switzerland, Norway and Iceland in a way that is broadly similar to, though less detailed than under the Recast Brussels Regulation and accordingly, in the event the UK were to accede to this Convention, pre-Brexit positions with respect to jurisdiction would not be significantly affected. 

The UK’s appeal to join the Lugano Convention as an independent signatory has, to date, been rebuffed by the EU as all the parties to the Lugano Convention have to agree to admit a new member.

Enforcement of judgements

• Current scenario (till the expiry of the transition period)

The Withdrawal Agreement between the UK and the EU provides for the jurisdictional provisions of Recast Brussels Regulation (EU 1215/2012) to apply to proceedings instituted before the end of the transition period (Article 67). As a result, as long as proceedings are started before 31 December 2020, Brexit will have no effect on the enforcement of judgments.

• After the expiry of the transition period

After the expiry of the transition period, the Recast Brussels Regulation will no longer apply to the UK, unless agreed otherwise. There is some uncertainty regarding the status of the enforcement of judgements rendered by English courts in EU member states as this is largely dependent on the nature of the agreements concluded between the UK and the EU as well as the potential application of international conventions (such as the Hague Convention on Choice of Court Agreements, or the Lugano Convention). The positions have, accordingly, been articulated below based on the various potential scenarios.

1. In the event no agreement is concluded between the EU and the UK and in the event the UK does not become a signatory to either the Hague and/or Lugano Conventions.

If neither the Hague nor Lugano Conventions apply (i.e. an English judgment is simply a “third state” judgment), then in most cases it would still be possible to enforce that judgment in a Member State court under applicable national rules. The same approach as would be followed when enforcing an English judgment as when enforcing a New York or Australian or any other third state judgment.

It will take more time and cost more money to enforce under national rules, rather than under a Convention. This is, however, an administrative impact. The important point is that in most cases it can be done. 

2. In the event no agreement is concluded between the EU and the UK and in the event the UK becomes a signatory to either the Hague or Lugano Conventions.

The  Hague Convention ensures that where parties have opted for a court to have exclusive jurisdiction to resolve disputes, the chosen court must hear the case and any other court must decline jurisdiction and that the judgment of the chosen court will be recognised and enforced by the courts in the other signatory states.

The UK is permitted to accede to the Hague Convention Unilaterally and has submitted its accession instrument to do so (although the accession date is uncertain and depends on the nature of the UK’s departure from the EU). 

The Lugano Convention addresses jurisdiction and enforcement between EU Member States, Switzerland, Norway and Iceland in a way that is broadly similar to, though less detailed than under the Recast Brussels Regulation.

The UK’s appeal to join the Lugano Convention as an independent signatory has, to date, been rebuffed by the EU as all the parties to the Lugano Convention have to agree to admit a new member.

In the event the UK were to accede to either of these Conventions, it is likely that enforcement of judgements given by the courts of the UK are unlikely to be significantly affected by Brexit.

Conclusion

In light of the circumstances mentioned above and the position as on date, considering the uncertainties regarding the choice of jurisdiction and potential time and cost implications with respect to the enforceability of judgements rendered by the English courts in other EU member states, it would be a prudent course of action for the Banks to re-examine and consider amending the governing law and jurisdiction clauses in its existing contracts with entities domiciled in the EU where the governing law and jurisdiction clauses provide for English Law. 

The Bank should also consider whether, moving forward, we should continue to prescribe English Law and jurisdiction of English courts as our standard position in relation to contracts we are executing with EU member domiciled entities.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.