Dispute resolution: legal implications of Brexit for your business

Published on 28th Mar 2017

The full implications of Brexit on dispute resolution will depend on the terms of the new relationship that the UK is able to negotiate in place of its current EU membership. We highlight the following three points as those which businesses should be most keenly aware following the UK’s triggering of Article 50.

  • If the UK imposes restrictions on the free movement of goods and people, this is likely to lead to contractual disputes between parties – arguments about “force majeure” and “frustration” of contracts are likely to arise.
  • There will be uncertainty over interpretation of contractual wording where disputing parties have contracted on the basis of an EU that included the UK. This is likely to give rise to disputes, particularly where the UK’s departure from the UK leads to different tariffs applying to cross-border sales (for example). Some parties may try to break their agreements entirely.
  • Although there are unlikely to be immediate changes to applicable legislation, there is uncertainty as to what the position will be going forward. The UK will at some point cease to apply EU regulations which relate to conflicts of laws and jurisdiction which arise in international disputes.  Long-term, however, it is expected that the principles applied in their place will have a similar effect

These issues, and the wider consequences of Brexit for dispute resolution, are considered in more detail below.

UK law will no longer be subordinate to EU law

  • While the UK Parliament will enshrine the existing body of EU law into national legislation, by way of the Great Repeal Bill, leaving the EU will mean the UK legislature and judiciary will no longer be subject to the actual or perceived overriding authority of European law and/or decisions of the Court of Justice of the EU (CJEU). 
  • The UK judiciary will be free to divert from CJEU precedent, which may result in greater legal uncertainty in the short term (as the UK courts may, in some cases, move away from previous EU precedent). However, businesses may view this as a positive change in the longer term, and it should speed up the overall process of determination (as proceedings will no longer be subject to referral to the CJEU on points of EU law). 

Principles of jurisdiction and conflict of laws will need to be redefined

  • At present, disputing parties within the EU can look to a handful of regulations and conventions to identify, amongst other things, which court will have jurisdiction over a dispute, which law will be applied and how a judgment from one Member State will be enforced in another.  Those regulations and conventions are designed to make the mutual recognition of jurisdiction and judgments straightforward.
  • Following Brexit, while the UK will no longer be subject to European regulations relating to conflict of laws which arise in international disputes, it can be expected to apply principles of, and sign up to treaties with, roughly similar effect.
  • This may create legal uncertainty in the short term at least, which could lead to more dispute resolution clauses favouring arbitration (which will remain largely unchanged) rather than litigation.  However, it is unlikely to have a significant effect on businesses in the medium to long term. 

Will there be uncertainty around existing contractual terms leading to litigation?

  • Parties which contracted on the basis of an EU which included the UK could face difficult questions of interpretation following Brexit. 
  • For example, a distributor with permission to market a product within the EU will want to know whether it is still permitted to sell within the UK following Brexit.
  • Similarly, if Brexit results in different tariffs applying to cross-border sales (for example), some parties may try to break their agreements entirely.
  • Businesses should therefore consider whether their existing contract terms will still make commercial and practical sense in a post-Brexit world. 

Competition law “follow-on claims”

  • Depending on the terms of the agreement struck between the UK and the EU, victims of cartels may not be able to bring claims in the UK based on the European Commission’s decisions about infringements of competition law, where those decisions are reached after Brexit has actually taken place. If so, this would make it more difficult for businesses to bring claims relating to cartels investigated by the Commission.
Our disputes resolution experts can help you prepare for Brexit and understand the legal implications for your business.
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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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