Dispute resolution

What does the new UK-EU relationship mean for English jurisdiction clauses and judgments?

Published on 28th Jan 2021

State aid

English jurisdiction clauses in contracts entered into from 1 January 2021 will be respected under the Hague Convention, but the picture is more complicated when it comes to new disputes about existing contracts.

Now that the Brexit transition period has ended, the recast Brussels Regulation (the regime which, broadly, establishes rules for EU Member States as to which of their courts have jurisdiction over a dispute and simplifies the enforcement of judgments intra-EU Member States) has ceased to apply in the UK for proceedings started after 31 December 2020.

The Hague Convention on Choice of Court Agreements 2005 has now entered into force for the UK as a party in its own right, but the European Commission believes that exclusive English jurisdiction clauses entered into before the end of the transition period do not fall within its scope.

Irreconcilable judgments

If the EU countries adopt the same stance, their courts will apply national law when determining jurisdictional (and enforcement) issues in relation to contracts entered into before 1 January 2021. Often, that may still mean that the exclusive English jurisdiction clause will continue to be respected. Similarly, the parties should still be able to enforce an English judgment in the courts of an EU country, where the contract to which the dispute related contained an exclusive jurisdiction clause.

There is a risk, though, that in some limited circumstances the courts of an EU country might decline to stay proceedings started in its country even if proceedings have been started in England in accordance with an English jurisdiction clause, thus raising the risk of irreconcilable judgments.

This risk will not apply for contracts entered into after 31 December 2020 that contain an exclusive jurisdiction clause, as there is no doubt that the Hague Convention would apply. The Hague regime provides the fundamental protections that are needed, but does not extend to simplified enforcement procedures such as those that are available under the Brussels Regulation.

The ability to enforce a judgment quickly will often not be a significant factor in a large commercial dispute. Even if it is, our experience is that a party can find ways to delay enforcement, if it wants to, even under the current streamlined procedure of the EU regime. In such circumstances, the ability to obtain injunctive relief from the court which granted judgment can be crucial, and this is something which English courts can do much more effectively than most European civil law courts.

The right jurisdiction clause

In deciding on a jurisdiction clause, the parties should consider factors such as the location of the parties, the preferred law governing the contract, the jurisdiction in which the parties would want disputes to be decided and the location of assets where enforcement may be an issue. Where, taking these factors into account, the nomination of English courts to hear a dispute was previously felt to be a sensible choice, this will generally remain the case now. In relation to the non-applicability of the Brussels Regulation, the same considerations will apply as where the parties choose the law and jurisdiction of another non-EU country (such as the US), except that an English jurisdiction clause will have the benefit of the Hague Convention.

The position would be improved further still if and when the EU accepts the UK's application to (re)join the Lugano Convention, which was the precursor to the Brussels Regulation and provides for a similar, if not as comprehensive, regime between EU and non-EU EEA countries.

Where enforcement in an EU jurisdiction is likely to be a real concern in a case, though, a different approach might be considered.

One solution may be to select arbitration rather than litigation as the method of resolving disputes. That is because arbitration is wholly unaffected by Brexit.

Arbitral awards are usually recognised and enforced under the New York Convention 1958, to which 164 countries have signed up (including all EU countries).

Summary

To summarise the position:

  • Where the contract was entered into and proceedings were commenced before 1 January 2021, the Brussels Regulation will continue to apply.
  • Where the contract was entered into before 1 January 2021 but proceedings are not commenced until after that date, there is doubt as to whether the Hague Convention will apply; if not, the local law of the relevant EU Member State will apply (similar to if the contract had specified a US jurisdiction).
  • Where the contract is entered into after 31 December 2020, the Hague Convention will apply, for contracts that contain an exclusive jurisdiction clause – meaning that the choice of jurisdiction, and judgments in relation to the contract, will be respected in the courts of EU Member States.
  • Where the contract does not contain an exclusive jurisdiction clause (for example, if the contract is silent on jurisdiction, or contains an asymmetric jurisdiction clause), the Hague Convention will not apply.

As always, it is important to consider the jurisdiction in which you would want any disputes to be heard, and provide that clearly in the contract. Where the England and Wales would have been the preferred jurisdiction prior to 1 January 2021, that will usually remain the case. But if there is pressure to use an alternative to the English courts, one solution would be to opt instead for arbitration.

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