Will Brexit lead to more disputes being settled by arbitration?

Written on 13 Jul 2016

Contractual dispute resolution clauses come in a variety of different forms, with some requiring informal (or even ‘friendly’) discussions before any formal proceedings can be commenced. Others provide for expert determination or short-form adjudication, which are provisionally binding. But all types of dispute resolution clause will ultimately be subject to either litigation or arbitration as the forum for final determination of disputes.

One potential effect of Brexit is that it could lead to more parties opting for arbitration instead of litigation as the method of choice for final determination. Following Brexit, English courts may also be more able to uphold such clauses to prevent litigation being commenced in EU Member States.

What will Brexit mean for choice of law, jurisdiction and enforcement?

As we have explained in our separate article in relation to dispute resolution more generally (here), Brexit will have an impact, at least in the short term, on choice of law / jurisdiction and enforceability of judgments.

Eventually at least, we expect broadly similar provisions to apply, particularly when it comes to the recognition of jurisdiction and judgments. This could be through an agreement that those regulations continue to apply to the UK, or through an international treaty such as the Lugano Convention (which was the precursor to the Brussels Regulation) or the Hague Convention (which we discussed in a previous article).

However, until this position is resolved, there will be a degree of uncertainty as to how the courts will deal with issues such as jurisdiction, for example in the absence of an exclusive jurisdiction clause, and quite how simple it will be to enforce judgments between the UK and EU Member States. And if the UK were to fall back on a regime such as the Hague Convention on Choice of Court Agreements, there would be gaps compared to the current regime, which could make life more difficult for those looking to assert a chosen jurisdiction or enforce judgments between the UK and the EU.

Will this make arbitration clauses more popular?

With the cornerstone of the EU regime of mutual recognition and enforcement of civil and commercial judgments potentially unsteady, businesses and lawyers alike will be asking whether international arbitration is the answer.

And in many cases it may be. Arbitration clauses (including those which specify London as a seat) are already common in cross-border contracts. Alongside other features such as confidentiality, procedural flexibility and neutrality, the key attraction of international arbitration has always been the world-wide recognition and enforcement regime of the New York Convention, to which 156 states are contracting parties, the UK included. As long as Brexit uncertainty persists, the tried and trusted enforcement regime in arbitration will look even more attractive.

London has become a leading arbitration seat over a number of decades and membership or not of the EU is unlikely to be determinative of that. The day-to-day reality of international arbitration in the UK would, in procedural and substantive terms, largely be unaffected by Brexit.

There could, however, be some interesting side-effects. Unfettered by the EU Brussels Regulation, an English court would in principle have more freedom to issue an ‘anti-suit injunction’. Anti-suit injunctions stop one party proceeding with litigation when the contract contains an arbitration clause. This (controversial) power is currently curtailed by the Brussels Regulation, which prevents an English court from issuing an injunction to stop proceedings in another EU Member State. Post Brexit that would likely change, providing a further weapon in the armoury of parties in a London-seated arbitration faced with parallel proceedings elsewhere.

Comment

It is important to reiterate that neither the result of the UK’s referendum nor the issue of notice under Article 50 have any immediate legal impact. The EU regime governing the recognition of jurisdiction and judgments will continue to apply in the UK until it formally leaves the EU. Similar principles are also likely to apply in the future.

Nevertheless, there will be uncertainty until the future position has been resolved, which may lead parties to look to arbitration to resolve contractual disputes. If so, parties will need to consider issues such as the choice of arbitral institution, the seat of the arbitration and any other rules to be agreed in advance (such as the number of arbitrators and how they will be chosen). Advice should be taken to ensure that parties get the dispute resolution clause right from the outset to avoid any unwanted consequences if a dispute does arise.