Legal disputes after Brexit: What business owners need to know
Let’s face it – the Brexit process was never going to be a smooth ride and neither is the aftermath of it.
Even though on 31 December 2020, the UK finally parted ways with the EU in a legal and political sense, there still are many UK businesses that have partners, customers or suppliers based in Europe. This inevitably opens the door for confusion when it comes to cross-border law and legal business disputes post-Brexit.
Now that the UK is out of the transition period, the common governing rules of the EU don’t apply to the UK anymore. The practical implications of Brexit are that if your company is facing disputes concerning a UK-EU business contract, you have three major problem areas to consider from a legal standpoint: the choice of court, the choice of law provisions and the enforcement of court rulings.
Let’s explore each in a little bit more detail and discover what legal disputes after Brexit business owners need to be aware of.
Issue #1: Choice of law provisions
Prior to Brexit taking full effect, if you and your European commercial partner had a choice of law clause in your contract, your dispute would be resolved by the law of the country named in the agreement. If that happened to be England or Wales, then the laws on commercial disputes would apply.
Since the domestic law in the UK has largely adopted the rules outlined by the Rome I and Rome II Regulation, the choice of governing law clause in your cross-border contractual agreement should still be observed. So, if English law was what you had agreed upon, this is what should be used to resolve the conflict.
However, the danger comes from the fact that the changes in the law would allow for business owners based in an EU member state to argue that your dispute should be resolved under their country’s law instead, especially if the court in their country has gained jurisdiction over the case.
Issue #2: Choice of court provisions
Under the EU rules, if commercial partners from any country within the EU have signed a contract which states their agreement as to which EU court ought to rule on any potential legal disputes that arise between them, the proceeding would usually be issued in the nominated court.
However, since that no longer applies to the UK, it’s possible that the contractual agreement won’t be upheld and you will find yourself threatened by an additional legal dispute over jurisdiction. In which case you will need to seek legal advice to identify the international laws and conventions, as well as the country’s specific national laws that could work in your favour.
Currently, the UK Government relies on the Hague Convention 2005 as the main international law legislation to govern this. It works well for cases where one court has exclusive jurisdiction (as per your commercial contract) but it does virtually nothing for cases where there’s non-exclusive jurisdiction, or in other words, where you and your partner have agreed to have the freedom to choose where the legal dispute is judged.
The Government has made an attempt to solve this problem by applying to join the Lugano Convention of 2007, which has a legally binding power over all 27 EU member states, as well as some of the EFTA (European Free Trade Association) countries, namely Switzerland, Norway, Liechtenstein and Iceland.
However, the EU Commission landed a huge blow on the UK’s hope of accession in April 2021 when it announced its official recommendation to block the UK’s application. The official reason provided was that the UK was a “third country without a special link to the internal (EU) market”. Even though the Commission’s recommendation is just that – a recommendation, it makes the UK’s legal position in cross-border cases seem even more uncertain.
Where international law fails to protect you in the post-Brexit scene, you will have to look to the individual countries’ national law. For example, many big European countries, such as Germany, Spain and France recognise that commercial parties have the right to choose where their disputes are resolved. To put this simply, you could argue that a case should be judged by the English court rather than, let’s say, Germany’s court, provided that you can prove you and your German business partner had either signed a contractual agreement to that effect or always intended the English Courts to have jurisdiction.
Issue #3: Enforcement of a judgement
Even if you have had your case heard in an English court applying English law, the enforcement of a judgment made by the court on a party that is based elsewhere in the EU could prove to be challenging. In other words, your debtors could avoid paying what you are owed because there’s no one to force them to do it.
Before Brexit, there was an efficient enforcement process in place which involved the issue of a European Enforcement Order (EEO) certificate which would fast-track the payments of uncontested money judgments. After Brexit, this no longer applies to UK businesses unless:
- The court proceedings began before 1 January 2021
- The European Enforcement Certificate application was made before 31 December 2020
How newly arisen (after 1 January 2021) cross-border enforcement issues will be resolved is still quite unclear. Once again, the UK turns to the Hague and Lugano Conventions to resolve this, which means that we are faced with the same problem described above – The Hague convention doesn’t cover everything and the UK’s application to join the Lugano Convention may very well be declined.
The cases where the Hague Convention does apply include those where the choice of court is defined by an exclusive jurisdiction clause and where the enforcement doesn’t regard freezing assets or an interim injunction. As this poses huge limitations, law professionals dealing with cross-border commercial litigation will have to refer to each EU member state’s unique national laws on a case-by-case basis to look for a solution. This put UK business owners in a far more complicated and unpredictable situation.
Alternatively, the UK Government could attempt to sign bespoke agreements with the individual EU countries. Such bilateral treaties existed before the UK joined the EU back in 1973 but those would have to be reviewed thoroughly and agreed upon by both parties before they could be reestablished.
Where do we go from here…
Having said all of this, it’s easy to see why any UK business owners who deal with EU countries would feel concerned. Cross-border law in the post-Brexit landscape (commercial disputes included) has undoubtedly gotten a lot more complex due to the rising uncertainty surrounding the governing legislations. This is expected to have an impact on many UK-EU litigation cases for the foreseeable future, especially if the UK’s Lugano Convention accession gets denied by the EU.
The best course of action for anyone with disputes after Brexit is to seek legal advice from an experienced international law firm with a proven track record of dealing with cross-border commercial law cases, as early as possible. Understanding the pitfall that you might come across before the case escalates and taking action to avoid them is the key to reaching a positive outcome quickly and efficiently.
By Qarrar Somji, Witan Solicitors
