16th November 2022 | Greg Pooler | Global Mobility, International Presence, Litigation
In this article Greg Pooler explains the effects of Brexit on the UK’s cross-border disputes market following a talk he and Sherrards’ partner Marta Grieve gave to the legal community in Poland at the British embassy in Warsaw.
Brexit. Six years on we are still talking about it, perhaps unsurprisingly. There isn’t a domain that hasn’t been affected by it (or perhaps infected by it, depending on your POV) and never has that been truer of cross-border trade, whatever the sector. In this article, we look specifically at Brexit’s effects on one form of cross-border trade, UK legal services.
First, some context setting: the UK legal market generated £41.6bn in revenue in 2021 and is the largest legal services market in Europe second only to the US globally, so it is of huge strategic importance to the UK economy. The export value of English law is attested to by the fact that English is the main choice of governing law for most cross-border transactions globally.
In one sense a lot, in another not very much. Let’s look first at the changes to the legal landscape post-Brexit, by which we really mean the end of the ‘transition period’ provided for under the UK’s withdrawal agreement with the EU, being midnight on 31 December 2020.
The pre-brexit enforcement regime
- Prior to 31 December 2020, the cross-border dispute framework was largely a function of EU law and consisted of the following key pillars:
- The Brussels Regulations, namely the 2001 Brussels Regulation and the Recast Brussels Regulation which in broad terms together regulate the recognition and enforcement of judgments in EU member states.
- The EU Service Regulation which was widely recognised as facilitating the efficient transmission and service of legal documents between member states.
- The 2007 Lugano Convention which largely replicates the position under the Brussels Regulations in relation to the recognition and enforcement of judgments in three EFTA states (Iceland, Norway and Switzerland).
- Rome I and Rome II which determine the law applicable to, respectively, contractual and non-contractual obligations.
- Beyond the jurisdiction of the EU, jurisdiction and enforcement is dependent on either the existence of bilateral arrangements (which exist for many countries with whom the UK has historical ties, see below) or in the absence of reciprocal arrangements the question falls to be determined under the national law of the country in which recognition/enforcement is sought or the question of jurisdiction falls to be considered.
Position post Brexit
- Post 31 December 2020, the Brussels Regulations and Lugano Convention have fallen away. This represents the biggest impact on cross-border disputes with the result that the Hague Convention on Choice of Court Agreements – to which the UK is a party in its own right as of 1 January 2021 – now takes centre stage as the main reference point for conducting cross-border disputes. Note the emphasis on commercial disputes because whereas the Brussels Regulations apply to a broad range of civil disputes, Hague’s principal limiting factor is that it only applies to cross-border disputes where there is an exclusive jurisdiction clause in favour of a contracting state (note asymmetric or optional jurisdiction clauses do not qualify).
- Hague is also a lot narrower in application, excluding from its ambit certain categories of dispute including consumer, insolvency, IP and insurance (among others). Its other major limitation is that it does not extend to interim relief such as freezing orders that could under certain conditions previously be passported in to other EU member states.
- EFTA states are not a party to Hague, meaning the UK’s failure to join Lugano (despite its best efforts) creates a gap between the UK and EFTA states which is mitigated slightly by the fact that Norway and the UK have agreed to continue to apply Lugano; as to the remaining EFTA states, the recognition and enforcement of judgments is a question of the national law of those states.
- The EU Service Regulation has likewise been revoked and has been substituted for the not too dissimilar Hague Service Convention.
- Lastly Rome I and II continue to apply as they form part of the package of EU legal instruments which the UK continues to apply post Brexit as “EU retained law”, which in simple terms incorporated EU law as it stood at the end of the transition period in to English law.
What are the implications?
Having identified the actual differences in the EU landscape, what does this mean in practice? It is true that the new regime at first blush introduces some mechanical impairments in to the process of conducting cross-border litigation. But those differences must be balanced against the following considerations:
- Most commercial agreements contain governing law and exclusive jurisdiction clauses; Hague should extend to most commercial agreements other than those in the specifically excluded categories.
- As to the recognition and enforcement of judgments between the UK and EU member states that fall in between the Hague/Brussels gap, these will be resolved with reference to national laws. A good number of EU members states have evolved and mature legal systems that provide a reciprocal enforcement regime outside the international treaty/convention framework under which UK judgments can be recognised and enforced. The same point applies to inbound judgments; there is a pre-existing framework in UK law in relation to the recognition and enforcement of inbound judgments from the EU and beyond.
- As between the UK and the rest of the world, the UK has bilateral arrangements that deal with the enforcement of judgments with many countries with whom they have historical ties such as Canada, Australia, Cayman Islands, Bermuda, New Zealand, Pakistan, Guernsey, Jersey, BVI, Israel, India (among many others) that remain unchanged.
- The weaker protections under Hague in terms of the recognition and enforcement of exclusive jurisdiction clauses have been mitigated by the empowerment of the English Courts to issue anti-suit injunctions, otherwise prohibited under the Brussels Regulations regime. This should address the (impolitely termed) “Italian torpedo” scenario where proceedings are issued in one jurisdiction in breach of an exclusive jurisdiction clause.
- As to issues of service, there are many similarities between the EU Service Regulation and Hague with any differences being partially mitigated by the fact that from 6 April 2021 it is no longer necessary to obtain the permission of the English Court to serve proceedings out of the jurisdiction where there is an English jurisdiction clause (see CPR 6.33(2B)(b)).
- It is important to bear in mind that a major share of the international dispute resolution market is international arbitration which remains the preferred method of dispute resolution for international litigants. The New York Convention regulating the recognition and enforcement of arbitral awards sits completely outside of the EU framework; if anything arbitration has emerged as a winner (see below).
Some perceive a conspiracy of silence as to the adverse impacts of Brexit on the UK more generally. But there is good reason to believe in the resilience of the UK legal market and that it has largely emerged unscathed; what empirical data there is suggests that Brexit has neither dented English law as a brand nor the Courts of England as the forum of choice for the resolution of disputes.
We do however caution that it is still early days and warn against complacency. The recent Portland Commercial Courts Report indicates that between 2021 and 2022 there has been a dip of 20% in the number of Commercial Court judgments that have been issued (possibly a function of the considerable resource constraints the Commercial Court has been experiencing in terms of judge availability) but the trend since 2016 remains upwards. Moreover, 54% of the litigants in the Commercial Court were international, up from last year’s 50:50 split. Of these non-UK litigants, the number of nationalities represented in the Commercial Courts has also expanded, with (interestingly) the number of EU litigants increasing slightly from 11.5% to 12% over the last year.
Beyond the Commercial Courts, London retains its pre-eminence as the preferred seat for arbitration: the number of referrals to the LCIA has increased in 2021/2022 to 444, representing a doubling of its case load of the last 10 years. The growth in London-seated arbitration is possibly a collateral effect of Brexit in view of the enforcement benefits of the New York Convention.
Lastly, if English law is to be dislodged then there needs to be a viable alternative. It is true that some economies have started to evolve their own body of commercial law creating competitive pressure on English law. However, much of what gives English law its considerable export value remains: the sophistication and depth of its body of contract law, the malleability of the common law and the potency of its precedent value to market participants. In short, there are plenty of reasons to be hopeful that English law will maintain its market dominance and that English Courts, and London in particular, will continue to be the forum of choice for the resolution of cross-border disputes.