BREXIT: how (and where) commercial disputes would be litigated after a “no deal” Brexit

The effects of Brexit on major commercial transactions and the resolution of commercial disputes will ultimately depend on the terms on which the UK leaves the European Union. An extreme "No Deal" Brexit, is likely to have significant repercussions in the way parties provide for the resolution of commercial disputes in several respects.

• Due to its procedural effectiveness and certainty, the Common Law is often chosen for cross border commercial contracts and arbitrations. Many international contracts traditionally provided for English law and the jurisdiction of the English Courts. After Brexit, Ireland will be the largest Common Law jurisdiction in the EU. Accordingly, if parties want to ensure Common Law contracts are the subject of the law of an EU member state, or that Common Law Courts resolve such a dispute, Ireland will be an obvious alternative. Parties can ensure that any dispute will be resolved in a Common law jurisdiction but in an EU member state.
• A related issue concerns contractual clauses specifying which Courts have jurisdiction over any disputes. Article 25 of the Recast Brussels Regulation ensures EU wide recognition and enforcement of contractual clauses conferring jurisdiction on the courts of a member state (such as Ireland).  In a 'no deal' scenario, clauses vesting such jurisdiction in UK Courts will no longer be enforceable under the regulation. Their enforceability will need to be considered under the Hague Convention on Choice of Court Agreements, a comparatively recent and relatively untested measure.  One issue with the Hague Convention is whether  it covers asymmetric jurisdiction clauses (clauses requiring, for example, one party to be sued in its home state while allowing that party to sue in various jurisdictions). This could introduce uncertainty as to the effectiveness (within the EU) of UK jurisdiction clauses in both existing and future agreements.
• Also, in a major transaction or case, parties need to be confident that they will be able to enforce any obligations. In a "No Deal" Brexit, there will be uncertainty as to the extent to which UK judgments will be recognised and enforced across the EU. Unless and until these issues are resolved, a No Deal Brexit could lead to additional complexity, uncertainty and risk when providing for the enforcement of international commercial obligations.  Parties may prefer to choose a different legal forum which will mitigate this risk.  If, following Brexit, it is no longer possible to enforce judgments obtained in the UK throughout the EU then parties may prefer to litigate such disputes in jurisdiction such as Ireland.  Irish judgments will continue to enjoy EU-wide application and enforceability, providing litigants with a speedy and efficient EU wide enforcement capability. By contrast, if UK judgments are obtained against corporations with assets spread across the EU, the UK judgment will be less readily enforceable, potentially requiring separate applications in each EU member state, rendering such UK judgments cumbersome, slow and expensive to enforce and accordingly less effective. (Enforceability should not be an issue in arbitrations because such awards will generally still be enforceable under the New York convention). While an immediate consequence of a 'no-deal' scenario would be that UK judgments would no longer be automatically enforceable under the Recast Brussels Regulation, such judgments may, however, still be capable of enforcement in Ireland under common law principles. Such other enforcement options would be less satisfactory for creditors because the enforceability position will differ across EU member states. Even in Ireland the UK judgment creditor may face added enforcement costs and there will be greater uncertainty and potential for delay given the greater range of defences available to a debtor seeking to resist enforcement of a foreign judgment under common law principles.
• Provisions for service of proceedings in other EU member states will no longer be available in aid of UK litigation, which may be a further reason for litigants to consider choosing Ireland on the basis of its Common Law system within the EU. Likewise, EU provisions for obtaining evidence from parties in other member states will not be available in aid of UK litigants, who will have to rely on other mechanisms (such as the Hague Convention, where applicable). In cross border enforcement situations such as an international insolvency, the UK will no longer automatically be able to rely on the judicial cooperation and enforcement mechanisms provided for by EU law. Unless and until alternatives are developed, parties to commercial transactions may prefer to ensure that such issues are litigated in a jurisdiction which is able to avail of the full panoply of EU judicial cooperation and enforcement mechanisms.

The announcement by International Swaps and Derivatives Association (ISDA) - that Irish law will be an option for parties to its derivatives documentation - is an example of the increasing awareness of the potential impact of a no-deal Brexit on commercial obligations and their enforceability across Europe. ISDA's introduction of Irish law provisions reflect the increasing international awareness of the potential advantages of Ireland as an English speaking EU member state, operating similar Common Law procedures and principles to England but still enjoying the advantages of EU membership in terms of the service of proceedings, obtaining evidence in other jurisdictions and the mutual recognition and enforcement of judgments.

For more information in relation to this topic, please contact Liam Kennedy, Partner, or any member of the A&L Goodbody Litigation & Dispute Resolution team.

Date published: 20 February 2019