Brexit is upon us. What does it mean for governing law and dispute resolution clauses in international commercial contracts?
A combination of an English law clause with a London jurisdiction/arbitration clause is a popular choice for international commercial agreements. Should this choice be reviewed as a result of Brexit, as the recognition and enforcement of these clauses are governed by EU instruments (mostly the Brussels I recast, for jurisdiction, and the Rome I and Rome II regulations, for choice of law)?
During the transition period, which started last week and will end on 31 December 2020, Brexit will have barely any impact: EU law remains applicable to the relationship between UK and EU parties, and the Court of Justice of the EU retains jurisdiction for the interpretation of these rules.
As from 1 January 2021, the situation becomes much more complex if the EU and the UK do not agree on a bespoke private international law agreement in replacement of the EU rules.
- Applicable law: keep calm and carry on?
English law clauses will continue to be recognised by EU courts, as the Rome I and Rome II regulations have a universal application (i.e. they must be applied by EU courts even when the law of a third State, such as the UK, is designated by choice of law clauses or the other rules set forth by the regulations). In addition, the Withdrawal Agreement provides for transitional rules whereby the Rome I and Rome II regulations continue to apply respectively in respect of contracts concluded before the end of the transition period and events giving rise to damage that occurred before the end of the transition period. However, companies should assess on a case by case basis whether the impact of Brexit on substantive English law rules could justify the designation of another applicable law. If contract law is likely to remain mostly unaffected, this will be different for other areas (such as employment law, consumer protection, data protection, etc.).
- Competent courts, recognition and enforcement of jurisdiction clauses and judgments: fog in channel?
Save from the potential application of international conventions (such as the 2005 Hague Choice of Court Convention, or the 2007 Lugano Convention if the UE were to agree to the UK's accession to this convention), these questions will be governed by the domestic private international law rules of each Member States. In Belgium, English jurisdiction clauses, and the decision of English courts, should be recognised and enforced as a general rule (subject to enumerated grounds for refusal, such as the breach of Belgian public order or of the rights of defence). However, as opposed to EU judgments that are directly enforceable, English judgments will have to obtain the exequatur of a Belgian court. The Withdrawal Agreement only contains specific transitional provisions pursuant to which the Brussels I recast regulation would remain applicable for the proceedings instituted and the judgments rendered before the end of the transition period, which means that proceedings started after the transition period on the basis of jurisdiction clauses concluded before the end of this period will not benefit from these transitional rules.
- International commercial arbitration: much ado about nothing?
The impact of Brexit on commercial arbitration will be limited, as this field relies on an international convention (the 1958 NY Convention) and is excluded from the main EU instruments. The question is more complex with respect to investment arbitration, as a result of the aftermath of the CJEU’s Achmea ruling, which ruled intra-EU investment arbitration contrary to EU law. Investors may consider structuring their investment differently, in order to benefit from the protections offered by the investment treaties concluded by the UK with EU Member States.