EACCNY “Brexit, What’s Next?” Series | The challenges of the post-Brexit era for cross-border commercial disputes from both an EU and UK perspective

With the help of our members, this thought-leadership series focuses on explaining what businesses should expect from the new reality of Brexit – in essence, with “Brexit, What’s Next?”. Today, we present Dr. Matthias Schlingmann, LL.M., Partner and Rishat Vahidov, Rechtsreferendar, both from CMS LAW (Hamburg, Germany); along with Ian Gatt QC, Partner and Karen Jacobs, Senior Associate, Knowledge Development Lawyer, both from STEWARTS LAW (London, UK). They will address: “The challenges of the post-Brexit era for cross-border commercial disputes from both an EU and UK perspective”. |

After much speculation over whether there was going to be a “hard Brexit”, the Trade and Cooperation Agreement between the UK and the EU was completed at the end of 2020. Significantly for dispute resolution lawyers, the agreement is silent on how the UK and the EU will harmonise questions of jurisdiction and the recognition and enforcement of judgments. This article explores the legal implication of this post-Brexit era from an EU perspective and considers its impact on the commercial courts in England and Wales from a UK perspective. While views may differ in the UK and across the Channel on the conclusions businesses should reach for their cross-border contracts, one fact is undisputed: the issue of which court will have jurisdiction will need to be given due consideration.

The EU perspective

1. Jurisdiction and recognition and enforcement of judgments in the EU

The harmonization of the rules on jurisdiction and recognition and enforcement of judgments in the EU can be considered a major achievement of the EU on the way to fulfilling its objective to maintaining and developing an area of freedom, security and justice.

In order to achieve this goal, the Recast Brussels Regulation (Regulation (EU) No 1215/2012) regulates the jurisdiction of the courts of the EU member states and facilitates the mutual recognition and enforcement of judgments in civil and commercial matters.

As regards jurisdiction there is one basic rule: in general, the courts of the Member State, in which the defendant is domiciled, have jurisdiction. However, under certain circumstances there are special and exclusive jurisdictions e.g. by virtue of the place of performance of a contractual duty.

At the same time, the regulation respects party autonomy and allows the parties to a contract to determine the courts having jurisdiction, be it that they agree on the exclusive jurisdiction of a specific court or the courts of a specific Member State or only on an additional option.

In case parallel proceedings involving the same cause of action are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until the jurisdiction of the court first seised is established. However, where a court is seised on which the parties have conferred exclusive jurisdiction, any court of another Member State shall stay the proceedings until the court seised on the basis of the agreement has taken a decision on its jurisdiction. Thereby, the regulation prevents parallel proceedings and the risk of conflicting decisions in different Member States and gives priority to choice of court agreements.

Once a judgment has been issued by any court of a Member State, it is automatically recognized as an enforceable judgement by all Member States. In order to start enforcement, the judgment creditor is only required to provide a copy of the judgment and a standard certificate of the court which rendered the judgment.

As the Recast Brussels Regulation generally applies to all proceedings brought to and all judgments rendered by courts of the EU Member States in civil and commercial matters, it is not only relevant for EU citizens or EU based companies but also applied to foreign citizens and companies who litigate in the EU.

2. Which rules govern jurisdiction and recognition and enforcement of judgments in relation to UK after Brexit?

• Proceedings initiated before 31 December 2020

Parties who initiated their proceedings before the 31 December2020 still benefit from the Recast Brussels Regulations. This applies, in particular, to judgments rendered in such proceedings by the courts of EU Member States and UK courts

• Proceedings initiated after 1 January 2021

There is a great deal of uncertainty for proceedings initiated after 1 January 2021. What is clear is that the Recast Brussels Regulation no longer applies, neither as regards the issue of jurisdiction nor as regards the recognition and enforcement of judgements.

Whereas the UK intended to join the so-called Lugano Convention, which offers a standard comparable to the Recast Brussels Regulation and applies in the relationship between the EU, its Member States and Switzerland, Norway and Island, the UK’s application was rejected by the EU-Commission in June 2021. The last word will now be spoken by the Council of the European Union. Considering the position of the European Commission, an approval of the UK’s accession to the Lugano Convention is rather improbable.

An international convention which does apply is the 2005 Hague Convention on Choice of Court Agreements to which the UK acceded on 1 January 2021 in its own right, its membership as an EU Member State having ended. The 2005 Hague Convention, which entered into force for the EU in 2015, aims at the international recognition of exclusive choice of court agreements concluded in civil or commercial matters. It deals not only with jurisdiction but also with the recognition and enforcement of judgements rendered by courts of a contracting state on the basis of such an agreement. In comparison to the Recast Brussels Regulation it has a significantly narrower scope of application (only exclusive choice of court agreements) and does not entail a similar straightforward approach for the recognition and enforcement of judgments.

Furthermore, there is a disagreement between the EU and the UK, whether the 2005 Hague Convention applies to exclusive choice of court agreements concluded before the United Kingdom joined the Convention in its own right on 1 January 2021.

Any issues which go beyond the scope of the 2015 Hague Convention will, in the relationship between the EU and the UK, therefore be dealt with by the respective national regimes. For instance, the question whether a UK court has jurisdiction over a specific disputes is to be dealt with under the relevant UK law, whereas the question if and under which rules a judgment rendered by a UK court will be recognized and enforced in an EU Member State will be answered by the laws of the respective Member State.

3. Practical consequences

The legal uncertainty and the absence of comprehensive international rules on jurisdiction and recognition and enforcement of judgements has a number of practical implications which should also be taken into consideration by foreign companies doing business in the UK and the EU.

• Jurisdiction

Absent uniform rules on jurisdiction, the risk of parallel proceedings before different court increases. Moreover, there are no longer any uniform rules on how to deal with such a situation.

Some parties may try to benefit from this uncertainty by filing so called “torpedo suits”. These delaying tactics consist in commencing proceedings, often contrary to the contractual choice of forum, before the courts of a county which are considered particularly slow.

Against this background, the importance of exclusive choice of courts agreements, which fall under the 2005 Hague Convention increases.

In this respect, particular caution must be taken when using “asymmetrical jurisdiction clauses”. These type of clauses which are often contained in General Terms and Conditions and, in particular, in standard credit contracts, allow one of the parties to make a choice between different fora, whereas the other party is bound to the exclusive jurisdiction of one particular court. For these type of clauses, the 2005 Hague Convention does not apply and it is uncertain whether they will be accepted by the respective courts.

On the other hand, there is a possibility of anti-suit injunctions issued by UK courts. This practice, which is alien to EU Member States, had been ruled out by the European Court of Justice in West Tankers[1] as being incompatible with the principle of mutual trust implemented by the Recast Brussels Regulation. After Brexit, there are no such restrictions for the UK courts derived from the Recast Brussels Regulation.

• Recognition and Enforcement

The recognition and enforcement of UK judgments will be subject to the national provisions of the respective country where the decision will be enforced. The party seeking enforcement will have to consider the variety of those statutes and look for existing bilateral agreements. Where no such regulations exist, one will be confronted with a time and cost consuming exequatur recognition procedure.

Whereas it is not expected that UK awards will generally be refused, enforcement within the EU and vice versa, the recognition and enforcement of judgments which do not fall under the 2005 Hague Convention may depend on a number of conditions, e.g. that the enforcing court accepts not only that the court which rendered the judgment had jurisdiction but it also has jurisdiction under its laws. On the basis of such conditions, recognition and enforcement may be denied on a case to case basis.

Where future judgments will have to be enforced within the EU, it may therefore be advisable to agree on the exclusive jurisdiction of an EU court.

4. Perspectives

• Arbitration as an alternative

Arbitration may be considered as an alternative to litigation. Arbitration agreements and arbitral proceedings are less affected by Brexit, if at all, and the recognition and enforcement of arbitral awards is ensured by the 1950 New York Convention.

• EU Commercial Courts

A number of specialised Commercial Courts have recently been established in different EU Member States, e.g. the Netherlands Commercial Court (NCC) or the Commercial Court of Stuttgart in Germany.

In contrast to older commercial courts, including London’s Commercial Court, the recently established courts have been created with the specific purpose of adjudicating and attracting international business disputes, e.g. by offering proceedings in the English language and the handling of the cases by specialized and experienced judges.

• The 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

The European Commission has recently proposed the EU’s accessions to the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. Under this recent convention, which has so far been signed only by very few countries but which is open to accession worldwide, the recognition and enforcement of foreign judgements will be harmonized and facilitated.

II. The UK perspective

1. The Rolls Building

Located off Fetter Lane in the City of London, the sleek glass sign announces that you have arrived at the Rolls Building. Inside, there are 31 courtrooms, including three super-sized courts, translation booths and four courts configured in ‘landscape’ layout to accommodate multi-party claims.

This is the home of the commercial courts, or what is known as the Business and Property Courts, operating not just in London but all around England and Wales. This is an umbrella term for the different commercial courts, including courts with a specialist Competition List, a Financial List, a Business List and an Insolvency and Companies List, as well as the Technology and Construction Court, the Intellectual Property and Enterprise Court, and the Patents Court. The Rolls Building is state of the art, where the best legal brains come together to resolve the most complex financial, business and property litigation anywhere in the world.

While the Rolls Building is equipped for the twenty-first century, legal institutions designed to resolve commercial disputes have existed for centuries. They are at the heart of globalisation. Their function is to ensure that when international trade takes place, businesses that operate overseas can be confident their rights will be protected. As a result of the growth of London as a financial market, the London commercial courts have mirrored that success.

However, the challenges of Brexit and the growth of other international commercial courts, including those in the Middle East, Asia and Europe, has been seen as an opportunity to challenge the pre-eminence of the London commercial courts and question its impact going forward.

Following the growth of these international commercial courts, Lord Thomas, the former Lord Chief Justice of England and Wales (and himself a former judge of the commercial court in London), responded positively. In 2016, he invited his counterparts around the world to come together to create the Standing International Forum of Commercial Courts,[2] a forum for cooperation and mutual understanding. As the Master of the Rolls reiterated in a speech to the British Institute of International and Comparative Law, “legal systems are not, and should not be, in competition”.[3]

2. Brexit implications

If the UK were re-admitted to the Lugano Convention, many of the challenges for cross-border claims would be resolved. However, the EU Commission has stated that it is not in a position to consent to this. The UK government expects the Commission to bring a formal proposal to determine the EU’s position on the UK’s application to re-join the Lugano Convention on which all member states can vote (by qualified majority voting). The UK government has not received any indication from the EU when a final decision on the application can be expected or whether it will be concluded or even considered at the European Council meeting on 21 and 22 October 2021.

Going forward, the adoption of the proposal for the EU to accede to the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters presents a brighter outlook. The 2019 Convention does not require an exclusive jurisdiction clause and employment and consumer contracts are in scope, although this may take some time to come into operation.

3. Have London’s commercial court decreased in popularity?

Given these challenges, the question is whether London’s commercial courts have declined in popularity? According to the Portland Commercial Courts Report 2021,[4] the opposite is true. The London courts had a record year, quickly recovering from last year’s dip in activity and re-establishing a six-year-long growth trend. In that report, 292 judgments handed down between April 2020 and March 2021 were reviewed. The conclusion was that the proportion of litigants from the 27 EU member states continued to decline following Brexit, but the impact was offset by other foreign litigants, most notably from the US and Russia.

Delving deeper, in our experience, the London commercial courts can deal comfortably with multi-party and multi-jurisdictional cases. One of Stewarts’ cases, for example, was the large and complex Danish Customs and Tax Administration case involving several parties. The Lawyer stated: “It was no exaggeration in June 2020 when Mr Justice Baker described this case as “litigation on a massive scale”, with almost 100 defendants listed alongside more than 20 separate legal teams.” In April, the court ruled against the tax authority. This case is being appealed.

4. So why are the Business and Property Courts thriving?

• The reputation of the Business and Property Courts

The English common law is flexible in bringing fairness while respecting parties’ commercial bargaining freedom. English remains the international language of business, and England is geographically well-positioned for timing. In response to such claims, other international commercial courts have given the English language a greater role. Moreover, the reputation of the English courts, their independence and the high quality of their judges are renowned.

• Multi-party and multi-jurisdictional claims

While those are laudable attributes, even this does not do justice to the London commercial courts’ ability to handle the multi-party, cross-border, complex claims that businesses face. There are numerous specialist lists within the commercial courts and lawyers and judges of the highest calibre. In May this year, in another of Stewarts’ cases, Mr Justice Foxton delivered his judgment[5] swiftly on an extremely complex matter. After a 10-week trial, he managed to distil the facts and legal argument to a readable and impressive judgment of 218 pages.

• Procedural rules have teeth

Moreover, the procedural rules have teeth, designed to ensure that the process is run efficiently and pragmatically with sanctions for non-compliance such as unless orders, contempt provisions and “pay as you go” costs provisions. The Business and Property Courts are always looking to improve their processes. In the past few years, when faced with a large number of electronic documents and increasing costs, new rules were introduced to make disclosure more cost-effective, streamlined and flexible to suit the case, but still ensuring the ability to assess relevant adverse documents. These new rules are being reviewed constantly, and further changes are expected in November. In April, new rules on witness statements came into force to prevent witnesses from straying into argument or simply rehearsing documents, focusing instead on the core of their evidence, their personal knowledge of the key issues and stripping away anything irrelevant. For European civil jurisdictions, the lack of cross-examination may be regarded as an impediment to a party’s ability to test the evidence and get to the heart of the dispute.

• Responding to the global concerns of the 21^st century

Not only is the procedure constantly updated, but the legal community has responded well to the demands of today’s world. When the pandemic struck in March 2020, Stewarts was on the verge of starting a trial in the commercial court in London. The case, National Bank of Kazakhstan and the Republic of Kazakhstan v The Bank of New York Mellon and others, went ahead, and we ran the court’s first virtual hearing. The wheels of commercial justice kept running smoothly when other courts across the world were closing their doors. Mrs Justice Cockerill, the head judge in charge of the commercial court, recently reminded us not to^[6] “underestimate the importance of the Kazakhstan case – the fact that we had a major trial going on as lockdown happened sent the right message. All of this was required to make things work.” It helped that the use of video hearings had already been a well-established feature of the civil justice system. The latest news from the Business and Property Courts[7] is that virtual hearings are likely to remain in some form or other, making London open to participants across the globe.

To assist the swift resolution of the potential impact of business interruption claims, the UK’s Financial Conduct Authority, in conjunction with eight insurers, selected a representative sample of 21 policy wordings for the court to consider. The case was expedited, and the Supreme Court handed down its judgment on 15 January 2021[8]. The case demonstrated the expedition and efficiency of the English legal system in dealing with important issues affecting an entire industry.

The ability to respond to litigation involving crypto-assets has also been recognised in the introduction of Digital Dispute Resolution Rules promoted by LawtechUK’s UK Jurisdiction Taskforce, chaired by Sir Geoffrey Vos, Master of the Rolls. These rules are designed to enable faster and more cost-effective resolutions to disputes relating to novel digital technology such as crypto-assets, smart contracts and blockchain applications. The global smart contract market is expected to be worth $345.4 million by 2026. These rules are intended to be flexible, to cope with as yet undeveloped technologies. As Sir Geoffrey Vos stated in his speech:[9] “All procedural codes need a thorough overhaul. That is happening in England and Wales in the online space; and the new commercial courts have an even better opportunity to re-write the rulebook.”

We anticipate an increase in securities actions focusing on climate change issues and the corporate reporting of environmental, social and governance (ESG) credentials. The US has already seen nearly 40 securities litigation claims alleging inaccurate ESG disclosures, and the UK could follow in their footsteps. UK companies are required to publish information relating to a broad spectrum of ESG issues, ranging from climate footprint to human rights. In November 2020, the UK Joint Government Regulator Task Force on Climate-related Financial Disclosures published a roadmap towards mandatory climate-related disclosures. This sets out its plans for regulation in this area, and further guidance is expected in 2021. Given the courts’ experience of handling shareholder claims such as the RBS Rights Issue litigation, in which Stewarts acted for the shareholders, the London commercial courts are perfectly equipped to handle such claims.

Conclusion

Brexit has undoubtedly challenged the litigation landscape. Whether these challenges will continue remains to be seen. In the meantime, from an EU perspective, they present an opportunity for the EU to advise that where future judgments will have to be enforced within the EU, it may be sensible to agree on the exclusive jurisdiction of an EU court.

From the UK’s perspective, given the continued success of the Business and Property Courts, it is anticipated that they will continue to improve and respond to these challenges. This will provide businesses litigating in the Business and Property Courts confidence that their rights will be protected, just as the merchants trading centuries previously required.

Authors:

• Dr. Matthias Schlingmann, LL.M., Partner, CMS LAW| Matthias.Schlingmann@cms-hs.com
• Rishat Vahidov, Rechtsreferendar, CMS LAW
• Ian Gatt QC, Partner, STEWARTS LAW | igatt@stewartslaw.com
• Karen Jacobs, Senior Associate, Knowledge Development Lawyer, STEWARTS LAW | KJacobs@stewartslaw.com

Footnotes:

[1] Allianz SpA (formerly Riunione Adriatica di Sicurta SpA) v West Tankers Inc (Case C-185/07) [2009] AC 1138
[2] For more see https://sifocc.org/about-us/#history
[3] Referred to in his speech dated 17 September 2021 https://www.judiciary.uk/wp-content/uploads/2021/09/MR-speech-to-BIICL-170921.pdf
[4] https://portland-communications.com/publications/commercial-courts-report-2021/
[5] https://www.bailii.org/ew/cases/EWHC/Comm/2021/1272.pdf
[6] https://www.judiciary.uk/wp-content/uploads/2021/06/Cockerill-Dispute-Resolution-Forum-2021-speech.pdf
[7] https://www.judiciary.uk/announcements/remote-hearings-guidance-to-help-the-business-and-property-courts/
[8] https://www.supremecourt.uk/cases/uksc-2020-0180.html
[9] https://www.judiciary.uk/announcements/speech-by-the-master-of-the-rolls-to-the-british-institute-of-international-and-comparative-law/

Compliments of CMS Legal and Stewarts Law – both are members of the EACCNY.