A false dusk? The outlook for disputes in the UK post-Brexit – ICLG.com

Edward Attenborough and Charles Balmain of White & Case consider what impact the UK leaving the Europ...

Edward Attenborough and Charles Balmain of White & Case consider what impact the UK leaving the European Union will have on Englands place in the dispute resolution market.

The United Kingdoms vote to leave the European Union on 23 June 2016 inevitably heralded speculation around the implications for all manner of industries, not least the UKs successful legal market for commercial disputes.

The received wisdom at the time was that Brexit would do little or nothing to detract from the benefits of English law as a choice to govern international commercial contracts. Some commentators even considered Brexit a positive development, as it would remove the contamination of European law from English law. On the other hand, there was uncertainty around the impact of the loss of the Brussels regime for cross-border cooperation in civil proceedings and the recognition and enforcement of court judgments, both in terms of what if anything would replace it, and whether this may cause commercial parties to reconsider their use of the English courts.

This article takes stock of the situation five years after the Brexit vote, and more than half a year after the end of the Brexit transition period. It addresses the effects of Brexit on the landscape for conflicts of laws issues, and then considers whether these have led to any apparent change in the size or nature of the disputes market in England. The implications of Brexit for investor-state disputes a rich topic of itself is beyond the scope of this article.

There is little reason for commercial parties to reconsider their preference for English law, English-seated arbitrations or for the most part English courts, and little evidence that they are in fact doing so. Indeed, the international disputes market in England is booming. While the nature and style of disputes continues to evolve a process accelerated in some respects by the Covid-19 pandemic and while London faces ever-increasing competition from other jurisdictions, there is little to suggest that the evolution has been driven by Brexit. Nor does Brexit appear to have caused any significant change in market perception of Englands benefits as a forum for resolving cross-border disputes, at least for now.

To gauge the impact of Brexit on Englands appeal as a forum for international disputes, we first consider what Brexit has changed, and not changed, in the relevant legal framework.

First, the European Union (Withdrawal) Act 2018 avoided a cliff-edge revocation of all European law from English law. It provides for all EU legislation which applied directly or indirectly to the UK as at 31 December 2020 to be retained in UK law as retained EU legislation. This avoided uncertainty and potential confusion from the impact of Brexit on substantive English law. English laws divergence from existing European law will therefore be gradual and deliberate. And the impact of European law on English commercial contract law is limited in any case. The commonly cited benefits of English law, such as its promotion of freedom of contract and commercial certainty, are rooted in English common law, and have little to do with European law.

Secondly, the regime for determining the governing law for contractual and non-contractual obligations is essentially unchanged from the position pre-Brexit.

The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 ensured that the relevant European law instruments, the Rome I and Rome II Regulations, continue to apply in the UK to determine the law applicable to a contract and to parties non-contractual obligations. The Rome Regulations require the parties choice of law to be upheld, subject only to limited exceptions. Rome I and Rome II also require parties agreed choice of law to be upheld in EU Member State courts regardless of whether their chosen law is the law of a Member State. So Member State courts too should continue to uphold English choice of law clauses in contracts.

Thirdly, however, the framework for choice of court jurisdiction and the cross-border recognition and enforcement of court judgments has changed as a result of Brexit.

The Brussels I Recast Regulation, which is the EU instrument that harmonises court jurisdiction issues and enforcement of judgments within the EU, essentially precludes a race to judgment between two EU jurisdictions, upholds parties choice of forum and makes the recognition and enforcement of a judgment of an EU Member State court close to automatic across the EU. But it applies only to the proceedings and judgments of the courts of Member States. Now that the UK has ceased to be a Member State, the Brussels Regulation has no application to the English courts or their judgments. It has been specifically revoked in the UK.

The UK has partially filled this void by acceding to the Hague Convention on Choice of Court Agreements 2005. Although the Hague Convention is yet to enjoy wide international take up, it entered into force in all EU Member States in 2015. The UK acceded to the Convention in its own right immediately after the end of the Brexit transition period, on 1 January 2021. The Hague Convention upholds choice of court agreements in contracting states by requiring the court of any contracting state other than that for which the parties contracted to suspend or dismiss proceedings brought contrary to the parties agreement. It also provides for the straightforward recognition and enforcement of judgments across contracting states.

However, the Hague Convention is not as comprehensive or well tested an instrument as the Brussels Regulation. In particular, it applies only to exclusive jurisdiction agreements. Although not entirely clear, this likely means that an optional disputes clause that allows either party a choice in where to bring proceedings as is commonly negotiated, for example, by banks in financing agreements would not qualify for the protections of the Hague Convention.

Although the UK has meanwhile applied to accede to the Lugano Convention, which broadly mirrors the Brussels Regulation, the consent of all signatory states is required for the UK to do so. All EU Member States and European Free Trade Association (EFTA) states are party to the Lugano Convention. And while the EFTA states have confirmed their support for the UKs accession, the EU Commission has recommended that the UKs application be rejected. It remains to be seen whether the EU27 will share this view.

Finally, Brexit has not changed the cross-border framework relating to arbitration. In particular, the recognition and enforcement of arbitral awards will continue to be subject to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which all EU Member States (and the UK) are party. Indeed, the most significant likely impact of Brexit on arbitration in England is the potential return of the English courts jurisdiction to issue anti-suit injunctions in support of arbitration. The English courts are generally willing to injunct parties from bringing or continuing proceedings brought in breach of an agreement to arbitrate, but were previously precluded from doing so in relation to proceedings brought or threatened in EU Members States following the ECJs decision in the West Tankers case. The West Tankers line of case law, however, is a consequence of the ECJs interpretation of the Brussels Regulation. It is difficult to see why in principle the English courts should refuse to grant an anti-suit to restrain proceedings in an EU Member State court now that the Brussels Regulation no longer applies in the UK (and assuming it is not replaced by the Lugano Convention).

There is no obvious and direct reason why Brexit should discourage commercial parties from using English law. Nor is there any good Brexit-related reason to avoid English-seated arbitration. Indeed, English-seated arbitration has arguably become more attractive as a result of Brexit, for instance due to the potentially increased availability of anti-suit injunctions from the English courts.

As for the choice of English courts, any concern due to the loss of the Brussels Regulation will often prove to be more theoretical than real. The concern arises particularly where a counterparts assets are predominantly located in the EU, such that a party will have in mind whether or not, in the future, it will be possible to enforce an English court judgment against those assets. Frequently, contracting parties will be able to obtain comfort that the Member States relevant to a particular transaction will still enforce English judgments (and respect the parties choice of forum) straightforwardly under their own local rules. And the Hague Convention also provides a replacement solution that many commercial parties should find sufficient for their contracts going forward. Asymmetrical optional jurisdictional clauses may not attract the protections of the Hague Convention, but they also remain attractive as they keep all options on the table for likely claimants: if enforcement is a concern when a dispute arises, the party benefiting from the optionality in the disputes clause retains the ability (depending on the terms of the clause) to arbitrate or litigate elsewhere and so to take any necessary steps at that stage to avoid any potential enforcement issue that may arise from suing in England.

The available recent data regarding London commercial disputes tends to confirm that commercial parties have not been deterred by Brexit and continue to choose England as a forum for the litigation and arbitration of commercial disputes.

The available statistics for the caseload of the English Commercial Court do not suggest any meaningful move away from the English courts by commercial parties. On the contrary, the Portland Report on Commercial Courts for April 2020 to March 2021 found that the courts had had a record caseload. While the proportion of EU-based litigants using the Commercial Courts has declined somewhat (from 13.5% at the last count before the Brexit vote for 2015-2016 to 11.5% in the most recent report), it remains significant. Indeed, despite the proportional drop, the total number of EU-based litigants using the Commercial Courts has increased. So, the most that can be said based on the statistics is that the growth in use of the Commercial Court is not as great among parties from the EU as those from other regions.

Meanwhile, the major European arbitral institutions, particularly the International Chamber of Commerce International Court of Arbitration (ICC) and the London Court of International Arbitration (LCIA), show an overall trend towards increased numbers of English-seated arbitrations. So, the ICC (a Paris-headquartered institution) registered 114 London-seated arbitrations in 2019, compared with 57 in 2015. The LCIA had more English-seated arbitrations in 2020 (342) than its entire caseload in 2015. And it is clear from both institutions statistics that the arbitrating parties are predominantly international, with UK parties constituting a relatively small minority.

These figures reflect market sentiment. The 2021 Queen Mary University of London/White & Case International Arbitration Survey confirmed that London remained the most popular seat of arbitration (equal with Singapore) among survey respondents, cited by 54% as a preferred seat. Although this represented a slight decrease from the equivalent figure in 2018 (64%), the decrease did not come at the expense of EU Member State seats such as Paris and Geneva (whose election was also slightly down from 2018) but rather the increased popularity of Hong Kong and Singapore. And London was still chosen by a higher proportion of survey respondents than it was in the last such survey before the Brexit vote in 2015 (47%).

Meanwhile, transactional lawyers in London offices of international law firms are, anecdotally (and as suggested by recent financial announcements of some firms) very busy. The English law transactions of today are the disputes of tomorrow, and there is no obvious sign here of any flight from English law or English dispute resolution fora.

Undoubtedly, Englands place in the international disputes market is evolving and will continue to evolve. The Covid-19 pandemic may have accelerated a trend towards more remote hearings and greater use of technology in disputes generally, for example. Meanwhile, economic trends such as the growing focus on green industries and technologies will inevitably alter the shape of the disputes market as well as the wider economy. These developments are not, though, obviously related to Brexit. From the authors personal experience, while commercial parties have certainly been concerned to understand the implications of Brexit for their choice of dispute resolution forum and the governing law of their contracts, few have changed their approach as a result (and those that do either wish to ensure the protection of the Hague Convention or have the leverage to secure an asymmetric jurisdiction clause in their favour, rather than move their disputes to a different jurisdiction altogether).

Brexit is of course still in its infancy. The message from the statistics currently available may be one of instant reassurance both for lawyers and commercial parties who chose to resolve their disputes in England. But it is not a call for complacency. Parties and their lawyers will need to remain astute to legal developments in all relevant jurisdictions and to assessing their needs for the particular circumstances at hand. In doing so, English law, and Englands legal institutions, judiciary, arbitrators and practitioners, will best continue to serve their international users, and retain their trust.

Edward Attenborough and Charles Balmain are dispute resolution partners with White & Case in London

The authors would like to thanks Arthur Lauvaux (associate, White & Case) for his assistance in preparing this article

Any views expressed in this publication are strictly those of the authors and should not be attributed in any way to White & Case LLP

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A false dusk? The outlook for disputes in the UK post-Brexit - ICLG.com