In the aftermath of the Brexit decision, many businesses and individuals have been left wondering how they will be affected by Britain’s upcoming departure from the European Union (EU). Although it is unlikely to be high on the agenda when Article 50 is triggered, cross-border disputes is an area which will need to be reviewed. In this article, we will look at the key issues that will need to be considered by the government.
Choice of law clauses in contracts
Contracts commonly contain a choice of law clause. This specifies which country’s laws will apply in the event of a dispute arising in relation to the contract. Different countries have different laws and the content of these laws can vary substantially. A choice of law clause is useful because it helps to avoid any potential uncertainty. It is particularly relevant where the two contracting parties are located in different countries or where the contract is being performed in a different country.
At present, the rules governing the choice of law are set out in Rome I and Rome II Regulations, both of which are EU measures. The effect of the Rome Regulations is that a court will uphold the parties’ choice of law clause. However, these Regulations will likely cease to apply when the UK formally leaves the EU.
In terms of contractual claims, the position is unlikely to change significantly post-Brexit. The government may decide to reproduce the provisions of the Regulations within domestic legislation, in which case there will be almost no change at all. However, even if they do not, the common law rules, which apply in disputes where non-EU countries are involved, are very similar to the provisions of Rome I. Therefore, the court is likely to continue to give effect to the choice that the parties made in the contract.
Enforcing judgments in different countries
Currently, when a party obtains a judgment from a court in an EU member state, the Brussels I Regulation sets out a relatively straightforward procedure allowing parties to enforce this judgment in a different EU member state.
This system of judgement recognition means that there is an efficient way for businesses and individuals in the UK to recover debts owed to them by businesses and individuals based in EU countries. The position post-Brexit is uncertain.
Summary
At the moment it is impossible to foresee exactly how the UK government will deal with the void left by the removal of EU measures. What is apparent, however, is that resolving cross-border disputes is likely to become more complicated following the UK’s exit from the EU.
In relation to choice of law clauses, there is no need to worry. It is unlikely that the English courts will depart dramatically from the Rome Regulations and it is likely that correctly drafted choice of law clauses will continue to be upheld by the courts. Choice of law clauses should continue to be used in contracts in order to provide certainty.
As regards enforcing judgments in different countries, this could become more tricky. It will likely become increasingly harder for UK businesses and individuals to pursue debts owed to them by parties located in other EU countries.
If you are involved in a dispute and would like advice, please contact Catherine Mathews telephone 01392 210700 or by email enquiries@stephens-scown.co.uk . Catherine is head of the dispute resolution team in Exeter. She specialises in commercial and contract litigation and has experience of many different forms of ADR, including mediation.