Brexit: impact on commercial contracts in the international private law context

By now, it is dawning on everyone (even the British) that the Brexit will involve a lot more (legal) questions and (legal) problems than was anticipated. In addition to the economic questions and uncertainty, legal uncertainty is also increasing in commercial relations, particularly in the area of private international law. We will brush up on the dynamics of the Brexit and take a closer look at commercial contracts in the context of private international law.

Brief history

On 01.02.2020 the Brexit became a fact, the United Kingdom left the European Union. The underlying “Withdrawal Agreement” of 17.10.2019 did, however, provide for a transitional period which ran until 31.12.2020. As of 01.01.2021, the UK has in principle lost all rights and obligations as a Member State. As a result, the principles of the EU such as the free market, free movement of goods, services and people no longer apply to the UK. Also the foreseen frameworks concerning jurisdiction (competence and applicable law) and the recognition, enforcement of decisions, for instance the Brussels I(bis) and Rome I,II Regulations, seem to disappear like snow in the sun. The economic impact this has on many contracts should not be underestimated. Also the legal certainty concerning the dispute settlement and the recognition and enforcement of foreign judgments with a link to the UK might suffer a major blow.

At the last minute – after long negotiations (since 02.03.2020) – a trade agreement in principle was concluded after all: the “EU-UK Trade and CooperationAgreement”. This was provisionally declared to be in force from 01.01.2021 to28.02.2021, the period in which it should be signed and approved by the European Parliament. In the meantime, it turned out that, for instance in order to make the translation into the 24 official languages possible, the provisional application was extended until 30.04.2021. This trade agreement tries to overcome the greatest negative consequences (for both the EU and the UK) and to prevent a completely double set of regulations from becoming applicable.

Although this trade agreement is ambitious in creating a free trade area that avoids very high additional duties and charges as a result of splitting the EU and UK market, it is still not comparable to the free movement of goods and services that is in force in the EU.

The UK has also left the Customs Union on 01.01.2021. Inevitably, customs formalities will have to be completed in both directions to ensure compliance with UK and EU import regulations. Certain “trusted traders” will be able to benefit from a simplified procedure in this respect. A complete exemption is not foreseen. Undoubtedly, this will still involve administrative burdens and costs.

Furthermore, the “rules of origin” will apply as they already applied between the EU and foreign countries in trade agreements.

Impact on private international law

Currently, the EU provides a far-reaching framework for judicial cooperation between EU Member States and, until 31.12.2020, also with the UK, whereby various regulations lay down the basis for the division of competence, applicable law, recognition and enforceability in the context of intra- European dispute resolution.

Needless to say, the disappearance of such a framework may have a farreaching impact on legal certainty. Depending on the time period during which the dispute was brought before the court, other rules may apply.

Transition period from 1.2.2020 to 31.12.2020

As already mentioned, the “Withdrawal Agreement” provides for a transition period from 1 February 2020 (date of UK’s exit from the EU) to 31.12.2020. This agreement provides that the Brussels Ibis Regulation continues to apply to judgments in civil and commercial matters resulting from a legal action instituted before the end of the transition period. Similarly, the Insolvency Regulation continues to apply to insolvency judgments if the main insolvency proceedings were opened before the end of the transition period. The EET Regulation shares the same fate, remaining applicable for judgments resulting from proceedings opened before the transition period if the EET certificate was requested before the end of this period. The Small Claims Regulation will continue to apply for small claims for which the application was made before the end of the transition period. The Order for Payment Regulation will apply for uncontested claims introduced before the end of the transition period. The Rome I and II Regulations also continued to apply during the transitional period. During the transition period, the UK remained bound by the case law of the Court of Justice in respect of the previous Regulations.

This Withdrawal Agreement thus accommodated the transition period and the most important European Regulations continued to apply.

As From 01 January 2021?

Applicable law

The UK has already implemented the Rome I and Rome II Regulations into its national law. These provisions continue to apply (at least for the time being). This means, however, that any future amendments to the Regulations will not automatically make them applicable in the UK. The UK is thus free to further change its national rules in this respect. In the short term, some form of legal certainty seems to be guaranteed, in the long term it can be anything but guaranteed.

Rome I and II apply, after all, irrespective of whether the law designated by this regulation results in the applicability of the law of a Member State or of a foreign state. Thus, the courts of Member States will still have to apply the UK law in the same way in accordance with these regulations and the choice of the UK law remains possible in the same valid way.

Jurisdiction and enforcement of judgments

In this respect, the aforementioned regulations, such as Brussels Ibis, have not been declared applicable in UK national law. This ensures that we will have to rely on other sources:

The Hague Convention on Choice of Court Agreements

The Hague Convention on the Choice of Court Agreements remains applicable in the UK. In the case of exclusive choice of court agreements, the UK will also have to respect and recognise the jurisdiction of the chosen courts and the enforcement of foreign judgments.

The most important and crucial point is that the Convention only has effect in the event of exclusive choice of court. If there is no exclusive choice of forum for the courts of one contracting state, national law will have effect. In this respect, there is also uncertainty regarding the interpretation of asymmetric or unilateral choice of court clauses that often occur in financial agreements where, for example, a range of courts before which the creditor can institute proceedings, while the borrower is limited to the courts of one (Member) State. It is not unambiguously determined whether these can be considered an exclusive choice of court in the sense of the Choice of Court Agreement.

National law

If no exclusive choice of court agreement is present, only national law will provide solace in determining jurisdiction. As regards jurisdiction, the UK would usually take into account the contractual intentions of the parties, including the jurisdiction clauses. However, account must be taken of the possible application of the ‘Forum non conveniens’ test, whereby the UK courts would still accept or decline jurisdiction depending on which court they considered most appropriate to hear a case.

In terms of enforcement of judgements, the UK has a less lenient attitude. Judgements cannot be enforced directly; new proceedings have to be started in order to obtain a judgement in the UK, often through summary proceedings. Moreover, a foreign judgment would only be enforceable if the court in question was also competent under UK law.

Arbitration

The jurisdiction of arbitral tribunals and the recognition and enforcement of arbitral awards is largely regulated by the New York Convention, so this will not be changed by the Brexit. An option to address the foregoing concerns and changes could therefore be to opt for arbitration clauses in your agreements.

Conclusion

You should pay particular attention when drafting new commercial agreements taking into account the aforementioned changes. It is recommended to always include a concrete choice of applicable law and competent court in your agreement or to opt for an arbitration clause. In addition, you will need to thoroughly screen your existing agreements involving the United Kingdom. The Brexit could potentially cause your agreements to have a different effect than the one you had in mind when concluding them. A proactive renegotiation of the affected clauses may save you from bigger problems in case of a later dispute.

Do not hesitate to contact us for further questions and/or assistance. You can always reach us at telephone number: 03/216.70.70 or by e-mail at mail
address: [email protected].

This article is also available in German , Dutch and French please click the links below :

German- https://members.irglobal.com/file/63cd6f9acf6b415ed5f2fce2b508137a.pdf

Dutch – https://members.irglobal.com/file/4dddbe0c5d7391096a54bff0d64ac851.pdf

French – https://members.irglobal.com/file/a7203ae400cb3e214fa1550936c750b1.pdf

Authors: Joost Peeters, Ruben Brosens en Simon Geens