27 Feb 2017

Arbitration in the time of Brexit

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In light of the uncertainty around the outcome of negotiations following the UK's vote to leave the EU, including in relation to the enforcement of English court judgments across EU member states once Brexit actually occurs, incorporating an arbitration clause in commercial contracts should provide a welcome level of predictability.

Green light for Brexit

On 24 January 2017, the English Supreme Court ruled that the British Parliament must be allowed to vote on the triggering of Article 50 of the Treaty of the European Union (judgment). On 8 February 2017, Parliament voted (by 494 votes to 122) in favour of the Bill giving Her Majesty's Government the right to trigger Article 50.

The Bill is now being considered by the House of Lords, which has the power to suggest amendments for further review by MPs. Subject to potential delays to the Bill caused by this review process, the Government proposes to trigger Article 50 no later than 31 March 2017.

Once Article 50 is triggered, the UK will have two years to negotiate its exit from the EU (subject to an extension being agreed by all EU member states). Although the Government has made more information available as to its broad aims for the ensuing negotiations with the EU (for example, see HM Government's White Paper, The United Kingdom's exit from and new partnership with the European Union, Cm 9417, February 2017), no information has been forthcoming regarding the Government's plans and expectations regarding the enforceability of English judgments within the EU.

The current position

While the UK remains a member of the EU, a court judgment handed down in the UK should be automatically recognised and enforced in the courts of any EU member state (and vice versa), under the terms of the Recast Brussels Regulation EU 1215/2015 (the "Recast Brussels Regulation") (subject to some limited exceptions). This ability to easily enforce English judgments across the EU affords English judgment creditors a significant commercial advantage and potential cost savings (compared with parties seeking to enforce judgments from many other jurisdictions outside of the EU).

Uncertainty

However, once the UK leaves the EU, the Recast Brussels Regulation will no longer apply to the UK and it is unknown what, if any, alternative arrangements the Government will seek in order to ensure that judgments remain enforceable across Europe. One possibility being envisaged by practitioners and academics is that Britain could fall back on its membership of the conventions that preceded the Recast Brussels Regulation, such as the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. However, any rules on enforcement of judgments based on the Lugano Convention (or the Recast Regulation) will almost certainly require the UK to at least take into account decisions of the Court of Justice of the EU (“CJEU”) in relation to them – which appears to be contrary to the Government’s stated objective to end the jurisdiction of the CJEU over the UK courts (see p13 of HM Government White Paper, Cm 9417, February 2017). It is therefore not clear what the post-Brexit position on the enforceability of UK court judgments in EU states will be.

The solution

The international recognition and enforcement of international arbitration awards are governed by the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 (the "New York Convention"). Under the New York Convention, the courts of signatory states are required to automatically recognise and directly enforce arbitral awards made in other signatory states (subject to some limited exceptions). Indeed, because of the success of the New York Convention, which has been ratified by more than 145 nation states (including all of the EU member states), the relevant EU laws and regulations exclude international arbitration from their ambit. Accordingly, the enforceability across the EU of arbitral awards rendered by a tribunal in England, will remain unaffected by Brexit - whether 'Hard' or 'Soft'.

Looking to the next 2-10 years, parties adopting English law, English jurisdiction dispute resolution provisions in contracts, should therefore seriously consider whether providing for arbitration in England would afford them greater certainty and be more suitable than litigating in the English courts – at least until the position regarding the enforceability of English court judgments across Europe is confirmed.

Key points to remember

Parties concluding contracts containing English dispute resolution clauses should have regard to the following key points:

  • The post–Brexit enforceability of English court judgments across Europe is currently uncertain and is likely to remain so in the months and years ahead.
  • By contrast, the enforceability of English arbitration awards will remain unaffected by Brexit.
  • Choosing arbitration should therefore afford parties greater certainty with respect to enforcement in the post-Brexit world.
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Shai Wade

Shai Wade
Partner

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Alexander Thornton de Mauroy

Alexander Thornton de Mauroy
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