Contracting parties often grant exclusive jurisdiction to the English courts in relation to disputes stemming from their international or cross-border contracts.
The reasons for that choice include the worldwide reputation that the English judiciary has for experience and skill in dealing with complex cases along with its independence and impartiality.
Another important advantage is that English court judgments are currently enforceable in all EU member states. That is so regardless of where the parties are from, for example, an English judgment given in a dispute involving a South Korean party and a French party would be enforceable across the EU.
Similarly London is often chosen as the neutral seat of arbitration for major international disputes involving parties of different nationalities as London is renowned for its choice of specialist and experienced arbitrators.
The question therefore is what effect will the recent Brexit vote in the UK have on the ability of parties to enforce their English court judgments or arbitral awards in the EU?
An English court judgment can currently be easily enforced within the EU by virtue of the Recast Brussels Regulation where proceedings are commenced after 10 January 2015, the 2001 Brussels Regulation for proceedings commenced prior to that date, and the Lugano Convention 2007 for enforcement of judgments as between the EU and EFTA states (except Liechtenstein), that is, Iceland, Norway and Switzerland.
A wide range of judgments are enforceable and the defences available are generally limited to instances where the enforcement may be contrary to public policy of that member state or where there are jurisdictional issues.
Where arbitration is concerned, numerous countries have acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which is unaffected by the EU rules. The New York Convention requires the courts of contracting states to give effect to an arbitration agreement, and recognise and enforce awards made in other states, subject to specific limited exceptions.
Enforcement of a Convention award in a contracting state can be refused on limited grounds including invalidity of the arbitration agreement under the sovereignty law which the parties have chosen and a lack of jurisdiction of the arbitrator(s).
Enforcement post Brexit
It is important to state at the outset that in spite of the Brexit vote nothing has yet changed with regards to English court judgments. They remain enforceable in the EU and EFTA states using the existing European regime.
However when the UK leaves the EU, unless agreed otherwise, English court judgments will no longer be subject to the European regime for enforcement.
Of course one would hope that there will be transitionary arrangements for proceedings commenced prior to the UK's exit from the EU; however, once those expire, UK legal advisers face the prospect of getting to grips with the domestic enforcement rules of each of the 27 member states as they apply to non-EU judgments.
In most cases, it is likely that the enforcement rules will be more restrictive than the current regime in place for EU judgments.
How then could the UK government ensure that the English courts safeguard their competitive edge by assuring parties that English judgments will continue to be easily enforceable through the EU?
The most certain outcome would be to maintain the status quo. This may be an unrealistic hope given the current political environment. That said, the EU will want to (or should want to) ensure that enforcement is reciprocal. International and UK companies trade all around the EU and in circumstances where they find themselves subject to an EU member state court judgment the EU should want to ensure that the judgment can easily be enforced in the UK.
The second option could be for the UK to join the Lugano Convention 2007 which applies between the EU and EFTA states (except Liechtenstein). This would provide an EU-wide route to enforcement of English court judgments and vice versa. However a downside is that the Lugano Convention is broadly in the same terms as the 2001 Brussels Regulation which has been replaced by the Recast Brussels Regulation. One of the most important changes made by the Recast Brussels Regulation was the abolition of the declaration of enforceability, which had to be obtained in the enforcing member state under the 2001 Brussels Regulation. This was intended to make the enforcement procedure less time-consuming and costly and it would be unfortunate to lose this advantage along with the other reforms in the Recast Brussels Regulation.
There is of course the prospect of the UK negotiating its own new multilateral treaty to ensure reciprocal enforcement rights within the EU. However, as the UK begins to negotiate its terms of exit from the EU other issues such as immigration and access to the single market are rightly at the top of the political agenda. A bespoke treaty on enforcement of judgments seems unlikely in the short or medium term.
There is also the option of the UK joining the Hague Convention on Choice of Court Agreements 2005 which currently applies between the EU and Mexico (and Singapore from 1 October 2016). The Hague Convention contains rules regarding the validity and effect of jurisdiction agreements, and the subsequent recognition and enforcement of a judgment given by a court of a contracting state designated in a choice of court agreement. However the applicability of the Hague Convention would be limited to instances where the parties have entered into an exclusive jurisdiction agreement in favour of a court of a contracting state. Contrast that to the current European enforcement regime which applies automatically to any EU court judgment.
The enforcement of arbitration awards in light of Brexit should be unaffected. That is so because the New York Convention is an international instrument ratified individually by all of the other 27 EU member states. As long as the UK remains a signatory to the New York Convention (as to which Brexit should have no effect), foreign parties can continue to rely on its terms to enforce English arbitral awards in the EU.
Until the UK achieves some certainty as to the terms of its exit from the EU the future for enforcement of English court judgments remains unclear. Arbitration may therefore be viewed, for the time being, as a safer forum with greater certainty of approach given that the enforcement of arbitral awards should not be affected by Brexit.
We anticipate arbitration being the preferred choice of dispute resolution both for domestic and international contracts whilst this uncertainty continues.