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The effect of Brexit on cross border litigation

On 23 June, the UK public voted to leave the European Union.

On 23 June, the UK public voted to leave the European Union.

The two years’ notice period required by article 50 of the Treaty of Lisbon for the government to implement this decision, means that the actual UK exit date is very unlikely to be before mid to end June 2018. The two year period is triggered when the Government notifies the European Council.

During the two year period negotiations will take place. There will be great legislative uncertainty around what the decision to leave actually means. If the UK has not agreed the terms of the exit at the end of two years, the EU will impose such terms on the UK. Such is the task of negotiating the terms of the UK , we should not be surprised if this process extends well beyond the two years permitted by the Treaty. It will however be open to any EU member state to veto any proposal to extend this period.

What are the main legal uncertainties?

There are three outcomes that flow from the decision to leave that may give rise to increased litigation:

  1. The EU rules on conflict of laws will in all probability cease to apply in England and Wales. This would give English and Welsh courts more flexibility, but will also create uncertainty as to where and how cross border claims are to be litigated;
  2. The Judgments Regulation will cease to have effect and as a result it will be difficult for the English courts to assume jurisdiction over, serve proceedings on defendants, and enforce judgments in the EU states;
  3. Decisions of the CJEU will not be binding in the UK.

It is however worth considering here the basic principles.

The extent to which UK laws will have to harmonise with EU laws will depend on the type of relationship that the UK assumes with the EU, as explained above.

 

 

Most of the current UK legislation derives from three sources:

  • EU treaties and regulations, which have “direct effect” and required no separate implementation in the UK. These will cease and will need to be replaced;
  • EU directives: which have been implemented by UK legislation to take effect here. These will remain in force, but insofar as they require reciprocity, may need to be the subject of amending legislation; and
  • UK legislation: governing those areas where we have retained sovereignty.

If the UK passes no new legislation, to this extent there will be a legislative vacuum where we the UK is no longer subject to directly effective laws derived from EU treaties and regulations. Where law-making has been devolved within the UK, each of the UK’s national assemblies will have to adopt its own legislation to fill this gap. In meeting this burden, the assemblies may yet choose to be guided by EU law.

At the moment the UK courts determine whether or not they have jurisdiction over a dispute based on the EU rules contained in the consolidating legislation the Recast Brussels Regulation (EU 1215/2012) the “Brussels regime”.

The general rule under article 2.1 is that a defendant should be sued in the member state where he is domiciled. If the claimant is domiciled in England, but the defendant is domiciled in France, the presumption is that the defendant should be sued in his own country, namely France. This has been amended, for example, by article 18 of Rome II (EU Regulation 864/2007).

As a regulation, Rome II will cease to have effect automatically when the UK leaves the EU.

The courts of the UK would therefore no longer be bound to apply the Brussels Regulation when deciding issues of jurisdiction. The fallback position is that the English courts will have jurisdiction based on service of proceedings upon a defendant and CPR 6 will apply.

It seems that, if Brexit is to make any sense for the UK economy, we will need to replace EU membership with one of the following arrangements (in decreasing order of integration with the EU):

  • UK joins the European Free Trade Association (EFTA) and the European Economic Area (EEA), thereby retaining access to the common market on the same basis as Norway, Iceland and Liechtenstein. Under this option:
    • the UK will remain subject to the vast majority of EU regulations and directives in areas such as financial services, employment rights and quality and labelling standards for goods and services. The UK will, of course, no longer have any say in the scope or extent of these standards
    • the UK will need to repeal domestic EU-derived legislation relating to such areas as criminal justice, agriculture and fisheries and the policies on transport and energy
    • EU regulations, which are directly applicable without the need for UK legislation, would terminate automatically on withdrawal after two years; or
  • UK negotiates a customs union with the EU, as Turkey has. Goods and services that we export to the EU would still need to maintain EU standards. Again, the UK would have no say in the scope and extent of these standards; or
  • UK negotiates its own free trade agreement(s) with the EU. Switzerland, for example, has negotiated with the EU multiple free trade agreements along sectoral lines.

What will happen to UK laws?

To extricate the UK from the influence of EU legislation will be a huge and time-consuming task.

The courts in the UK will no longer be bound to apply the Brussels regime when deciding issues of jurisdiction. If, however, the UK retains its loose connections with the EU by joining EFTA, the Brussels regime may continue to apply in a modified form. If the UK signed up to the Lugano Convention 2007, this extends a version of the Brussels regime to most EFTA member states.

The UK would also be expected to sign up to the Hague Convention on Choice of Court Agreements. This provides an optional worldwide framework of rules on jurisdiction and the recognition and enforcement of judgments. The EU together with Mexico and Singapore have recently ratified the Hague Convention. Thus there is a framework that the UK could join.

After its departure, the UK would no longer be subject to EU rules on the substantive law governing contracts and disputes as there is no equivalent in this area to the Lugano Convention. Rome 1 and Rome II as Regulations governing contractual and non contractual relations would fall away unless a negotiated means could be found to ensure that the UK could continue to be bound by those rules.

If the UK is no longer subject to the Brussels regime, the Rome Regulations and the Service Regulation (1393/1997) there will need to be changes in the following areas:

1) The law which is to govern the parties obligations;

2) The recognition and enforcement of court judgments; and

3) The service of court documents

If Rome I and Rome II no longer apply then as there is no Lugano style Convention similar to Rome I and Rome II, if the UK did apply to join EFTA then the existing conflict of law rules and the Private International Law (Miscellaneous Provisions) Act 1995 would apply. To preserve the existing position it would therefore be necessary for the UK to agree bilateral or multilateral agreements with EU member states.

If the UK passes no new legislation, to this extent there will be a legislative vacuum where the UK will no longer be subject to directly effective laws derived from EU treaties and regulations. Where law-making has been devolved within the UK, each of the UK’s national assemblies will have to adopt its own legislation to fill this gap. In meeting this burden, the assemblies may yet choose to be guided by EU law.

Consideration will need to be given as to the effect of decisions of the CJEU, in particular Vnuk and Odenbreit. UK courts interpret and implement EU laws in accordance with decisions of the CJEU. Would UK courts still be bound by UK case law built up on this basis? Or, would they have a good reason to distinguish these cases and hold that they are not bound by them. Secondly, would UK courts no longer be bound by CJEU decisions?

It seems unlikely that UK courts will be able or willing to depart from existing EU doctrines without further legislation. The UK would want to retain some legal consistency if it wishes to continue commercial contacts with the EU. At the worst, CJEU decisions are likely to be persuasive, although not directly binding authority, in the same way as decisions from the Supreme Court of Australia and the USA.

From a practical point of view it is anticipated that the European Motor Directives will remain in force largely unchanged. The future commercial interests of the UK will involve the need for rules relating to cross border insurance to remain as they are. The cultural and legal differences between the UK and mainland Europe will probably result in the full provisions of Rome II not being enacted.

As discussed in this update, the only thing that we can be certain of at this time, is uncertainty. It will be some time before we have any information as to how civil justice co operation will be affected.

For any comments or further information please email brexit.group@weightmans.com.