The United Kingdom (UK) left the European Union already on 01 February 2020. It is often claimed, somewhat vaguely, that this will only happen at the end of the year. That is not precise, but in fact the turn of the year has a different, no less important, meaning. The EU and the United Kingdom have agreed in the withdrawal agreement of 17 October 2019 that a transition period will apply between 01 February 2020 and 31 December 2020. This is to serve to negotiate a final agreement. In the meantime, EU law continues to apply in the UK. The withdrawal agreement of October 2019 regulates some important points (e.g. the status of British citizens living in the EU and vice versa and the Irish border), but other important points are not regulated. These include jurisdiction and the recognition and enforcement of judgments. This Insight is the first of three parts dealing with the impact of a possible hard breakeven on jurisdiction and other procedural consequences:
1. Impact on Ongoing Proceedings
First, good news, ongoing proceedings remain untouched. And this is independent of whether or not a hard Brexit is produced. As a reminder, a Hard Brexit is a Brexit without the conclusion of a (further) agreement in which all unregulated aspects (such as jurisdiction) are regulated. Fortunately, however, the agreement already concluded protects the ongoing proceedings. There is no need for the parties to fear a sudden change of jurisdiction.
2. Impact on Future Proceedings
Somewhat more complicated is the impact on future court cases. At present, jurisdiction is regulated by the EU Regulation No 1215/2012. This is a European regulation that has direct effect in all EU member states. This ensures an incomparable legal certainty within the EU. The courts of each member state decide on the same basis. Legal proceedings will therefore become more predictable. For example, when it comes to the validity of a jurisdiction agreement, a court in Manchester used to decide on the same basis as a court in Dortmund.
If a “hard Brexit” were to occur, this regulation would no longer apply in the United Kingdom. This in turn creates a number of legal uncertainties. The validity of a choice of court agreement will only be assessed under UK national law. Although the Hague Convention on Jurisdiction and Court Agreements does exist and applies irrespective of the UK’s EU membership, this is subject to certain limitations.
It is unclear whether the European Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, a predecessor of the EU Regulation No 1215/2012, which applies at least between Germany and the UK, will (automatically) revive. However, this is very doubtful, because it is very likely that the Convention has not only temporarily been superseded by the EU regulations, but has finally been repealed it. The validity of choice of court agreements will therefore be determined by the national law of the United Kingdom.
3. Other Effects on Court Proceedings
The EU Regulation No 1215/2012 contains rules for dealing with double pending disputes, i.e. where a court in one Member State is seized although proceedings are already underway in another State. These rules also cease to apply after a Hard Brexit. It is unlikely, but not excluded, that in the case of a Hard Brexit the UK courts will open proceedings which actually concern matters which are already pending before a (for example) German court.
However, Brexit can also have indirect effects on civil proceedings. For example, security for legal costs could be required if a British plaintiff sued a domestic defendant in Germany. And the Frankfurt Appeal Court already expressed its opinion last year on the question of whether the threatening Hard Brexit allows procedural security measures (decision of 03.05.2019, file no. 2 U 1/19).
4. What is to be done?
Companies should examine all ongoing proceedings (simple) and all threatening proceedings (more difficult). Anyone doing business with the UK should consider the following:
- If a case is pending, it might be a good idea to start it before the end of the year. The plaintiff will then still benefit from the protection provided by the withdrawal agreement of 17 October 2019. As long as this agreement is not deliberately broken, plaintiffs can therefore trust that the jurisdiction once established will continue to apply.
- Companies should examine dispute settlement clauses for all possible scenarios. Anyone who has concluded a jurisdiction agreement should consider where possible proceedings could take place, whether the preferred court accepts the agreement and whether enforcement with the title thus obtained is possible in the country where assets of the opposing party are located.
- In certain circumstances, an arbitration clause could be the safer alternative to a choice of court agreement. This is because both Germany and the UK are members of the New York Convention on the recognition and enforcement of foreign arbitral awards. Arbitration clauses will therefore be safe even after a hard Brexit.
This means that the implications on civil procedures are only just beginning to emerge. Brexit is, at any rate, regrettable from the point of view of companies and a source of unpleasant uncertainty for everyone doing cross-border business. Without a final withdrawal agreement, they will have to deal with it. The only thing that will help is a careful examination of existing agreements and possible procedures relating to the United Kingdom.
Johannes Brand, lawyer and specialist in international business law, will help with questions regarding Brexit.