Top 10 considerations before 31 December 2020 and for January 2021 onwards
- Governing law clauses: The validity and effectiveness of contractual choice of law will be unaffected by Brexit. The UK has passed legislation that will implement both the Rome I and II Regulations (together, the “Rome Regulations”) with minor modifications into UK law and EU counterparties will remain subject to the Rome Regulations in any event.
- Exclusive jurisdiction clauses: Currently, the Brussels Regulation applies to ensure that EU/UK courts give effect to the parties’ choice that disputes are heard exclusively by a specified EU/UK court (known as an "exclusive jurisdiction clause"). Even in a "no deal" situation, that position will remain largely unchanged for exclusive jurisdiction clauses entered into after 1 January 2021. This is because, while the Brussels Regulation will no longer apply in the UK, the UK has acceded to the Hague Convention (to which the EU is already a party on behalf of all its Member States) with effect (indisputably) from 1 January 2021. Insofar as giving effect to an exclusive jurisdiction clause is concerned, this Convention has broadly the same effect as the Brussels Regulation – meaning that the parties’ choice of an exclusive jurisdiction clause after 1 January 2021 will be given effect to in generally the same way as it is now. Giving effect to exclusive jurisdiction clauses entered into before this date, however, may be more problematic because of a potential timing issue with the Hague Convention (see further below).
In addition, the Lugano Convention, which applies between the UK and the EFTA states (excluding Liechtenstein) and is similar in effect to the Brussels Regulation, will cease to apply on a no-deal Brexit. As none of the EFTA states have yet acceded to the Hague Convention, enforcing exclusive jurisdiction clauses in those states may also be more problematic.
- Non-exclusive jurisdiction clauses: In the case of a "‘non-exclusive jurisdiction clause" (a clause that expressly provides for disputes to be heard in a specified court but without prejudice to the right of the parties to take a dispute to another court), the Brussels Regulation and the Lugano Convention give priority to the member state court that is first “seised” of the proceedings, i.e. the court in which the proceedings are first instituted.
However, on a "no deal" Brexit, UK courts would lose this priority and EU/EFTA courts will not have to stay their proceedings pending the determination of UK courts, as they would now, even where UK courts are first seised. This gives rise to a risk of parallel proceedings. Bear in mind also that the Hague Convention does not apply to non-exclusive or, arguably, to "asymmetric" jurisdiction clauses (clauses that require one party to sue in a specified jurisdiction, but allow the other party to sue in any jurisdiction).
- Enforcement of judgments: The Brussels Regulation and Lugano Convention also deal with enforcement of judgments and as they will no longer apply, the automatic right to enforce UK judgments throughout the EU/EFTA states and vice versa will be lost. The effect of this is that:
- It should not be problematic to enforce an EU court judgment to which the Hague Convention applies in the UK, noting however the Convention's relatively narrow ambit.
- There is uncertainty, however, as to how EU courts will apply the Hague Convention in relation to UK cases. It may be that the Convention is applied in relation to all qualifying agreements entered into after 1 October 2015 (when the Convention entered into force in the EU, including in the UK as a Member State), or only to agreements entered into on or after 1 January 2021, when the UK’s accession to the Convention in its own right indisputably becomes effective. If the latter, then jurisdiction clauses in, or judgments given in disputes relating to, agreements entered into before 1 January 2021 will not be enforceable under the Hague Convention in the EU.
- In cases to which the Hague Convention does not apply: (i) in the UK, the common law will apply to the enforcement of EU/EFTA judgments. The process to enforce a judgment is relatively straightforward, but there may be difficulties where the judgment is for non-monetary relief; (ii) party seeking to enforce a UK judgment in the EU/EFTA states will have to navigate the relevant local laws in the country in which they wish to enforce their judgment, in the same way as they do now when seeking to enforce a judgment in a non-EU/EFTA country, like the US.
When entering into new contracts, consider including provisions which allow you to amend or restate the jurisdiction provisions post 1 January 2021 to ensure that the Hague Convention will apply to those contracts or consider arbitration.
- Arbitration: Arbitration is unaffected by a "no deal" situation as it is subject to international rules of arbitration under the New York Convention. As a result of the above, parties may wish to consider using arbitration agreements (rather than court-based dispute resolution mechanisms) in their contracts.
- Provision for service of legal proceedings: Where the English courts are the forum for disputes, and any counterparty resides outside England & Wales, include an agent or address for service provision with regard to the service of legal proceedings in your contracts, if such a provision is not already standard. From 1 January 2021, the EU Service Regulation, which regulates the service of judicial and extrajudicial documents between EU Member States, will no longer apply.
- Change in law: Consideration should be given to whether any changes in the regulatory landscape, from 1 January 2021, might trigger a change in law provision in a contract entered into prior to 1 January 2021. This will need to be considered on a case by case basis, as it will depend on the express wording of the relevant change in law provision, as well as what Brexit-related legal changes were expected at the time the contract was entered into. Change in law provisions will generally exclude from their operation any changes in law that were expected at the time the contract was entered into.
- Force majeure, frustration and material adverse change (MAC): Similarly, in some situations, the changes applicable from 1 January 2021 may have an adverse impact on parties' ability to perform contracts entered into before 1 January 2021, causing them to seek relief under force majeure or material adverse change clauses, or by having recourse to the English law doctrine of frustration. While the availability of relief under a force majeure clause will depend on the interpretation of the specific clause in question, in most cases a force majeure clause will not be triggered where the relevant events make the contract more expensive to perform, and the same applies under the doctrine of frustration. For more information see our force majeure guide. A MAC clause, on the other hand, could potentially come to the aid of a party exposed to greater financial or regulatory burdens from 1 January 2021. Once again, whether a MAC clause would be triggered depends very much on the drafting of an individual MAC clause, and, importantly, a MAC clause is unlikely to offer relief where the relevant changes were foreseeable at the time the contract was entered into.
- References to EU laws and EU institutions: Many long-term contracts entered into before 1 January 2021 will refer to EU institutions and EU law. In this context, the Interpretation Act 1978 applied together with the EU (Withdrawal Agreement) Act 2020 will mean that in most cases this will not be problematic, as the references will be construed, where applicable, as referring to UK equivalents from 1 January 2021. References to concepts such as "the EU" or "Member States" (the scope of which has changed as a result of Brexit) will need to be considered on a case by case basis. For new contracts being entered into, it is, needless to say, important to ensure that UK domestic legislation and/or UK regulatory/institutions are referred to (as applicable), having regard to the fact that in some cases both UK and EU regulatory regimes may apply in parallel, as noted in point 10 below.
- Provisions dealing with regulatory compliance: Depending on the subject matter of the contract, consider other provisions of the contract dealing with matters that are the subject of EU legislation, such as data protection, intellectual property, competition law, financial regulation and REMIT (in the context of energy trading) to consider the impact of regulatory divergence and in some cases, parallel regulatory regimes (that is, UK and EU).
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