Arbitration: a Solution to the Problem of Enforcement in the Post-Brexit World?

Much has been written about problems the businesses will face after Brexit. However, little guidance has been given to businesses on how to mitigate the risk of future cross-border litigation in the post-Brexit world. We envisage there being an increase in the number of cross-border disputes, as parties seek to re-position themselves by, for example, terminating current contracts and re-negotiating on the basis of the force majeure or other circumstances.
 
The UK left the EU on 31 January 2020, and the Brexit transition period came to an end on 31 December 2020. Shortly before the transition period ended, the UK and EU agreed the terms of a Trade and Co-operation Agreement (TCA). TCA a classic free trade agreement – tariff and quota-free trade in goods but little mutual recognition and very modest commitments on services. The real innovations come with the emphasis on preserving the so-called level playing field. EU laws no longer apply in the UK, though the UK has retained EU laws as at the end of the transition period, which have been adapted for the UK. Even with TCA in place, the future relationship between the UK and EU will remain a very fluid one, especially in the area of dispute resolution because TCA does not address jurisdiction and enforcement of judgments in civil proceedings (proceedings that start after 1 January 2021 will be subject to a combination of rules set out in the Hague Choice of Courts Convention, the Brussels Regulation (for the EU Member States) and the local laws of each country).
 
Under the current circumstances, in order to avoid problems in obtaining and enforcing a judgement as far as contractual claims between the parties are concerned, it is recommended to choose arbitration instead of state courts.
 
Arbitration is a contract-based form of binding dispute resolution. In other words, a party’s right to refer a dispute to arbitration depends on the existence of an agreement between them and the other parties to the dispute that the dispute may be referred to arbitration.
 
Commercial contracts will commonly include provision for how disputes relating to that contract are to be resolved. If the parties choose arbitration, the arbitration agreement will generally be part of the document recording the terms of the commercial transaction. Parties can also enter into an arbitration agreement after a dispute has arisen.
 
It is important to note that the EU rules on jurisdiction do not extend to arbitration and therefore, Brexit has little immediate impact on this area of dispute resolution. This is also the case with regard to the enforcement of arbitration awards which is governed by the New York Convention and not by the EU rules. Both the UK and Poland are signatories to the New York Convention. The UK’s withdrawal from the EU has no impact on the validity of arbitration agreements nor on the recognition and enforcement of arbitration awards in EU countries and vice versa.
 
Until 31 December 2020, the UK has been bound by the rules for choice of jurisdiction set out in the Brussels Regulation (1215/2012). In general the Brussels Regulation provides that parties should be sued in the courts of the EU Member State where they are domiciled. However, where the parties have agreed that the courts of a particular EU Member State have exclusive jurisdiction, only those courts will have jurisdiction. If proceedings were brought in the courts of another EU Member State then those other courts should stay proceedings pending determination of jurisdiction by the chosen court. The similar mechanism have been adopted in relation to the so called “special jurisdiction” which allows to sue a foreign party in the EU Member State where the contract was supposed to be performed.
 
The UK has applied to accede to the Lugano Convention and this request has been approved by all other parties to that Convention except the EU. The Lugano Convention would apply a set of rules between the UK and the EU (as well as Iceland, Norway and Switzerland) that is similar to the existing Brussels Regulation. Although the EU Commission had previously expressed some hesitation about the UK’s accession, there was some expectation that it might be addressed in the TCA, as future difficulties in jurisdiction and enforcement could constitute a significant non-tariff barrier to trade between the EU and the UK and lead to expense and complexity for EU and UK businesses. Unfortunately, a decision on the UK’s accession to the Lugano Convention is still pending.
 
Under the current circumstances, arbitration is the best possible solution. The New York Contention sets out a common global regime for the recognition of arbitration agreements, and the recognition and enforcement of foreign arbitral awards.
 
The first step in any successful arbitration is getting the arbitration agreement right. Failing to do so can lead to costly and time-consuming satellite disputes. We can advise on the drafting of arbitration agreements including selecting the most appropriate forum and procedural rules, and ensuring that the dispute resolution clause is enforceable and not susceptible to enforcement risk.