To London’s EU rivals, Brexit looks like a once-in-a-lifetime opportunity to grab legal business. London has a reputation as the world’s legal center because English law is widely known for its procedural fairness while English judges are highly ranked as honest and independent. It is also perceived as being soft on regulations governing business, meaning there are fewer barriers. And it is culturally rich, with excellent museums, restaurants, schools and other services that attract businesspeople from abroad. A combination of these factors has seen London frequently named the best city in the world for business.
Now, Brexit is changing this situation significantly in many areas, including the dispute resolution business. Paris and Amsterdam may soon become Europe’s top dispute resolution centers.
The Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (which replaced Regulation 44/2001) allows businesses of one country to sue other businesses in another country. So, for instance, the business based in the United Kingdom may be sued in Poland if the contract was performed in Poland and vice-versa. This have been very helpful for many years. In its capacity as an EU Member State, the UK was also a party to this Regulation.
Mutual trust has been one of the cornerstones of cooperation in the field of EU private international law. Based on this principle, the rules on the cross-border recognition and enforcement of judgments in the EU have been simplified and harmonized over the years. This has been a big step forward.
With the exit of the United Kingdom from the EU, the Regulation (EU) 1215/2012 will no longer apply after 31 December 2020. According to the Withdrawal Agreement (which established the terms of the United Kingdom's orderly withdrawal from the EU) the Regulation (EU) 1215/2012 applies only if the statement of claim is filed with the court by the end of transition period, i.e. by 31 December 2020.
The rules after 31 December 2020 are not known yet and depend on the negotiations between the United Kingdom and the EU. It was recognised early on that these changes would cause significant disruption to cross-border litigation and the UK signalled that it would seek to re-join the Lugano Convention in its own right. The United Kingdom received statements of support from Norway, Iceland and Switzerland for this plan and on 8 April 2020 formally applied to accede to the Lugano Convention post-Brexit. The case is still pending and the future is unknown. It is likely that the final outcome will be the lack of any agreement between the United Kingdom and the EU Member States. This will not be of interest to those involved in, or exposed to the risk of, UK court proceedings in respect of cross-border matters. The lack of any agreement in this area means that the only way for a Polish claimant to sue a UK business will be to go to the UK courts and start the proceedings there which will be complex, expensive and cumbersome. There will be no cross-border recognition and mutual enforcement of judgments any more.
In such circumstances, all Polish companies trading with the UK should be changing the dispute resolution clause in their contracts into arbitration. This is the only sensible solution. The United Kingdom is and will continue to be the party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. The enforcement of such awards is much simpler.
If you are entering into an international business contract, you need to consider a number of key issues during the negotiation period. Although these may seem cumbersome and may mean negotiations do not conclude as quickly as they do in domestic contracts, ensuring adequate consideration is given to each point could save you a lot of money in the long run.
Parties to a cross-jurisdictional agreement should consider:
- agreeing a chosen country that disputes will be resolved in (it could be London or Warsaw or neutral place like Paris or Amsterdam)
- the applicable law to be used for resolution of any disputes under the contract (it could be English law widely used due to its reputation for procedural fairness and stability or Polish law)
- the legal regimes for determining the applicable law where the parties fail to reach a valid agreement.
Litigation, as well as being incredibly expensive, can also put one of the parties at a disadvantage if they are unfamiliar with the language, judicial system and customs of the country which has been chosen as holding the governing law. Arbitration mitigates this disadvantage as the proceedings can be held in any country (and the governing law will be applied) and the parties are free to choose the language and certain procedures.
How can we help?
The Dispute Resolution team at Wozniak Legal can assist clients in addressing all of the litigation issues businesses may face in response to Brexit. Alternatively, we will be pleased to provide further information on how to change the dispute resolution clauses in the contracts into arbitration.