Brexit impact on cross-border litigation in civil and commercial matters – which rules apply?

Traditionally, many international contracts contain a choice of court agreement in favor of English courts. This is for a number of reasons, including the popularity of English law to govern commercial arrangements due to predictability of outcomes in light of common law precedent, familiarity of language, the experience English judges have in resolving international disputes, and the availability of a broader disclosure.

On 31 January 2020 the United Kingdom (UK) left the European Union (EU) and formally became a third state. During the transition period (31 January 2020 to 31 December 2020), under the Withdrawal Agreement (OJ L 29 of 31 January 2020, p. 7), EU Regulations on civil procedure and private international law matters remained applicable. The position on jurisdiction clauses in favor of English courts and enforcement of English judgments in EU Member States and applicable law, changed at the end of the transition period. The EU-UK Trade and Cooperation Agreement concluded on Christmas Eve (OJ L 444 of 31 December 2020, p. 14) does not contain any provisions on private international law or international civil procedural law. We consider what that means for businesses contemplating cross-border litigation between the UK and EU Member States, in particular Germany and Austria, from 1 January 2021 for choice of jurisdiction and recognition and enforcement of judgments (A.) and choice of governing law (B.).

International jurisdiction and recognition and enforcement of UK judgments in the EU

Within the EU, in civil and commercial matters, questions of international jurisdiction as well as recognition and enforcement of judgments are governed by the Brussels I (Recast) Regulation (Brussels I Recast).

Which rules apply as of 1 January 2021?

From 1 January 2021, Brussels I Recast facilitating cross-border recognition and enforcement of judgments within the EU ceased to apply to the UK (see: Article 67 of the Withdrawal Agreement). However, in respect of proceedings instituted before the end of the transition period, the EU rules on international jurisdiction continue to apply. Similarly, Brussels I Recast will continue to apply to the recognition and enforcement of judgments given in legal proceedings instituted before 31 December 2020.

If proceedings involving the UK and EU Member States commence as of 1 January 2021, the Brussels I Recast provisions on jurisdiction will remain relevant in case the connecting factor refers to the courts of a Member State, for example where a consumer wishes to sue a company which is domiciled outside the EU. If there are no such connecting factors, the options are:

• 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (Brussels Convention)

It is currently unclear whether the Brussels Convention as the “predecessor” of the Brussels I Recast will “revive” and apply again or whether the Brussels Convention has been (tacitly) terminated by subsequent EU Regulations. In any case, the Brussels Convention does not reflect the improvements which the conversion into the Brussels I Regulation of 2001 and the Brussels I Recast of 2012 brought about. Moreover, its geographical reach is limited since it does not extend to Member States which joined the EU after 2001.

• 2005 Hague Convention on Choice of Court Agreements (the 2005 Hague Convention)

The UK acceded in its own right to the 2005 Hague Convention from 1 January 2021. The UK had previously been a member of the convention as an EU Member State from 1 October 2015. Compared to the Brussels I Recast regime there are some key differences:

• The 2005 Hague Convention only applies to exclusive jurisdiction clauses. Asymmetric and non-exclusive jurisdiction clauses do not fall within its scope;
• The 2005 Hague Convention only applies to the recognition and enforcement of final judgments and does not cover the recognition and enforcement of interim measures, such as freezing orders.

The temporal applicability is yet unclear: The UK considers that the 2005 Hague Convention will apply to exclusive jurisdiction agreements entered into from 1 October 2015 onwards when it became a member through the EU. However, the EU Commission contemplates that the convention will not apply to exclusive jurisdiction clauses entered into before the UK became a contracting state in its own right, i.e. as of 1 January 2021.

• 2007 Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Lugano Convention)

The Lugano Convention provides a broadly equivalent regime compared to the Brussels I Recast. On 8 April 2020, the UK applied to accede to the Lugano Convention. Although Switzerland, Norway and Iceland have indicated that they are supportive of the UK's accession, the remaining Contracting Parties (EU and Denmark) still need to approve as all current Contracting States have to consent to a new state joining if they are not already an EFTA member. Even if the UK's application is unanimously approved, a three-month time-lag applies between the accession and the entry into force (Article 73 of the Lugano Convention).

If none of the above multilateral legal instruments apply, questions on international jurisdiction and enforcement of judgments will be governed either by existing bilateral treaties or Member States’ domestic law.

Jurisdiction clauses and their recognition under domestic law

In the absence of any relevant international agreement, in deciding whether to recognize and enforce English jurisdiction clauses and English judgments, German and Austrian courts will apply the following principles.

Germany

• Jurisdiction Clauses

German courts are able to recognize jurisdiction clauses in favor of English courts according to national procedural law rules applicable also in relation to third states. However, unlike in B2B cases, choice of court agreements in B2C or consumer cases are only valid if at least one of the parties to the agreement has no general venue in Germany and the agreement is concluded or confirmed in writing.

• Recognition and Enforcement of UK Judgments under German Law

As for the recognition and enforcement of UK judgments in Germany, it is likely that the Convention between the Federal Republic of Germany and the United Kingdom of Great Britain and Northern Ireland of 14 July 1960 for the reciprocal recognition and enforcement of judgments in civil and commercial matters will apply. However, the convention is not as advanced as, for example, the Brussels I Recast and only applies to judgments for a definite sum of money. For all other cases autonomous German rules on recognition and enforcement of judgments according to Sections 328, 722 of the Code of Civil Procedure apply, i.e. UK judgments will require an exequatur proceeding, which renders proceedings more complicated, time-consuming and costly.

Austria

• Jurisdiction Clauses

Austrian courts are also able to recognize jurisdiction clauses in favor of English courts according to national procedural law rules. In order for choice of court agreements to be valid, they must refer to a specific legal relationship and will only be assessed on documentary evidence. As is the position under the Brussels I Recast, Austrian courts will recognize jurisdiction clauses in favor of English courts unless there is a mandatory jurisdiction in favor of Austrian courts (e.g. disputes related labor law, consumer law, insurance law). The recognition of asymmetric jurisdiction clauses (sole option / unilateral clause) remains uncertain irrespective of Brexit. There is very little case law on this point and no definitive ruling on the scope and validity of such clauses.

• Enforcement of Judgments under Austrian Law

Austria recognizes and enforces foreign judgments only if reciprocity is guaranteed on the basis of an international treaty. The bilateral treaty between the Republic of Austria and the United Kingdom of Great Britain and Northern Ireland of 14 July 1962 providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters could be applicable and ensure reciprocity. However, the applicability of the 1962 Treaty is controversial among legal scholars and there is no case law yet. The situation therefore remains uncertain to some extent.

What to consider for businesses?

In cases involving the UK, parties commencing litigation from 1 January 2021 onwards should generally be aware that the legal landscape respecting choice of English courts and recognition and enforcement of UK judgments has changed since Brexit. Parties will in many cases have to rely on bilateral agreements between the UK and EU Member States, such as Germany or Austria, or domestic law for procedural issues which to date have been the subject of harmonizing EU Regulations.

When assessing agreements with high risk of litigation it will therefore be important to carefully weigh all options available and to examine possible places of jurisdiction. Relevant factors influencing the assessment include evidence rules, precedent value of decision as mentioned above, flexibility of the procedure, but also enforceability of decisions.

In cases where parties had chosen exclusive English jurisdiction in the past, this remains a valid option. In other cases the options have to be carefully assessed. If suitable, consideration should also be given as to whether arbitration clauses would provide greater certainty and predictability.

Applicable Conflict of Laws regime on contractual and non-contractual obligations

In contrast to European rules on recognition and enforcement of judgments, the EU provisions on applicable law do not require reciprocity and are of universal application. According to Article 2 Rome I Regulation and Article 3 Rome II Regulation, any law specified by Rome I or Rome II Regulation will be applied whether or not it is the law of a Member State. Therefore, for choice of law clauses, the end of the transition period will have no material implications. German or Austrian courts should continue to uphold the parties’ choice of English law on the same basis as before.

Conclusion

The “post-Brexit-world” is different to that which was in place before. Given the fragmented legal framework in place, businesses will need carefully to consider the wording of their contracts. Parties will have to assess what factors are important to them when choosing dispute fora and consider all options.