The House of Lords EU Committee has published a report about the effect of Brexit on three EU Regulations which together ‘play an important role in facilitating the daily operation of the European legal system’. Jonathan Haydn-Williams looks at the Committee’s conclusions as to the Brussels I Regulation ‘recast’ relating to civil and commercial matters.
The House of Lords EU Committee published a report entitled ‘Brexit: justice for families, individuals and businesses?’ (HL Paper 134) on 20 March 2017 (hereafter referred to as ‘the report’).
The report concerns the Brexit aspects of three EU Regulations:
- Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). The so-called Brussels I Regulation recast (BIR).
- Regulation 2201/2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility. The so-called Brussels IIa Regulation.
- Regulation 4/2009 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance. The so-called Maintenance Regulation.
This article comments on the Committee’s conclusions as to the first mentioned Regulation, the ‘BIR’. Comments on the other two Regulations will be for another commentator on another day.
History of the BIR
When the UK joined what was then known as the ‘common market’, there was already in existence the 1968 Brussels Convention. This was an agreement between the original six members of the European Economic Community (EEC) as to jurisdiction and enforcement of judgments in civil and commercial matters within the common market. The idea was, and remains, a simple one: for a free trade zone to function effectively, there needs to be a mechanism:
- to determine which country’s courts have jurisdiction in disputes between persons (both individuals and businesses) from different member states, to avoid two or more different countries’ courts claiming jurisdiction; and
- to enable judgments of the court with jurisdiction to be recognised and enforced without difficulty in the other member states of the free trade zone, so as to avoid the problem of an enforcing court seeking to re-hear a case on its merits or otherwise placing obstacles to the recognition and enforcement of the judgment.
In short, the resolution of disputes is a key aspect of free trade within a single market.
As the rules were in a convention, rather than – at that stage – a directly enforceable regulation, domestic UK legislation was needed to give them effect within the UK. This took the form of the Civil Jurisdiction and Judgments Act 1982 (CJJA 1982), which came into force in 1987. The CJJA 1982 also reformed the rules for recognition and enforcement of judgments within the constituent countries of the UK, so as to mirror the rules applicable as regards other member states of the EEC. Those internal rules appear likely to remain in place, at least in the medium term.
The Brussels Convention was later amended and turned into a directly applicable Regulation, which was itself amended so as to become what is now the BIR.
The effect of the BIR extends not only to disputes involving parties in other EU member states, but also to disputes with parties from other countries in the world.
The BIR assists both UK businesses and consumers, including, for instance:
- a UK business which wishes to sue over a contract with a party from another member state. If it is to be performed in that other member state, the courts of that other member state will decide the dispute and its enforcement. If, however, it is to be performed in the UK, a UK court can decide and the judgment will be enforceable in the other member state
- a UK consumer who purchases an item from a business in another EU state. Under consumer rules, the dispute will probably be decided by a UK court (rather than a court in, say, Spain), with the UK judgment being then enforceable in the other EU state.
Effect of leaving the EU on the BIR
The BIR will cease to apply upon the EU membership treaties ceasing to apply to the UK.
It is clear from the above examples that the BIR affords legal rights to UK citizens which will be lost by Brexit, such as led the Supreme Court to decide that the notification of an intention to leave the EU under article 50 had to be authorised by Parliament, rather than by exercise of prerogative power.
Whether that notification is revocable – contrary to the UK government’s present line that it is not – would have to be the subject of another article. In my view, the arguments favour the view that it is revocable. However, what is set out below is based on the perhaps unfounded assumption that it is irrevocable or that, if it is revocable, that the UK people are either not given the opportunity to express their ‘will’ on the final Brexit terms (if any) or are given the opportunity and vote to approve them.
The House of Lord’s report notes that losing the BIR will create uncertainty for UK businesses and individuals and possibly render the UK a less attractive venue for the litigation of cross-border disputes.
How can the BIR be replaced?
It is clear that there is no wish on the part of the UK government to replace the BIR with a directly equivalent treaty with the EU, in that the BIR is subject to the jurisdiction of the EU Court of Justice (CJEU), which the government intends shall hold no sway in the UK.
The report concludes that:
- Due to the need for reciprocity between the UK and EU member states in order for a BIR-type agreement to work, the Great Repeal Bill or other UK new legislation cannot be of any assistance
- The negotiation of a new treaty with the EU in the BIR field does not appear in the White Paper on Brexit negotiations and is, unfortunately, low on the government’s priorities
- Falling back on English and Welsh common law rules as to jurisdiction and recognition and enforcement of judgments does not provide a solution, in that they have lain undeveloped for 40 years
- Greater use of arbitration in cross-border disputes, whilst providing a boost for London arbitration activity, would not provide a viable solution to the loss of the BIR, because of ‘the importance of the principles of justice, in particular openness and fairness, underpinned by the publication of judgments and authorities, which are fundamental to open law’
- An application to join the Lugano Convention (currently between the EU and Iceland, Norway and Switzerland) offers an approach that is next-best, though not ideal, to negotiating a new BIR type treaty with the EU. ‘Lugano’ is broadly equivalent in concept and intent to the BIR, but is not subject to the jurisdiction of the CJEU, the courts of the three non-EU states agreeing to pay regard to the decisions of the CJEU. However, the report notes that ‘Lugano’ does not include the BIR’s improvements upon its previous versions and would therefore not be as beneficial for UK businesses and individuals
- Other possibilities include ratifying the Hague Convention on Choice of Law Agreements and enacting into UK law the Rome I and II Regulations on the law applicable, respectively, to contracts and to non-contractual obligations (which do not require reciprocity). The report concludes that the best pragmatic solution available may be to follow those possibilities, as well as to apply for the UK to become a party to the Lugano Convention.
I agree with most of the report’s conclusions.
The common law does not provide a solution, for a number of reasons.
- Those who have entered into contracts, before perhaps the term ‘Brexit’ was even coined, will have entered into contracts based on the BIR mechanisms, particular as to choice of court. To seek to apply a different regime if contract disputes arise could cause uncertainty and unfairness – hardly a good advert for English litigation
- The common law can only be updated and developed by actual cases in the courts, which have to be funded by the litigants. Parties seldom wish to be part of a test case
- Developments in the common law take time. That delay would cause uncertainty, again to the detriment of the reputation of English litigation
- It would be odd to have the statutory ‘relic’ of the BIR system in place for disputes that cross the UK’s internal borders, whilst those that cross its external borders are subject to the common law
- The ‘common law’ on jurisdiction and recognition and enforcement of judgments is a misnomer, as there are UK statutes which apply where the UK has reciprocal arrangements in place, in the form of treaties with other countries, including those in the Commonwealth
- Those common law and statutory rules fall a long way short of providing a system such as that of the BIR. For instance, they may not apply to non-money judgments and the rules as to jurisdiction tend to be wider than those as to recognition and enforcement of judgments. For example, whilst the relevant rules in England and Barbados are in essence the same, it is quite possible for the Barbados courts to rule that they have jurisdiction over an English resident, but for the English courts to decline to enforce the judgment, and for the mirror situation to apply if an English court assumes jurisdiction over a Barbados resident.
I disagree with the report’s conclusions as to arbitration.
- To suggest that arbitration does not provide justice and fairness is, in my view, a misconception. The Arbitration Act 1996 provides a legislative requirement of fairness, which is bolstered by the requirements of fairness of article 6.1 of the European Convention on Human Rights (as given direct effect in the UK by the Human Rights Act 1998)
- Openness of hearings to the public is a safeguard when parties are forced to take part in litigation. But arbitration is voluntary, and there can be no objection to parties wishing and consenting to having their disputes heard in private. Indeed, any unfairness would arise out of a system which prevented that. The interests of consumers against suppliers etc obtaining consent to arbitration in the ‘small print’ are protected by consumer legislation
- If parties wish, arbitration hearings can take place in public and arbitrators’ awards can be published. That happens, for example, in the case of decisions of the Court of Arbitration for Sport at the Olympics
- Under the Arbitration Act 1996, the English courts exercise supervisory jurisdiction and cases may end up before the courts, at public hearings, if, for instance, an arbitrator is accused of acting in an irregular way
- The significance of arbitration in the present context is that it is, in general terms, not part of the BIR, but has international acceptance under certain treaties, in particular the 1958 New York Convention, which facilitates, for example, the enforcement of a London arbitration award in France.
Arbitration cannot provide a complete solution to the loss of the BIR, but it is for sure part of it.
The report does not address the third issue facing litigators (in addition to jurisdiction and recognition / enforcement of judgments), namely that of service of proceedings in other EU member states. This is the subject of an EU Regulation, having formerly been covered by an EEC Convention, which came into effect in the late 1980s. Prior to that, even though jurisdiction of an English court over a German defendant, for instance, and enforcement of an English judgment in Germany was covered by the predecessor of the BIR, trying to serve the proceedings in Germany was difficult and time-consuming. Once the Service Regulation goes, litigators will face that problem again unless alternative arrangements are agreed.
Finally, for practitioners, there are the Civil Procedure Rules (CPR) to contend with. If or when the post-BIR position is revealed, the committee responsible for the CPR will need to act smartly to amend the Rules. One can only guess at the confusion that will be caused to practitioners should the post-BIR position remain unclear.
In light of the above, I am recommending to clients that:
- unless there is a specific objection, new cross-border contracts should contain arbitration clauses, rather than submission to jurisdiction of courts; and
- if a submission to jurisdiction is made to the courts of England and Wales, the contract should also provide for service of process within the jurisdiction of those courts on an agent of any overseas party.
Jonathan Haydn-Williams is a solicitor and senior counsel with Goodman Derrick LLP, London. He is a Fellow of the Chartered Institute of Arbitrators and an accredited mediator registered with the Civil Mediation Council. None of this article should be relied on as advice.