The EU-UK Trade and Cooperation Agreement (the “TCA“) concluded on Christmas Eve, 2020 is silent with respect to judicial cooperation in civil and commercial matters (as opposed to cooperation in criminal matters). Consequently, as from 1st January, 2021 the UK is treated as a third state with respect to the application of a number of significant EU legislation regulating matters of cross-border judicial cooperation (e.g. the rules governing the recognition and enforcement of court judgements or the choice of jurisdiction and applicable law clauses). Given the regularity with which an English law clause, usually supported by a choice of English courts clause (or possibly London-based arbitration proceedings) are adopted in international commercial contracts, the emergence of the dreaded “Hard Brexit” has inevitably questioned whether such a popular choice ought to be reconsidered going forward.
In assessing the potential future hurdles to judicial cooperation, it is important to note that with respect to legal proceedings instituted, and judgements delivered, within the Brexit transitional period up to 31st December, 2020, the hard Brexit produced by the TCA will not operate as a significant impediment. Under the terms of the EU-UK Withdrawal Agreement, EU legislation remains applicable to the relationship between UK and EU parties during the transitional period and the Court of Justice of the European Union (the “CJEU”) continues to remain the final arbiter with respect to the interpretation of any applicable EU rules. Applying the Withdrawal Agreement principles specifically to judicial cooperation, this means that the Rome I Regulation (dealing with contractual obligations) will continue to apply to contracts concluded during or prior to the expiry of the transitional period. Similarly, Rome II (dealing with non-contractual obligations) will continue to apply to events giving rise to damages occurring before the end of the transitional period. By contrast, proceedings instituted after the transitional period in accordance with a jurisdiction clause concluded during such period, will not be governed by the terms of the Brussels 1 Regulation (recast).
Following the expiration of the transitional period, contracting parties would need to exercise extra caution in navigating the new legal landscape due to the absence of any agreed specific provisions on cross-border judicial cooperation under the TCA which would have replaced the previous applicable EU instruments.
Impact on Applicable law
With respect the applicability of Rome I (on the law applicable to contractual obligations) and Rome II (on the law applicable to non-contractual obligations), given that the principle of universal application is enshrined under both regulations (i.e. any law specified in the Regulation is to be applied even if the law in question is not that of a EU member state), English law clauses will continue to be recognized by the courts of the EU Member States. Going forward, the concern for prospective contracting parties would not be the applicability of English law, but rather its continued suitability given the impact which Brexit may have on substantive rules of English law. These substantive changes could, in certain scenarios, render the designation of another applicable law more commercially desirable and safer.
Where the intention is to invoke the rules provided for under Rome I and Rome II in the UK, here again, Brexit will not have any immediate impact. Both regulations do not operate on the basis of reciprocity and the UK Government has adopted the rules under Rome I and Rome II into domestic law under the European Union (Withdrawal) Act 2018.
From the above, it is fair to say that post-Brexit, English law will remain an advantageous and suitable choice of law for prospective contracting parties. However, parties should keep in mind that going forward the CJEU no longer has direct jurisdiction in the UK. This means that whilst historic CJEU case-law will continue to enjoy precedent status with respect to EU-derived law as it applied at the end of the transition period, post-Brexit we may very well see the development of a divergent body of case-law should the UK courts adopt a different approach.
Impact on Jurisdiction & recognition and enforcement of UK Judgements
Before 1st January, 2021, the Brussels 1 Regulation (recast) (the “Recast Regulation”) applied to the UK. This meant that judgements of the UK Courts in civil and commercial matters (save for matters expressly excluded thereunder) were automatically recognized and capable of enforcement throughout the EU. As a result of the hard Brexit brought about by the TCA, the legal landscape between the EU and the UK in this regard has been altered significantly.
It remains to be seen whether choice of court clauses and the recognition and enforcement of judgements will fall to be regulated under some other international legal framework which would ideally import the special features of the Recast Regulation. It is worth pointing out that one option being pursued by the UK Government is for the UK to join the 2007 Lugano Convention (which the UK was previously party to as an EU member state). The 2007 Lugano Convention is heavily modelled on the predecessor of the Recast Regulation, i.e. Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, and reproduces similar arrangements between the EU and the EFTA member states. Accession to the Lugano Convention requires the consent of all the signatory parties and so far the EU has not given its consent. Following the signing of the TCA it is expected that the EU will grant its consent, however this is far from guaranteed.
Another possible option would be to seek greater judicial cooperation under the 2005 Hague Choice of Court Convention, however this option is admittedly, not ,a viable one given the Convention’s limited scope of application. It only applies to two-way exclusive jurisdiction clauses i.e. it is not applicable to one way asymmetric or optional clauses which are so commonplace in international commercial contracts.
Post-Brexit, matters regulating the recognition and enforcement of UK judgements are to be governed by the respective domestic rules on recognition and enforcement of the individual Member States. In the case of Malta, decisions of the UK Courts are capable of recognition and enforcement under the following domestic laws:
- i.The British Judgments (Reciprocal Enforcement) Act (the “BJRE”);
- ii.The Code of Organisation & Civil Procedure (the “COCP”).
The BJRE provides a special legal regime for the enforcement in Malta of judgements obtained in the UK. In order to be capable of recognition and enforcement under the BJRE, the judgement or order in question must be delivered by a superior court in the UK in any civil or commercial proceedings and must be one “whereby any sum of money is made payable.”Aside from this requirement, there are additional conditions catered for under the BJRE which must be satisfied before the Maltese Court of Appeal may grant an application to have the said judgement registered, thereby rendering it capable of enforcement in Malta.
Additionally, a UK court judgement falling outside the scope of the BJRE may also be capable of enforcement in Malta in terms of the recognition and enforcement provisions under Title V of the COCP. Subject to the satisfaction of the grounds for recognition and enforcement contemplated under the COCP, any judgement delivered by a competent court outside Malta (including the UK) and constituting a res judicata (i.e. one where all avenues of appeal available in the home jurisdiction have been exhausted) may be enforced in Malta in the same manner as judgements delivered by a Maltese court.
Impact on Arbitration – No harm no foul
The absence of any provisions of judicial cooperation under the TCA should not prove to be disruptive with respect to international commercial arbitration, given that arbitration was already expressly excluded from the scope of the EU legislative instruments considered above and, that the framework for the recognition and enforcement of arbitral awards across borders is principally regulated under the 1958 New York Convention. If anything, arbitration may serve as an attractive lower risk alternative to contracting parties in this new legal landscape.
Notwithstanding Hard Brexit, the advantages typically associated with a choice of English law as the governing law are not likely to be unduly diminished. Whether commercial parties ought to reconsider their choice of English law will need to be assessed on a case-by-case basis in light to the particularities of each case.
The main challenge would be overcoming the uncertainties regarding the recognition of jurisdiction of the UK courts with respect to proceedings instituted as from 1st January, 2021and, the recognition and enforcement of judgements across the English Channel as a result of the loss of automatic recognition previously catered for under the Recast Regulation. As explained above, recognition and enforcement of a UK Judgement in Malta would be possible in terms of Maltese domestic rules, but these proceedings will entail certain costs and delays and may be subjected to a number of procedural defences. Concerns over the smooth functioning of cross-border judgement recognition and enforcement may also lead to an increased shift towards arbitration as the preferred mode of dispute resolution in international commercial contracts.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Simon Pullicino on email@example.com