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Brexit: Spaghetti Junction for disputes?

Brexit: Spaghetti Junction for disputes?

Some might complain about the standardisation of bananas.  Others dealing with cross-border disputes might see EU legislation in this area as providing welcome conformity and certainty. 

So, what would happen on a Brexit vote?

This is largely dependant on how dramatic a break the UK government decides to make.  Will it seek to preserve the status quo in areas like this, or go down the Norway route, the Swiss route, the WTO route, or something else?  Each scenario presents differences in how and where disputes are dealt with. 

Let’s start with the basics.  If you can’t resolve things and you have to go to court, you want to know the venue, and you want to know the rules of play. 

The venue.  The current EU regime preserves parties’ rights to decide which courts will deal with the dispute.  If the UK decided to exit the current arrangements (the recast Brussels Regulation), then the Swiss/Norwegian route (Lugano Convention) would achieve a similar result, as might the WTO-type route (for instance under the Hague Convention on Choice of Court Agreements).  But it is generally a sliding scale in terms of certainty and scope.  If the UK exited the current arrangements, other EU countries would then apply their own national rules to deciding on the validity of a choice in favour of the UK courts.  Might we see parties including an arbitration clause in their agreements to avoid the uncertainty all this creates?

The rules of play.  If you have agreed which law applies to your contract, that choice should be upheld by a UK or EU court.  This principle should remain, whether the UK government opts to stay in the current EU regime in this area (Rome I), or, perhaps the most likely alternative, reverts to the previous state of play (Rome Convention), albeit there are some differences.  Currently the UK and EU courts will also uphold the parties’ choice as to which law will also apply to non-contractual issues between them (i.e. those outside the parameters of the contract), however this would likely change if the UK government opted to leave the current EU rules here (under Rome II).  Bear in mind that any changes in this area would affect intra-UK rules as well as those at EU level. 

Another issue that often arises in cross-border disputes relates to service.  The current EU regime deals with the procedure and mechanics of serving court documents within the EU.  Without this, service of documents in other EU countries could become more complex and expensive.  It is worth ensuring that a service agent is appointed for each party in the place where you want any dispute to be heard so you can avoid these issues.

So you’ve got through all that, and you’ve got your judgment.  What is it worth post-Brexit? 

The current regime (Brussels Regulation) provides a standard method for recognising and enforcing judgments in the EU.  Except in very limited circumstances, a UK court is obliged to recognise a judgment from another EU court, and vice versa.  If we exited from this regime would the UK enter into a new arrangement with the EU?  Otherwise there would be a pepperpot of different national rules on the validity of judgments.  And that’s just within the EU.  This can be complicated and expensive.  Should this be an additional factor in deciding whether or not to contract with a country outside the UK? 

On a general level, even where current EU rules and laws continue to apply, on a Brexit vote we can expect to see a divergence of interpretation as the UK courts would no longer refer issues to the Court of Justice in Luxembourg.  Some may see that as a positive outcome.  Either way it means more rather than less complexity.

Of course, any changes are some way off, and there will be other legislative priorities in the aftermath of a Brexit vote.  But it would be sensible to give some thought to these issues if you are negotiating a cross-border contract.  And if you are currently involved in a dispute or see the potential for one, you might want to try and wrap things up before it all becomes spaghetti soup.

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We have examined various facts around the EU referendum process, links to which can be found here.  Over the coming weeks prior to 23 June, our specialists will be publishing further analysis of how their sectors may be affected if the UK votes to leave the EU, to help you understand the areas of uncertainty and assess the potential risks to your business.

Please do get in touch if you have any queries over how your business could be affected by the UK voting to leave the EU.

Joanna Fulton
Director

LChalmers