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Is arbitration the future in a post Brexit world?

Often commercial clients can find themselves contracting with other parties domiciled outwith the jurisdiction where the contract is performed.  Many companies hold assets overseas or have limited means in the contracting state.  There's nothing to suggest that there is anything unusual or sinister about that and the majority of relationships between commercial organisations run (relatively) smoothly.

In the context of drafting complex contractual arrangements dispute resolution is usually the last thing on everyone's mind.  No party would enter into a contract immediately considering the repercussions in the event of a breach.  That might need to change given the uncertainty surrounding judicial cooperation between the UK and EU post Brexit.

If, like me, you are approaching Brexit analysis saturation point, please bear with me as this is an important, and fundamental, issue which has not garnered the same press attention as the more headline grabbing Brexit related issues.  Just what will happen in the event that a party to a commercial contract obtains judgement within the UK against another party with significant assets in the EU in a post Brexit world?

At the moment, if a court order is obtained against a wrong doer in Scotland, England & Wales, Northern Ireland or indeed anywhere else within the EU there are reciprocal arrangements whereby another country will register and give effect to that judgement for the purposes of enforcement.  That means that a court order anywhere within the EU has real clout, and has a realistic possibility (except in cases of insolvency) of providing a financial benefit to the "wronged" party.

In July and August of this year the EU and UK published their respective position papers on judicial cooperation in civil and commercial matters post Brexit.  The EU position is relatively straightforward in connection with contracts concluded before Brexit day.  All judicial decisions given before that date will be recognised and enforced according to EU law as at that date.  Choice of jurisdiction clauses for disputes instigated pre-Brexit will be given effect to.  However, there is currently no proposal for any enforcement regime or judicial co-operation as between the EU member states and the UK post Brexit.  In that event, if a judgement is handed down in the UK on Brexit day plus 1 there is presently real uncertainty as to whether that can or will be enforced within the EU.  No doubt arrangements can and will be made with the EU but, as things stand, assets of a debtor held in an EU country may well be safe from enforcement of a debt established in the UK.  Put short, from the EU's perspective there is no proposal for reciprocal judicial co-operation post Brexit.

The UK is largely in agreement with the EU rules on legal proceedings initiated before Brexit day.  However, the UK wants "choice of court" provisions to establish jurisdiction and enforcement to continue post Brexit.  It also wants the existing EU rules to govern recognition and enforcement of judicial decisions pre and post Brexit to continue.

As things stand there is no reciprocity or proposed reciprocity post Brexit from the EU.  UK courts will enforce judgements handed down in EU member states as before.  EU member states at present have no such proposal.  There are various options available to the UK to resolve this, by seeking to revive previous conventions, ratify international conventions not presently part of UK law or revive historical arrangements, but no clear line on which direction the UK will go.

The UK has a separate paper "Enforcement and Dispute Resolution" highlighting its proposals for resolution of any disputes as between the UK and the EU.

It is perfectly plausible that the EU and indeed the UK will make more detailed proposals on judicial co-operation in a private law context as the negotiations continue.  No need to panic and dust off the contract bibles just yet.

However, in the present uncertainty, how best does one ensure that a dispute resolution clause will have bite, and any judgement or decision reached have prospects of enforcement in another legal jurisdiction? Arbitration may well be the answer.  Enforcement of arbitral decisions made anywhere in the UK is governed by the New York Convention, i.e. it's nothing to do with Europe.  The New York Convention provides that any arbitral decision made in a country which is a signatory to that convention (including the UK and many member states of the EU) can and must be enforced in any other country which is also a signatory.  A reciprocal obligation of course, and one thing that won't change in a post Brexit world.

If you wish to discuss arbitration agreements or any other form of alternative (or more conventional) dispute resolution please do not hesitate to contact me.  For Brexit related queries please contact our designated Brexit team.