What jurisdiction clause should you choose with Brexit looming on the horizon?
Well, unfortunately, I can’t give you a solution which will be perfect in every circumstance. As lawyers are fond of saying, it is going to depend on the particular facts.
It is possible, though, to look at the pros and cons of different clauses in a general sense, and that is what I am going to attempt to do in this post, stripping out so far as possible the technical detail. (If I were to include it, the length of this post would quadruple at the very least.)
I’m assuming for these purposes that you are negotiating a long term general commercial contract and either (i) we leave the EU at the end of March 2019 with no deal or (ii) there is a transition period but no deal is reached with the EU during transition as to what will happen post-transition (and in that case any legal proceedings relating to the contract begin after the end of transition).
I am also assuming that any English judgment may need to be enforced in an EU member state and that, if there were no Brexit, you would choose English law and jurisdiction.
So here are the main possibilities and the pros and cons in my view.
An exclusive English jurisdiction clause
The thinking behind including an exclusive English jurisdiction clause is that you will then be able to take advantage of the Hague Convention on Choice of Court Agreements 2005. This Convention has similar rules to those in the Recast Brussels Regulation (the current rules) when it comes to (i) respecting a jurisdiction clause (by staying proceedings brought in breach in another country) and (ii) providing straightforward procedures for enforcement of judgments. The UK can sign up to this Convention in its own right without EU agreement (the UK is currently a member through the EU) and the government has said that it intends to do so.
There are some circumstances in which the Convention may not apply. Since that is the case and given that, as the clause is exclusive, you will be restricted to bringing any proceedings in England, it is worth checking in the EU country where enforcement is likely to be required that they will enforce an English judgment under their national rules, if it should come to that (that is, you’ve fallen outside of the Hague Convention for some reason). It is also worth exploring how long enforcement is likely to take and how complex it might be. You might also want to factor in the risk that an EU court might not respect an English jurisdiction clause falling outside of the Hague Convention, particularly if the English proceedings are not commenced first.
If enforcement looks fine, and the risk of the clause not being respected is acceptable, then an exclusive clause may well be your answer. This is particularly so if enforcement may not be necessary anyway (if the defendant will likely pay up, for example, or has English assets). Bear in mind also when evaluating risk that this post assumes the worst case scenario (of no deal by March 2019, alternatively no deal post-transition) which may not be where we end up.
A non-exclusive English jurisdiction clause
If you do not want to check the position on enforcement under national laws, or you have checked and some aspect of those rules concerns you, you could include a non-exclusive English jurisdiction clause. This would give you flexibility, at the time any proceedings commence, to choose the best jurisdiction for you.
If there is a transition and the proceedings begin during that period, then the current rules will apply. If not, then, by the time of the proceedings, there may be a replacement regime in place between the UK and the EU which allows for straightforward recognition of jurisdiction clauses and enforcement of judgments (the bespoke deal the UK favours, for example, or the UK may have joined the Lugano Convention which has similar rules to the Recast Brussels Regulation). In those circumstances, there would again be no downside to going ahead with English proceedings. If, though, English proceedings do not look to be in your best interest, then, as the clause is non-exclusive, you could start proceedings in any other country which would have jurisdiction under its own rules.
Non-exclusive jurisdiction clauses are, of course, regularly chosen by parties without any Brexit considerations being in play, but they do have some downsides. The first is that you may find yourself litigating in a country which you would prefer to have avoided if your counterparty starts proceedings first (including where a counterparty takes a preemptive step, for example seeking a negative declaration confirming that it isn’t liable to you). To address this risk, one option might be to agree that jurisdiction is given to the English courts and the courts of a particular EU member state, but no others. Such a clause is not, however, in common use, and would require careful drafting. It is also possible that the EU court would not have the power to stay its proceedings in favour of English proceedings, even where the English proceedings were commenced first. This is because the EU court’s jurisdiction would arise from a contractual agreement and that is outside of the express powers in the Recast Brussels Regulation to stay EU proceedings in favour of proceedings in a non-member state (as England would be).
Another downside is that, assuming you have chosen English law to govern the contract, it may be more expensive and less certain to litigate in another country, as you will need to prove the content of English law to the foreign court.
A non-exclusive jurisdiction clause is also outside of the Hague Convention, so you won’t be able to take advantage of that Convention if you choose English proceedings.
A unilateral (one-way) jurisdiction clause
Including a one-way exclusive English jurisdiction clause may also get around the risk of litigating where you do not want to, because, in theory, the counterparty is restricted to bringing proceedings in England, but you have the flexibility to start proceedings elsewhere if that seems in your best interests at the time.
But, again, such clauses are outside of the Hague Convention. And they may not be given effect in all EU member states (the French courts, for example, have refused to enforce them in some circumstances). A counterparty may also not agree to a one-way clause, depending on relative bargaining power.
An arbitration clause
Another option is to include an arbitration clause. EU member states will all respect arbitration clauses and enforce awards under the New York Convention. Arbitration will therefore not be affected by the UK’s exit from the EU. So, if you are comfortable with arbitration and want a one size fits all solution, this is an option.
The relative advantages and disadvantages of arbitration over litigation have been well rehearsed over the years. One person’s advantage (more limited rights of appeal for example) may be another’s disadvantage, depending on your point of view and business sector. However, the most commonly cited reasons for not opting for arbitration include the more limited options for multi-party arbitration, if you do not have express consent from all parties, and the more limited opportunities for summary judgment and strike out.
It is also the case that while arbitration is regularly selected in some sectors, its use in others is less developed. That may explain in part why, as of January at least, there hadn’t been a big move towards selecting arbitration clauses more frequently as a result of Brexit (see the Thomson Reuters survey report, The impact of Brexit on dispute resolution clauses).
An EU member state court
You could, of course, opt for the jurisdiction of an EU member state court. You will want to consider whether the procedure in that court is acceptable to you; for example, whether it provides for sufficient disclosure and testing of witness evidence.
If you choose English law to govern the contract then that court will be obliged, post-Brexit, to apply English law under the Rome I and Rome II Regulations in the same way as is currently the case. As mentioned before, though, it may be more expensive and less certain to litigate an English law contract in another country as you will need to prove the content of English law to the foreign court.
If you choose the law of that country to govern the contract, then you will want to be sure that that law is acceptable to you and that the contract will be interpreted in the same, or at least a similar way, to what you expect under English law.
In conclusion
So, there are a number of options, all with pros and cons. What weighs most heavily in the balance will, as I said at the outset, depend on the particular facts.
