REUTERS | Francois Lenoir

Brexit extension until 31 October 2019: what are the key points for disputes?

In the latest twist and turn of the Brexit rollercoaster, the UK and the EU have agreed a further extension of Article 50 until 31 October 2019; Halloween, as many have pointed out.

There could of course be a further extension at the end of that period, if both the UK and EU agree. Or the extension could, in theory at least, end at an earlier date, in particular, either:

  • If a withdrawal agreement is approved by the UK and EU before the end of October 2019.
  • If there is no ratification of a withdrawal agreement by 22 May 2019 and the UK refuses to participate in elections to the European Parliament, in which case the extension will end on 31 May 2019 and the UK will leave the EU on 1 June 2019.

So what does this mean for disputes and what should parties be thinking about now?

In large part, this will depend upon your appetite for risk. If you take the view that the UK will not end up exiting the EU without a deal, given no-deal has so far been rejected by Parliament, then you may decide to carry on with business as usual. This would be in the expectation that any deal will likely include a transitional period in which the current rules on jurisdiction and enforcement of judgments continue to apply, with the prospect of further agreements in place post-transition.

If, on the other hand, you take the view that the worst-case scenario has to be factored into planning (as many businesses do), then the possibility of exiting with no deal on 1 November 2019 (or 1 June 2019) has to be taken into account.

In my post in January, I looked at what litigants needed to know if there was a no-deal Brexit on 29 March 2019. In this post, I look at where we are now, given the recent extension.

As before, different considerations apply depending on the stage reached in the disputes process.

English court judgment obtained

Where the judgment debtor has assets in an EU member state, it may well make sense to take steps now to enforce your judgment, so taking advantage of the extension and of the Brussels regime being in place. Enforcement under Brussels is likely to be cheaper, less complex and allow for enforcement of more judgments than under other enforcement regimes potentially available in the case of no deal.

Where enforcement may not be completed by the end of October 2019, you may also want to consider whether formal exequatur proceedings are possible, can be completed by then in EU states where assets are or may be located, and are worth the costs which will be incurred in taking these steps. If so, that is likely to enable you to continue to take advantage of the Brussels enforcement regime post-Brexit, even in the case of no deal.

If you are uncertain whether to incur costs in enforcing at this stage, given in particular the current political uncertainty, then it may be worth considering how your judgment would be enforced post-Brexit in the case of no deal and then take a view in light of this on whether any steps are needed or advisable now.

  • The first step will be to determine which rules will apply on enforcement and our flowchart will help with this process.
  • The next step is to consider whether the 2005 Hague Convention on Choice of Court Agreements may apply on enforcement in the case of no deal, as the procedures for enforcement under Hague should be relatively straightforward, albeit not as straightforward as under the Brussels regime.
  • Hague applies where there is an exclusive jurisdiction clause in favour of a contracting state’s courts which was entered into after the Convention came into force for the chosen state. Hague came into force for the UK as an EU member state on 1 October 2015. That will cease upon Brexit and the UK will join in its own right in the case of no deal. So far, so good. There is some uncertainty, however, over whether the EU contracting states will apply Hague rules to enforce an English judgment where an exclusive English jurisdiction clause was agreed before the UK re-joins Hague in its own right, even if the clause was agreed when the UK was party to Hague by virtue of EU membership (that is, between 1 October 2015 and exit day). This is sometimes referred to as the “change of status risk”.
  • There should hopefully be no gap in UK membership of Hague in the case of no deal. In December 2018, the UK deposited its instrument of accession to Hague with the intention that the convention would come into force for the UK on 1 April 2019 (in accordance with Article 31, which provides for the Convention to enter into force on the first day of the month following the expiration of three months after the relevant instrument is deposited). That would have left a short “gap” in the Convention’s application to the UK following the original Brexit date of 29 March 2019. On 29 March 2019, the depositary for the Hague Convention issued a notice stating that the UK’s accession was suspended until 13 April or 23 May 2019, following a declaration to that effect received from the UK government on 28 March 2019. That reflected possible exit dates at that time. Things have, of course, moved on again and the UK government has made a further declaration suspending the UK’s accession until 1 November 2019. The notice from the depository (which appears at the top of the notification of the declaration) states that “the depository communicates that the accession remains suspended until 1 November 2019”. Assuming, therefore, that there are no objections from other contracting states to the suspension, there should be no gap in UK membership of the Convention in the case of no deal.
  • If you determine that Hague will not apply to your judgment, for example because there was no exclusive jurisdiction agreement, or you have concerns over whether it will apply because of the change of status risk, then unless the judgment has completed a formal exequatur procedure it will not be enforceable in the case of no deal in an EU member state under the rules in the Brussels regime (this is made clear in the EU’s notice to stakeholders on EU rules in the field of civil justice and private international law, published on 18 January 2019).
  • Domestic rules on enforcement will therefore apply in each EU member state. In some cases, old bilateral treaties may apply as part of domestic law, but it is not clear that that will be the case. Absent such a treaty applying, most (but not necessarily all) EU countries will still enforce foreign judgments in the case of no deal, but the type of judgment enforced may be more limited and the procedures involved more time consuming and costly (for further detail see the earlier post).

Where, having considered the position on enforcement post-Brexit in the case of no deal, there are concerns (for example if Hague does not apply and domestic rules are limited or procedurally time consuming), that may affect the decision on whether to incur costs in taking steps to enforce now.

Proceedings yet to commence

Where proceedings have not yet commenced, you will need to consider where and when to bring them (assuming you have a choice). Some of the relevant considerations are set out below, although every case will turn on its facts.

English proceedings

  • If the proceedings are likely to go by default, such that you might have judgment and be able to enforce before Brexit, then it may be worth starting English proceedings as soon as possible so as to take advantage of the Brussels regime on enforcement while it definitely remains in place. Bear in mind, however, that if the UK exits the EU at the end of October 2019 with no deal, this is a very tight timetable in which to take proceedings all the way through to enforcement.
  • If judgment is likely to be given after Brexit and the judgment will need to be enforced in an EU member state, you may want to consider whether this will be possible under the Hague Convention or domestic law (as the Brussels regime will not apply in the case of no deal). If enforcement is possible, you will need to consider what it will entail in terms of time and cost. Having looked into any enforcement issues and depending on the political situation at the time, you can take a view on whether there are any concerns in bringing proceedings in England.
  • If you are going ahead with English proceedings and are deciding when to commence them, then if no deal is back on the agenda, you may want to take into account whether the jurisdiction rules in the Brussels regime or under the common law are more advantageous to you, particularly if the date of likely exit is imminent. Generally, if the court has jurisdiction under Brussels, there is no consideration of whether England is the appropriate forum (forum conveniens) and priority is given to the court first seised. Under the common law, which will generally apply to EU defendants post-Brexit, jurisdiction can be based on service on a defendant while in the jurisdiction, however temporary, and failing that, permission can be obtained for service out of the jurisdiction based on extensive “gateways”. Jurisdiction will only be exercised, however, if England is the forum conveniens.

Proceedings in an EU member state

  • If proceedings are commenced before Brexit in an EU member state, then the resulting judgment is likely to be enforceable in the UK under the current rules in the Brussels regime even in the case of no deal, given the provisions in the Exit Regulations published by the UK government.
  • If the proceedings are commenced after Brexit, then enforcement in the UK will be far more restrictive in a no-deal scenario; generally speaking, only money judgments will be enforced and, if it is a default judgment, only where the foreign court had jurisdiction based on limited grounds.
  • If you have decided upon proceedings in an EU member state, commencing them before Brexit is therefore likely to be the best course if we end up with no deal.
  • Different jurisdiction rules will, of course, apply in EU member states before and after Brexit in the case of no deal, and one set of rules may be more advantageous to you, depending on your circumstances. Before Brexit, the Brussels regime will apply. After Brexit, the domestic rules of the country you are litigating in will apply, that is, the same rules that currently apply to non-EU domiciled defendants, including any “exorbitant” grounds currently not permitted against UK domiciled defendants.

It is also worth remembering that if you intend to begin English proceedings, then in almost all cases you will be in a better position if you commence proceedings first. The lis pendens rules in the Brussels regime, which currently apply and will continue to apply if there is a transition agreement, generally give priority to the court first seised, unless there is an exclusive jurisdiction clause in favour of another EU member state court. After Brexit, in the case of no deal, an EU court will have a discretion in many cases (albeit no obligation) to stay its proceedings in favour of English proceedings commenced first in time, unless there is a jurisdiction clause in its favour. It is unclear whether an EU court has a discretion to stay in any other circumstances, including where there is a jurisdiction clause in favour of the English court.

Pending proceedings before the English court

There are a number of matters to consider here, including:

  • As always, where enforcement will be needed in an EU member state will this be possible if there is no deal? If it may not be possible or may be difficult then, depending on how likely or unlikely no deal seems, this could affect decisions on allocating resources to the litigation, pursuing settlement options and seeking to identify (and if possible freeze or otherwise secure) assets.
  • After Brexit, the Taking of Evidence Regulation (Hague Evidence Convention) will no longer apply in the case of no deal and pending applications will not proceed on the basis of the Regulation. It is therefore worth considering whether to make applications now, given the extra time available by virtue of the extension (keeping in mind that there are other ways of obtaining evidence, for example under the Hague Evidence Convention and letters of request, if there is no deal and the Regulation is therefore not available).
  • Similarly, the EU Service Regulation will no longer apply in the case of no deal, so taking steps to complete any outstanding service during the extension may well be advisable, particularly as pending applications will again not proceed on the basis of the Regulation. After Brexit, service can, of course, be effected in other ways in the case of no deal, including generally under the Hague Service Convention.
  • It is not entirely clear what jurisdiction rules will apply when joining parties to pending proceedings post-Brexit in the case of no deal, so it may be worth considering taking steps to join parties to the proceedings now where it is possible and otherwise appropriate to do so.

In conclusion, the likelihood of a no-deal Brexit seems to be receding, but while it remains one of the possible outcomes, many will feel constrained to continue to plan on the basis of this worst-case scenario.

The current extension at least provides more time to plan and consider all the options available.

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