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                                      More Brexit FAQs – Governing law and jurisdiction clauses

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                                      Do the Recast Brussels Regulation and the Lugano Convention 2007 still apply post-Brexit?

                                      Before our exit from the EU last month, the UK enjoyed the benefits of a cross-border judicial regime which set out clearly which national courts had jurisdiction in cross border civil and commercial disputes between the EU, Iceland, Norway and Switzerland and also how such judgments would be recognised and enforced – the Recast Brussels Regulation (“Brussels Recast”) and the Lugano Convention 2007 (“Lugano Convention”).

                                      Recognising the commercial importance of the previous regime, the UK applied (last April) to re-join the Lugano Convention following Brexit. If confirmed, this would, largely, ensure that the pre-Brexit status quo was restored. This is because the Lugano Convention, for the most part, mirrors Brussels Recast.

                                      However, our application still hasn’t been confirmed by the EU, which has the authority to veto. The rules of the Lugano Convention state that parties should, if they are intending to do so, give confirmation within one year of the application. So, it’s hoped that a decision will be made by April 2021 – although this is not a hard deadline.

                                      Whether the UK will re-join the Lugano Convention by April 2021 appears to be being framed more as a political decision. This is because the business of litigation has predominantly, and historically, sat in London and London courts, and there may be an EU appetite to take some of this business away from London and/or delay the UK re-joining to the Lugano Convention.

                                      Does the Hague Convention 2005 still apply post-Brexit?

                                      The UK successfully re-joined the Hague Convention 2005 (“Hague Convention”) on 1 January 2021 as an independent nation, having previously been a member since 1 October 2015 as a result of its EU status.

                                      The Hague Convention offers parties certainty that applicable jurisdiction clauses will be upheld and mutual enforcement will be respected. However, it only applies to exclusive jurisdiction clauses and doesn’t cover asymmetric / non-exclusive jurisdiction clauses. This means that the appeal of selecting exclusive jurisdiction clauses has increased – particularly if contracting with an EU party. It is also worth remembering that there are a number of areas expressly excluded from the Hague Convention – such as, employment and consumer contracts.

                                      There is also some debate as to which contracts the Hague Convention applies. The UK government has stated, and in fact confirmed in legislative amendments, that the Hague Convention applies from 1 October 2015 (when the UK joined the Hague Convention as an EU Member State). However, the EU Commission disagrees and has set out its view that the date should instead be 1 January 2021 (when the UK joined the Hague Convention as an independent nation).

                                      This difference of opinion will of course only apply to existing contracts. It should be irrelevant for parties entering into contracts containing an exclusive jurisdiction clause on or after 1 January 2021 as the choice of jurisdiction should be respected by the UK and the EU Member States under the Hague Convention.

                                      Where the Hague Convention applies, English jurisdiction clauses will be upheld and judgments will be enforceable in the EU (and also in Mexico, Montenegro and Singapore; the other contracting states).

                                      However, if for any reason the Hague Convention is deemed not to be applicable then it will be important to obtain advice from local counsel in the relevant EU Member State as to how the contract may be interpreted under national laws.

                                      How will judgments be enforced post-Brexit?

                                      If proceedings began before 1 January 2021 the Brussels Recast will continue to apply; English judgments will still be enforceable in the EU and the same vice versa.

                                      On the other hand, if proceedings began this year, the starting point is that Brussels Recast no longer applies between the UK and the EU. If the UK is able to re-join the Lugano Convention, it means that the Lugano Convention will apply between the UK, EU and EFTA and not a lot will have changed.

                                      If we fail to re-join the Lugano Convention, the Hague Convention will apply to exclusive jurisdiction clauses. However, where parties want the flexibility of asymmetric / non-exclusive jurisdiction clauses, then it is very likely that national rules of the relevant Member State will come into effect and it will therefore be important to obtain local counsel advice on matters of local enforcement.

                                      Are there any changes to governing law clauses?

                                      Governing law clauses post-Brexit are more straightforward because the regulations that used to apply pre-Brexit have been incorporated into English law. English courts will, therefore, continue to respect EU governing law clauses in commercial contracts and EU member states will continue to give effect to choice of English law.

                                      The fact that EU Member States will continue to treat UK governing law clauses in the same way and on same basis as pre-Brexit is helpful; providing greater certainty for consumers and businesses alike when entering into cross-border contracts.

                                      What next? Our predictions

                                      • English governing law and jurisdiction clauses will continue to be popular. Although there has been a lot of debate about moving away from English law, contracting parties should not lose sight of the fact that there are considerable benefits to continuing to select UK governing law – for example, party autonomy is respected, courts endeavour to give effect to the parties intentions, there is significant case law precedent and our judicial system is also trusted around the world as a legal utility by parties who have very little link to the UK. Possible exceptions:

                                      – Concerns that the parties can’t rely on the Hague Convention for enforcement (e.g. due to a choice of asymmetric/non-exclusive jurisdiction clauses)

                                      – Local counsel has advised that English law would not be enforceable under their national law

                                      – If commercial parties are based in the same EU Member State, then English law may not be relevant.

                                      • Commercial parties may seek to rely solely on exclusive jurisdiction clauses in order to take advantage of the Hague Convention. It will be interesting to see whether there will be litigation surrounding the relevant date for contracts to fall within the Hague Convention (1 October 2015 or 1 January 2021)
                                      • Will the UK have re-joined the Lugano Convention by April 2021? Time will tell, but if the UK does not re-join then we will more than likely see a greater focus on discretionary rules set out in national laws which may result in extended jurisdictional disputes.

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