Brexit places the UK out of the judicial cooperation area in the EU; will this be the end of English law in the continent?
English law, courts and lawyers are a popular option for business transactions in the EU. Brexit could possibly change that, not so much because of obstacles to a valid choice of English law or the enforceability of judgements rendered by English courts but because the UK is now outside the many procedures for judicial cooperation within the EU (summoning, taking of evidence and other forms of judicial cooperation) which are vital for effective cross-border litigation.
The legal life cycle
Continental firms often have their commercial and financial agreements governed by English law even if none of the parties are domiciled in England. This contractual choice of applicable law is invariably combined with a choice of English courts to hear any dispute. While the UK was a EU Member State both choices were expressly admitted as valid and enforceable as a matter of EU law under well-known regulations.
But the system was also seemingly reasonable in practice because the proceedings potentially to be held in the UK were supposed to unfold smoothly even if, as the system went, none of the disputants had any presence whatsoever in the UK. Why? Because the UK benefitted from all the procedures for judicial cooperation between Member States as enshrined in a number of less known but consequential EU regulations and decisions.
An English court could reach an evasive defendant anywhere in the EU and validly serve the claim on it with the cooperation of the judges of other Member States (under Regulation (EC) 1393/2007 on Service of Documents). If the relevant facts were to be elucidated in situ anywhere on the continent, the English court could again rely on its European peers to take the evidence (under Regulation (EC) 1206/2001 on Taking of Evidence). If any other difficulties were to arise during the proceedings calling for the assistance of the other EU courts sitting, as the base case implied, where the litigants were really based, that assistance was available (under Council Decision 2001/470/EC establishing the European Judicial Network in civil and commercial matters).
But this was not enough for British pragmatism and English lawyers often resorted to another device covering the event that, when the dispute emerged, the tools for running a law suit from a venue thousands of miles away from where trouble exploded did not seem that efficient. This was the so-called non-exclusive choice of jurisdiction where one of the parties, generally the banks, could elect to bring proceedings in London or alternatively where the defendant was based.
The UK is out of all those judicial cooperation procedures and UK courts will now be left to their own devices from the standpoint of the different legal regimes for this type of cooperation between the UK and each country in the EU. In the likely absence of a bilateral treaty, the general rules applicable in each country will apply and the UK will get the same treatment as the courts of, let us say, Ruritania.
True, EU law will continue to recognize a contractual choice of English law and, as soon as adherence of the UK to the 2005 Hague Convention on Choice of Court Agreements is effective, the choice of English courts will also apply in the EU under this treaty.
However, importantly, the 2005 Hague Convention does not recognize non-exclusive choice clauses. The device we mentioned above will not work and the choice must be made beforehand. If English courts are elected, the litigation will happen in the UK but without the security net provided by the dense, growingly time honored EU system for judicial cooperation.
What the future will bring?
Will this situation deter continental companies from using English law?; not inevitably. The blow to English law is considerable and comes with other negative factors such as the loss of the financial passport for City institutions, the non-admissibility of English law governed instruments as collateral in many ECB transactions or added complexities in bail-in clauses in banking transactions, to name a few.
However, the English legal community has proved a redoubtable force ever since common law was created and fertile minds will soon conceive ways to try to navigate the new waters. Also, until any credible alternative emerges, in the form of another European law and judicial system with the ability to become prominent, inertia will come into play.
Published in Legal Business magazine (Issue 300, Jan/Feb 2021)
Rafael González-Gallarza, partner al Garrigues Corporate Department, and Alberto Pimenta, partner at Garrigues Litigation and Arbitration Department