Dispute resolution, litigation and arbitration
Cross-border civil proceedings post-Brexit
The United Kingdom has left the EU. The transition period ended on 31 December 2020. The eleventh-hour “Brexit Deal” contains no guidance on civil litigation, marking the first real turning point for cross-border civil proceedings.
New (old) rules for cross-border civil litigation
Following the United Kingdom’s departure from the EU, the uniform European rules for civil disputes no longer apply to the UK. Although the Withdrawal Agreement provided for continued application of EU rules for the transition period, the Trade and Cooperation Agreement – which prevented a hard Brexit at the last minute, at least in some areas – does not contain any follow-up regulations on judicial cooperation in civil litigation.
The European rules on jurisdiction and the mutual recognition and enforcement of judgments (Regulation (EU) No 1215/2012, “Brussels I”), the service of documents (Regulation (EC) No 1393/2007) or the cross-border taking of evidence (Regulation (EC) No 1206/2001) have ceased to apply from 1 January 2021, without being replaced with any follow-up legislation. This does not apply to proceedings initiated before the end of the transition period, however, which will continue to be governed by European procedural rules for years to come. For actions deriving directly from insolvency proceedings, for example, the European Insolvency Regulation shall continue to apply if the insolvency proceedings were opened before 1 January 2021. The actions, such as avoidance actions or claims against managing directors who have breached their duty to refrain from making payments in insolvency, can then be initiated under European procedural rules years later.
Once entirely new proceedings are initiated, however, the parties face the issue of how to fill these gaps in the procedural toolkit.
Jurisdiction and choice of court
At the outset of new proceedings this naturally raises the question of where to sue or be sued, if the plaintiff and the defendant are from different countries. Previously, the choice of court issue was governed by the uniform rules of Brussels I. In particular, this prevented courts from simultaneously claiming jurisdiction. But Brussels I no longer applies post Brexit – and there are no adequate follow-up regulations.
Instead it is currently being debated whether Brexit has triggered a reactivation of the 1968 Brussels Convention. This would only apply, if anything, to the 14 older EU Member States. The more recent EU Member States were never contracting parties to the convention. Officially, neither the UK nor the EU is assuming at present that the old Brussels Convention still applies, one of the main reasons being to avoid the patchwork of different rules this would create. Instead both sides point out that, for now, the question of jurisdiction will in most cases likely have to be determined based on respective national law.
The 2007 Lugano Convention could remedy this: This convention was originally designed to extend the European procedural rules to the European Free Trade Association, which is why it is heavily modelled on the Brussels Convention (the precursor to Brussels I). However, whether the Lugano Convention will apply is still undetermined. The United Kingdom filed a request for accession to the Lugano Convention on 8 April 2020, which has yet to be granted by the EU, Denmark, Switzerland, Norway and Iceland. The European Commission’s response has so far been somewhat reluctant. This may have been for strategic reasons due to the ongoing negotiations. But there are also question marks in terms of content: For one, the Lugano Convention falls short of what is covered by the current version of Brussels I, and secondly it may not effectively prevent phenomena that the EU considers undesirable such as forum shopping, anti-suit injunctions or torpedo actions. Although the Lugano Convention requires that members take into account case law (of the contracting states and European courts), it does not force them to adhere to it in national civil proceedings. As a result, the Lugano Convention cannot prevent UK courts from issuing orders that affect proceedings in Europe. It would therefore be quite understandable if the European Commission try to keep the scope of the Lugano Convention restricted to the European Free Trade Association and lets the period for approval expire. However, the EU has not yet officially commented on this.
Forum shopping, anti-suit injunctions or torpedo actions will also pose a threat, if national rules of jurisdiction apply between the EU and the United Kingdom. Such national rules of procedure are most certainly not capable of preventing parties from filing parallel proceedings, torpedo suits or other legal actions in non-EU countries, which may disrupt ongoing proceedings and in some cases even impact subsequent enforcement.
The legal situation is at least slightly more straightforward where the parties have concluded an (exclusive) agreement on jurisdiction. On 1 January 2021 the United Kingdom acceded to the Hague Convention on Choice of Court Agreements to which it previously had access as an EU Member State. Jurisdiction should therefore be clear where merchants concluded an exclusive choice of courts agreement after 2015. The European regulatory framework is, however, also ahead in this regard. For one it is unclear under the terms of the Hague Choice of Court Convention whether proceedings (such as those pursuant to Article 31(2) Brussels I) can be suspended, if another action is brought in a different court with reference to the choice of court agreement. The Hague Choice of Court Convention does allow for proceedings to be suspended. However, in addition to its limited scope it has an extensive list of requirements to be met before the first court seized with the matter can suspend or reject proceedings.
Service, evidence-taking, payment actions and other procedural simplifications
Also, as a result of Brexit, many procedural simplifications introduced over the years by European regulations no longer apply: The rules on facilitating service abroad (Regulation (EC) No 1393/2007), on the taking of evidence abroad (Regulation (EC) No 1206/2001), for example, ceased to apply when the transition period ended. In both areas the earlier Hague conventions now apply again, namely on service (1965) and on the taking of evidence (1970), as does the 1928 German-British Convention on the conduct of legal proceedings.
Luckily, the cross-border procedural simplifications will not all be lost as a result – service of foreign court documents by mail will still be possible, for example. Requests for assistance in taking evidence, e.g. for the questioning of witnesses in the United Kingdom, will still be possible. However, these requests will have to be addressed to central bodies and can no longer be dealt with via direct court-to-court communication channels. In these areas, therefore, Brexit is bringing back that higher administrative burden that had been eliminated within the EU, and it is to be expected that it will take considerably longer in future to process and complete certain procedural steps in cross-border litigations with a UK dimension.
The simplifications with regard to the collection of debts have been lost entirely, on the other hand, and there is nothing to take their place. In relation to debtors resident in the United Kingdom, both Regulation (EC) No 1896/2006 of 12 December 2006 creating a European order for payment procedure and Regulation (EC) No 805/2004 of 21 April 2004 creating a European Enforcement Order for uncontested claims ceased to apply on 31 December 2020.
Recognition and enforcement of judgments
Lastly, with Brussels I no longer applying, as already mentioned, the recognition and enforcement of judgments between the EU and the United Kingdom is set to become more complicated again. Under Brussels I, decisions issued in a Member State were recognised and enforced in the UK without any special procedures needing to be adhered to. For instance, a creditor who had obtained a judgment in a Member State court was able to very quickly and easily begin enforcing it in the United Kingdom.
For proceedings initiated from 1 January 2021 on (the transitional arrangements no longer apply in this respect), creditors are going to have to invest far more effort to enforce a judgment issued in their favour against a debtor resident in the United Kingdom. Exactly what steps will be needed will however depend on the future agreements. Merchants, for example, who have secured a decision in their favour on the basis of an exclusive jurisdiction clause can already rely on the Hague Convention on Choice of Court Agreements, which the United Kingdom acceded to on 1 January 2021. Other plaintiffs will possibly be able to rely on the 1960 UK-German treaty on recognition and enforcement, at least where finally adjudicated pecuniary claims are concerned, but the applicability of this treaty is controversial as well. Consequently, there will also be judgments that will have to be enforced solely on the basis of national recognition and enforcement rules (in Germany those are, for example, sections 328 and 722/723 German Code of Civil Procedure).
One thing all these agreements have in common is that they make the enforcement of judgments abroad far more complicated than it was under Brussels I. The German Code of Civil Procedure and the 1960 UK-German treaty, for example, require the decision to be final (i.e. not appealable), which can delay enforcement for years. And creditors armed with just a copy of the judgment and the form used for enforcement in Europe (to be filled out by the court) will find that they will not get very far. Under the terms of the Hague Choice of Court Convention, for instance, creditors have to submit a copy of the judgment and the choice of court agreement, evidence of service and enforceability, and certified translations of all the documents. Following on from that, judgments would have to be registered in the United Kingdom or declared enforceable in Germany respectively, and both procedures take time.
Enforcement may possibly be simplified if the United Kingdom accedes to the 2007 Lugano Convention already mentioned above. Creditors would still have to go through the registration procedure and the procedure for declaration of enforceability, but at least the formal requirements are less strict under the Lugano Convention.
The Trade and Cooperation Agreement signed at the eleventh hour brings with it new rules on cooperation for many business sectors. Judicial cooperation in civil matters is not one of them: The European rules in place in this area no longer apply, but there are no follow-up rules. So judicial cooperation in civil and commercial matters has to fall back on earlier agreements (usually the Hague Conventions) or the application of national procedural rules. Which means that the new Europe finds itself reverting to the proverbial old rules.
That does not make judicial cooperation in cross-border civil proceedings impossible. This newsletter has shown that conducting civil proceedings in England and enforcing judgments in Europe – and vice versa – will still be possible, but with the uniform European regulations and procedural simplifications no longer applying, there is much that will become more complicated. In future everything from determining which court has jurisdiction right through to enforcing judgments will involve cross-border processes requiring a higher level of investment in terms of formal requirements, administrative effort and time.
What this will actually mean in practical terms remains to be seen. Some restrictions will de facto only come into play with some delay because the EU rules will still apply to proceedings initiated before 2021. Moreover, with the current Brexit deal as it stands, there is still a possibility that there may be a supplementary agreement on judicial cooperation in civil matters. After all, during the Brexit negotiations both sides announced on multiple occasions their intention to strengthen and regulate cooperation in civil matters in addition to cooperation in criminal matters (which was actually written into the Brexit deal). Furthermore, the United Kingdom’s request for accession to the Lugano Convention is a step in this direction.
But what conclusions can we already draw today? For sure, there is the idea of resorting to arbitration to avoid entirely all the discussion around jurisdiction, procedural rules and enforcement. Brexit does not affect the enforcement of arbitral awards on the basis of the New York Convention, after all, but there are certainly advantages to having recourse to national courts. In this case, companies and merchants should consider agreeing choice-of-law clauses and (exclusive) choice-of-court clauses, especially where in the case of cross-border transactions it is uncertain whether a particular court has jurisdiction, and a judgment may have to be enforced in another country. The German civil courts are not the worst choice in cases of this kind, as it happens.