Brexit affect on cross-border litigation in civil and business issues – which guidelines apply?

Traditionally, many international treaties contain a court agreement in favor of English courts. This is for a number of reasons, including the popularity of English law in regulating trade agreements due to the predictability of outcomes in light of common law precedent, familiarity with the language, the experience of English judges in resolving international disputes, and the availability of a broader legal disclosure.

On January 31, 2020, the United Kingdom (United Kingdom) has left the European Union (I) and formally became a third state. During the transition period (January 31, 2020 to December 31, 2020), the EU regulations on civil procedural and international law matters remained applicable within the framework of the revocation agreement (OJ L 29 of January 31, 2020, p. 7). The position on jurisdiction clauses in favor of English courts and on the enforcement of English judgments in EU member states as well as the applicable law has changed at the end of the transition period. The trade and cooperation agreement concluded on Christmas Eve between the EU and the United Kingdom (OJ L 444 of 31 December 2020, p. 14) does not contain any provisions on international private law or international civil procedure law. We are examining what this means for companies starting from January 1, 2021, cross-border legal disputes between the United Kingdom and the EU member states, in particular Germany and Austria, regarding the choice of jurisdiction and the recognition and enforcement of judgments (A. ) and the choice of the applicable law (B.).

International jurisdiction and recognition and enforcement of British judgments in the EU

Within the EU, questions of international jurisdiction and the recognition and enforcement of judgments in civil and commercial matters are regulated in the Brussels I Regulation (new version) (Brussels I recast).

Which rules apply from January 1st, 2021?

As of January 1, 2021, the new version of Brussels I to facilitate the cross-border recognition and enforcement of judgments within the EU no longer applies to the United Kingdom (see: Article 67 of the Withdrawal Agreement). However, EU rules on international jurisdiction will continue to apply to proceedings initiated before the end of the transitional period. Similarly, the Brussels I recast will continue to apply to the recognition and enforcement of judgments given in judicial proceedings before December 31, 2020.

If proceedings are initiated against the UK and EU Member States from 1 January 2021, the provisions on the recast case law in Brussels I will remain relevant if the link factor relates to the courts of a Member State, for example if a consumer runs a business wants to sue who is based outside the EU. If there are no such connection factors, the following options are available:

• 1968 Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters (Brussels Convention)

It is currently unclear whether the Brussels Convention as the “predecessor” of the new version of Brussels I will be “revived” and reapplied or whether the Brussels Convention was (tacitly) terminated by subsequent EU regulations. In any case, the Brussels Convention does not reflect the improvements brought about by the switch to the Brussels I Regulation of 2001 and the Brussels I revision of 2012. In addition, its geographic scope is limited as it does not extend to Member States that joined the EU after 2001.

• 2005 Hague Convention on Choice of Jurisdiction Agreements (the 2005 Hague Convention)

The United Kingdom independently acceded to the Hague Convention of 2005 on January 1, 2021. The United Kingdom was a member of the Convention as an EU member state from October 1, 2015. There are some key differences compared to the Brussels I recast regime:

• The 2005 Hague Convention only applies to exclusive jurisdiction clauses. Asymmetrical and non-exclusive jurisdiction clauses do not fall within their scope.
• The 2005 Hague Convention only applies to the recognition and enforcement of final judgments and does not apply to the recognition and enforcement of interlocutory orders such as freezing orders.

The timing is still unclear: the UK believes that the Hague Convention of 2005 will apply to exclusivity agreements concluded from October 1, 2015 when it became a member through the EU. However, the EU Commission is of the opinion that the Convention will not apply to exclusive jurisdiction clauses that were concluded before the United Kingdom became an independent contracting state, i.e. from January 1, 2021.

• 2007 Lugano Convention on Jurisdiction, Recognition and Enforcement of Judgments in Civil and Commercial Matters (Lugano Convention)

The Lugano Convention provides for a largely equivalent regime to the new version of Brussels I. On April 8, 2020, the United Kingdom applied to join the Lugano Convention. Although Switzerland, Norway and Iceland have indicated that they support the accession of Great Britain, the remaining contracting parties (EU and Denmark) still have to agree, as all current contracting states must agree to a new acceding state if they are not yet an EFTA member. Even if the United Kingdom’s proposal is accepted unanimously, there will be three months between accession and entry into force (Article 73 of the Lugano Convention).

If none of the above-mentioned multilateral legal instruments are applicable, issues relating to international jurisdiction and the enforcement of judgments are regulated either by existing bilateral treaties or by the national law of the member states.

Jurisdiction clauses and their recognition under national law

In the absence of a relevant international agreement, German and Austrian courts apply the following principles when deciding on the recognition and enforcement of English jurisdiction clauses and English judgments.

Germany

German courts can recognize clauses of jurisdiction in favor of English courts in accordance with the national procedural rules that also apply to third countries. Unlike in B2B cases, the choice of court agreements in B2C or consumer cases is only valid if at least one of the contracting parties does not have a general place of jurisdiction in Germany and the agreement is concluded or confirmed in writing.

• Recognition and enforcement of British judgments under German law

As for the recognition and enforcement of British judgments in Germany, it is likely that the Convention between the Federal Republic of Germany and the United Kingdom of Great Britain and Northern Ireland of July 14, 1960 on the Mutual Recognition and Enforcement of Judgments in Civil and Commercial Matters exists be valid. However, the convention is not as advanced as, for example, the new version of Brussels I and only applies to judgments about a certain amount of money. For all other cases, autonomous German rules for the recognition and enforcement of judgments apply according to Sections 328, 722 of the Code of Civil Procedure, ie judgments of the United Kingdom require an exequatur procedure, which makes the procedure more complicated, time-consuming and costly.

Austria

Austrian courts can also recognize jurisdiction clauses in favor of English courts in accordance with national procedural rules. For the choice of court agreements to be valid, they must relate to a specific legal relationship and will only be judged on the basis of evidence. As in the new version of Brussels I, Austrian courts recognize jurisdiction clauses in favor of English courts, unless there is mandatory jurisdiction in favor of Austrian courts (e.g. disputed labor law, consumer law, insurance law). The recognition of asymmetrical jurisdiction clauses (sole option / unilateral clause) remains uncertain regardless of Brexit. There is very little case law on this point and no final decision as to the scope and validity of such clauses.

• Enforcement of judgments under Austrian law

Austria only recognizes and enforces foreign judgments if reciprocity is guaranteed on the basis of an international treaty. The bilateral treaty dated July 14, 1962 between the Republic of Austria and the United Kingdom of Great Britain and Northern Ireland, which provides for the mutual recognition and enforcement of judgments in civil and commercial matters, could be applicable and ensure reciprocity. However, the applicability of the 1962 Treaty is controversial among legal scholars and there is as yet no case law. The situation therefore remains uncertain to a certain extent.

What do companies need to consider?

In cases involving the UK, parties starting litigation on or after January 1, 2021 should generally know that the legal position regarding the choice of English courts and the recognition and enforcement of UK judgments has changed since Brexit Has. In many cases, the contracting parties have to rely on bilateral agreements between the UK and EU member states such as Germany or Austria or on domestic law when dealing with procedural issues that have previously been the subject of a harmonization of EU rules.

Therefore, when assessing arrangements with high litigation risk, it is important to carefully weigh all available options and consider possible jurisdictions. Relevant factors that influence the evaluation are rules of evidence, the precedent value of the above decision, flexibility of the procedure, but also the enforceability of decisions.

In cases where the parties have chosen exclusive English jurisdiction in the past, this remains a valid option. In other cases, the options need to be carefully considered. If necessary, it should also be checked whether arbitration clauses offer more security and predictability.

Applicable conflict of laws for contractual and non-contractual obligations

In contrast to the European rules on the recognition and enforcement of judgments, the EU rules on applicable law do not require reciprocity and are universally applicable. According to Article 2 of the Rome I Regulation and Article 3 of the Rome II Regulation, any law set out in the Rome I or Rome II Regulation will apply, whether or not it is the law of a Member State. The end of the transition period therefore has no material impact on the choice of legal clauses. German or Austrian courts should continue to confirm the parties’ choice of English law on the same basis as before.

Conclusion

The “post-Brexit world” is different from the previous one. Given the fragmented legal framework, companies need to carefully examine the wording of their contracts. In choosing the dispute forums, the parties must assess which factors are important to them and consider all options.