Macfarlanes LLP

How will Brexit affect lawyers’ day-to-day work?

Question

Provide an example of how Brexit will have an impact on the day-to-day work of lawyers and their clients.

Answer

At the time of writing this article (23 November 2018), the UK and EU Commission negotiators have reached agreement on the text of the withdrawal agreement – which is intended to set out the terms on which the UK will leave the EU – and on the political declaration, which outlines (in non-binding terms) a framework for the future relationship between the UK and EU. However, it is far from clear what will happen next – in particular, whether the UK Parliament will approve this deal.

Against that background, it seems unwise to attempt to predict what will happen between now and March 2019, when the UK is due to leave the EU. It is, however, easier to identify some of the issues that are at stake in these negotiations. One such issue which has received very little attention in the mainstream media, but will have a significant impact on lawyers and their clients, is the question of whether EU and UK courts will continue to adopt a common and coordinated approach to jurisdiction disputes and the enforcement of judgments in civil disputes.

Why this matters

Business of all shapes and sizes, as well as individuals acting in their personal capacity, need to be able to enforce their legal rights as quickly and cost effectively as possible. This can be more difficult when there is a dispute between parties from different countries. In that situation, there may be a ‘satellite’ dispute about where the main dispute should be heard (ie, in which country). This can add significantly to the time and cost involved in bringing or defending a claim. Sometimes parties incur thousands of pounds in legal fees on a jurisdiction dispute before they even start litigating the real issues between them. In some situations, there is scope for both parties to issue proceedings in their home (or otherwise preferred) courts, leading to ‘parallel proceedings’ which duplicate costs and potentially result in the different courts reaching inconsistent outcomes.

Furthermore, even if a party wins at trial, that is not necessarily the end of the matter. Unless the losing party voluntarily pays any damages awarded against it, the winning party will need to take steps to enforce its judgment against the losing party’s assets. If those assets are in a foreign country, the winning party will need to enforce the judgment in that foreign country. Whether this is possible will depend on the laws of the state where the judgment is sought to be enforced. Although this can usually be done, the process may be difficult, time-consuming and expensive. In some cases, the costs of enforcing a judgment in a foreign country may exceed the sums claimed.

These issues are not only relevant to large multinational businesses, which operate across many jurisdictions. They are equally relevant, for example, to an individual who is injured in a road traffic example while on holiday and who wishes to obtain compensation from the person who caused the injuries.

What the EU rules say

There are a number of EU regulations, which are designed to avoid the problems described above. The EU rules do the following:

  • Provide a coherent framework for identifying which EU member state will have jurisdiction to hear a dispute. This system avoids parallel proceedings by requiring courts of other states (broadly) to refuse to accept jurisdiction over the dispute.

  • Ensure that the courts of EU member states adopt a consistent approach to jurisdiction disputes. This consistency of approach is reinforced by the fact that decisions of the Court of Justice of the European Union on the meaning and effect of the EU rules are followed in all EU courts.

  • Simplify and facilitate various procedural aspects of a dispute, such as the service of proceedings and the obtaining of evidence.

  • Require EU member states to enforce judgments handed down by the courts of other EU member Ssates as if they were their own (with only a few limited exceptions).

What will happen after Brexit?

Unless the UK and the EU enter into a new agreement which replicates the current arrangements, the rules outlined above will cease to apply to, or in, the UK. While many EU rules will be converted into UK law when the UK leaves the EU, this will not be practical with the EU rules on jurisdiction and enforcement of judgments. This is because the rules require reciprocity. In other words, the system only works if all the relevant states agree to be bound by the same arrangements. By definition, Brexit means that the UK will no longer be part of this system of reciprocal rights and obligations.

This will have an impact on cross-border disputes brought in both UK courts and EU courts. English courts will apply the traditional common law rules, which are based on the concept of 'forum conveniens'. These rules are already applied by English courts in situations not covered by the EU rules. This includes, for example, most claims against defendants based outside the EU.

The approach of EU courts will also change after Brexit. Albeit with some exceptions, the general rule is that the courts of individual EU member states only apply the EU rules where the defendant is based in an EU state. Where the defendant is based in a ‘third state’ (such as the UK after Brexit), courts in EU states will in most cases apply their own national rules on jurisdiction disputes (ie their equivalent of the English common law rules). The result will be that, where one set of rules currently applies, there is scope for two or more different sets of rules to apply to jurisdiction disputes after Brexit. This is likely to add complexity and expense to some cross-border disputes.

Jonathan Pratt is a senior solicitor and professional support lawyer at Macfarlanes.

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