Whatever Brexit deal is ultimately delivered, the handling of cross border disputes between the UK and EU looks set to change. With the uncertainty that might bring, will there be a rise in arbitrations? Partner Stuart Evans and Solicitor Santiago Graffigna from BLM’s Commercial Disputes team provide risk managers with their views on this important European issue.

Currently, if you were litigating against another organisation from an EU country, you would have to follow a certain legislative framework. This is known as the Brussels Recast Regulation (BRR). Let’s say, for example, you had an issue with a supply chain provider in Spain, your case would be decided in accordance with the BRR. It has worked well, providing consistency and certainty whilst reducing tactical and unnecessarily duplicative proceedings.

During the current transition period – and up until exit day (31 December 2020, unless extended) – the UK will largely be treated as an EU member state and most EU law (including the BRR) will continue to apply. For new actions commenced up to at least 31 December 2020, jurisdiction will continue to be governed by the BRR, as will judgments in proceedings instituted before 31 December. So far, so clear.

What will replace the BRR on exit day?

But what happens when the UK definitively leaves? As astronomer Sir Patrick Moore once said, in answer to a tricky question: “we just don’t know”. It is possible that despite leaving the EU, and with it the BRR, the Brexit deal could leave the UK closely aligned to the BRR. Yet there remains the theoretical possibility of ‘no deal’ when Big Ben chimes in the new dawn. This would require the UK to focus on other statutory instruments that might become significant, such as the Hague Convention on Choice of Court Agreements (HC). The signatories of the HC are the EU member states, Mexico, Singapore and Montenegro.

The UK is bound by the HC by virtue of its EU membership and it has been indicated that it will accede to the HC post Brexit. The HC might therefore play an important role with respect to jurisdiction and the enforcement of judgments between the UK and the remaining EU member states, where the parties have made an exclusive choice of court. However, the HC is currently largely inapplicable between EU member states because the BRR takes priority on matters of jurisdiction and enforcement of judgments, unless there is an exclusive agreement involving the UK and a non-EU member state contracting party (currently just three other countries). So it’s not exactly oven ready.

There is also the Lugano Convention (LC), to which the parties are European Free Trade Association (EFTA) member states, Norway, Switzerland, Iceland and Liechtenstein. However, the LC does not provide a firm hand on the prevention of multiple proceedings and therefore does not appear an ideal alternative to the BRR.

Dispute resolution: change tack?

It may all work out, of course, and come the new dawn the UK may be operating within a very similar framework to the BRR. However, that remains to be seen and the uncertainty may require those managing risk to approach dispute resolution differently.

One form of dispute resolution that will not be materially affected by Brexit is arbitration and risk managers may wish to explore this further. The question is, will it provide a viable alternative to litigation as the “cliff edge” approaches?

Arbitration is a consensual process, private and largely party controlled. We have seen it growing in popularity among clients doing business internationally. A well run arbitration can be quicker, and with an eye on Brexit, enforcement via the New York Convention offers a clear path to recognise awards. Signatories to the Convention include EU member states and the US; no trade deals required. Providers like the London Court of International Arbitration (LCIA) may suit UK-based parties. Other arbitral institutions, including the International Chamber of Commerce (ICC) based in Paris, and the Stockholm Chamber of Commerce (SCC) are also available. Arbitrations are also a convenient mode of resolution for UK-based investors seeking protection in bilateral investment treaties.

For those responsible for managing risk within their organisation with oversight of future cross-border disputes, you may wish to consider arbitration as part of your decision matrix at the time contracts are drafted and commenced.

This article is part of the FERMA/AIRMIC joint Brexit Newsletter which is designed to give risk professionals unique insight into Brexit related risks and mitigation strategies. 

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