What Rules Will Apply to Jurisdiction and the Enforcement of Judgments After Brexit? Part Three

Latham & Watkins LLPEnglish law, courts and arbitral tribunals may become more relevant and popular after Brexit, not less.

Introduction

English law, courts, and arbitral tribunals may become more relevant and popular after Brexit, not less, and parties should continue to feel confident about including English governing law and jurisdiction clauses in their agreements.

In particular, the breadth of English common law jurisdiction and the powerful tools at the English courts’ disposal – notably, the anti-suit injunction and damages for breach of jurisdiction clauses – are likely to ensure that jurisdiction clauses in favour of English courts and tribunals are complied with.

See the previous posts in this series here and here.

English governing law clauses

As an important starting point: Brexit does not impact the approach to determining governing law, or drafting governing law clauses.

The instruments that currently determine governing law, Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I) and Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (Rome II), have been implemented in UK domestic law and will continue to apply post-Brexit.[1]

Moreover, the substance of English common law as it applies to transactions will be unaffected by Brexit. Prized for its certainty and rich history of precedent covering the full spectrum of commercial issues, English law may even benefit from its decoupling from the EU. Indeed, a former Attorney General saw the impact of Brexit as being akin to a decontamination of English law.[2]

In short, all of the benefits of selecting English law as governing law will survive if not be accentuated by Brexit.

English jurisdiction clauses

In many cases, jurisdiction clauses in favour of the English courts will continue to be upheld by the courts of EU Member States. As this post explains, because the Hague Convention on Choice of Court Agreements 2005 (Hague Convention 2005) will continue to apply after Brexit, English courts and the courts of Member States will be bound to uphold exclusive jurisdiction clauses that fall within the scope of the convention, and to recognise any judgment by the court designated by such a clause.[3]

However, views differ as to the scope of the Hague Convention 2005, both materially (e.g., will asymmetric jurisdiction clauses fall within its scope?) and temporally (i.e., will the convention apply from 1 October 2015 or 1 January 2021?).

English courts will uphold jurisdiction agreements in favour of other courts, including Member States, that fall outside the scope of the Hague Convention 2005, in part because English law accords primacy to the parties’ contractual intentions.

However, the courts of Member States will not always uphold English jurisdiction clauses falling outside the scope of the Hague Convention 2005. Article 33 of the Brussels Recast Regulation 1215/2012 (Brussels Recast) only permits the courts of Member States to stay their proceedings in favour of courts in a non-Member State (e.g., the UK, after the end of the Brexit transition period) if, amongst other things, the non-Member State’s courts are seised first.[4] Moreover, even if the non-Member State court had been seised first, the Member State court would still have discretion as to whether to stay its proceedings or not.

However, litigants seeking to invoke an English jurisdiction agreement outside the scope of the Hague Convention 2005 are not powerless — far from it.

Anti-suit injunctions to prevent proceedings in breach of exclusive English jurisdiction clauses

An anti-suit injunction (and its close cousin, the anti-enforcement injunction) is a restraint on a party to a contract from commencing or continuing with proceedings in breach of an exclusive jurisdiction clause (whether a choice of court or arbitration agreement). The English courts treat such proceedings as a breach of contract, capable of restraint by injunction.

The English courts have been issuing anti-suit injunctions since at least the 16th century, if not earlier.[5] However, anti-suit injunctions have been held to be incompatible with and are prohibited under the various EU jurisdictional regimes.[6]

After the end of the Brexit transition period, in cases brought under English common law rules and in arbitrations, English courts and tribunals will once again be able to grant anti-suit (and anti-enforcement) injunctions in support of their proceedings wherever the foreign proceedings are threatened or issued.

Anti-suit injunctions may also be permissible under the Hague Convention 2005 on the basis that the convention embodies a “system of qualified or partial mutual trust”, contrasting with the expectation under the various EU jurisdictional regimes that prize “the overarching principle of mutual trust and system objectives”. As such, some observers suggest there is no expectation that a court in one jurisdiction should trust the court of another jurisdiction to stay proceedings.[7]

A recent example of the power of the anti-suit injunction is the case of Catlin Syndicate Ltd and others v. Amec Foster Wheeler USA Corp and another.[8] The defendants had commenced proceedings in the US state of New Jersey, in breach of an exclusive jurisdiction agreement in favour of the English courts. The court not only upheld the anti-suit injunction, prohibiting the defendants from taking any further steps, but also granted a mandatory injunction requiring the defendants to actually withdraw the proceedings. If, hypothetically, the defendants had refused to comply, they would have been at risk of being fined or imprisoned (or both), and in any event would have had to pay damages to the claimants for any loss suffered as a result of breach of the injunction.

Damages for breach of English jurisdiction clauses

The English courts may also award damages for breach of a jurisdiction clause. In other words, if a party to an exclusive jurisdiction clause (whether a choice of court or arbitration agreement) attempts to bring proceedings in another forum, the English courts may award damages to the other party for breach of the agreement. The damages award could in principle extend to all losses suffered by the claimant caused by the respondent’s breach of the jurisdiction agreement, subject to the normal rules of remoteness, causation, and mitigation. The award could therefore potentially include all unrecovered costs of the foreign proceedings as well as any amount that the claimant is ordered to pay (and does pay) in damages by the foreign court.[9]

English law has recognised the availability of damages for breach of exclusive jurisdiction agreements under the common law since at least 1928,[10] and have even made damages awards in cases falling under the EU jurisdictional regimes.[11]

The breadth of English common law jurisdiction

Finally, it is worth reflecting on the breadth of English common law jurisdiction.[12]

After Brexit, multiple additional bases for jurisdiction will in principle be available under the English common law rules, even against EU-domiciled defendants. In the words of Professor Adrian Briggs QC, EU-domiciled defendants will lose their “jurisdictional defensive shields”.

Brussels Recast creates a binding set of jurisdictional rules that permit EU-domiciled defendants to be sued outside of their home states only in certain limited circumstances. The English common law rules are much wider.

Even the mere temporary presence in England of a person who is domiciled elsewhere may be enough for them to be properly served with a claim. A foreign company that is carrying on business at a place in England is also regarded as being present in the jurisdiction and may be properly sued. The normal jurisdictional rule under Brussels Recast, by contrast, is that a person (including a company) domiciled in the EU may be sued only in their own Member State.[13]

A person or company based outside of England may also be sued in the English courts in a much wider set of circumstances under the English common law rules than under Brussels Recast. To give just a few examples: being party to a contract governed by English law, or that has been concluded or breached in England, may be sufficient for that party to be served out of the jurisdiction with a claim. So too could committing an act or failing to do an act in England (e.g., failing to make a payment to an English bank account) that is capable of being enjoined. If a defendant sustains significant damage in England — or even if they may sustain significant damage in England — they may sue in England for all of the damage they have suffered, wherever that damage occurred. And if the claim relates to property in England (e.g., shares or cash), that may be sufficient.

Given the broad reach of the English common law rules on jurisdiction, the doctrine of forum non conveniens plays an important role in ensuring that litigations proceed in the most appropriate forum. That doctrine allows the court to take into account a wide range of factors in determining whether England is the proper place for the litigation to advance. This is an important protection for would-be defendants and one that is not available under Brussels Recast.[14]

In short, post-Brexit, English court jurisdiction will in principle be available in a wider range of circumstances, but the English courts will also have the discretion to reject proceedings that have a much closer connection to another country. This could create considerable barriers for would-be international class actions which often target the UK-domiciled parent companies of multinational groups yet concern overseas grievances.

Finally, the English courts will no longer be prevented from hearing a claim even when the court of a Member State has been seised first. The infamous “Italian Torpedo” will be gone forever.

Enforcement of English judgments

Post-Brexit, enforcing English judgments throughout the EU may be marginally more difficult than it currently is under Brussels Recast. However, several factors may ameliorate much of the anticipated additional difficulty in enforcement.

First, any judgment given in a case falling within Hague Convention 2005 must be recognised and enforced in other contracting states, subject to a limited range of exceptions.

Second, there are bilateral treaties on the enforcement of judgments between the UK and a number of major EU jurisdictions, namely France, Germany, Italy, the Netherlands, Austria, and Belgium. These predate the UK’s entry into the EU, but are expected to once again have full force and effect after Brexit.[15]

Third, given London’s pre-eminence as a financial centre, there are a large number of EU-domiciled defendants with assets in England — including defendants with assets held by any of the many banks with branches in London, who may find that those assets can be used in satisfaction of English judgment debts. An English court judgment will still be extremely valuable, even if it is marginally more difficult to enforce in other Member States.

Finally, the English courts have more powerful and intrusive tools (e.g., orders to obtain or extract useful information about where assets are located by forced disclosure) to assist in the enforcement of judgments than any other Member State.

Conclusion

The considerable value and benefits of selecting the English courts and English law are not likely to be diminished by Brexit. To the extent that there is any real impact at all on the enforceability of English judgments in Member States will be more than offset by the renewed ability of English courts to utilise the full range of tools at their disposal to enforce jurisdiction agreements and enjoy appropriate discretion to dismiss those cases more obviously suited to another court.

This post was prepared with the assistance of James Mathieson in the London office of Latham & Watkins.

Endnotes

[1] They have been implemented in the The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/834) – https://www.legislation.gov.uk/uksi/2019/834/contents/made

[2] See the comments made by Lord Goldsmith QC in a keynote address to an LCIA Symposium in Washington DC on 18 September 2016, found at https://www.lcia.org/News/lord-goldsmith-keynote-address-2019-and-all-that.aspx.

[3] Note in that regard that the Hague Convention 2005 takes precedence over the Brussels Recast Regulation 1215/2012 in circumstances where they conflict, unless both of the parties to the jurisdiction agreement in question are domiciled in the EU – Article 26(6), Hague Convention 2005.

[4] See the English case of Gulf International Bank BSC v Aldwood [2019] EWHC 1666 (QB), which upheld this interpretation. It is possible that the courts of other EU Member States of the CJEU may come to a different conclusion.

[5] See D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd Ed), chapter 12.

[6] C-159/02 Turner v Grovit [2005] 1 AC 101 prohibited them under the Brussels Convention 1968; C-185/07 West Tankers Inc v Allianz SpA [2009] 1 AC 1138 prohibited them under the Brussels Regulation 2001; and the High Court decision of Nori Holding and others v Public Joint-Stock Company Bank Otkritie Financial Corporation [2018] EWHC 1343 (Comm) prohibited them under Brussels Recast. It is assumed that they are also prohibited under the Lugano Convention 2007, on the basis that the convention mirrors the provisions of the Brussels Regulation 2001, but there is no case law on this point. We have discussed the West Tankers decision (see https://www.lw.com/admin/Upload/Documents/IA_NEWS_IN_BRIEF_New_West_Tankers.pdf) and the Nori Holding decision (see https://www.latham.london/2018/07/english-court-cannot-issue-anti-suit-injunctions-restraining-other-eu-court-proceedings/) in earlier blog posts.

[7] M. Ahmed, P. Beaumont, “Exclusive choice of court agreements: some issues on the Hague Convention on choice of court agreements and its relationship with the Brussels I Recast, especially anti-suit injunctions, concurrent proceedings and the implications of Brexit”, (2017) 13 JPIL 386.

[8] [2020] EWHC 2530 (Comm).

[9] For example, in Union Discount Co Ltd v. Zoller [2002] 1 WLR 1517 the claimant obtained an order for all of its costs in the foreign proceedings, athough it is worth noting that, in that case, the foreign jurisdiction only permitted recovery of costs in exceptional circumstances and the foreign court had in fact made no award as to costs.

[10] Ellerman Lines Ltd v Read and Others [1928] 2 KB 144.

[11] Starlight Shipping Co v Allianz Marine & Aviation Versicherungs AG (“the Alexandros T”) [2013] UKSC 70, [2014] Bus. L.R. 873, and Barclays Bank v ENPAM [2016] EWCA Civ 1261, both cases governed by the Brussels Regulation 2001.

[12] See Professor Adrian Briggs Combar Lecture on this topic – https://www.combar.com/wp-content/uploads/2020/02/Prof-Adrian-Briggs-QC-Brexit-lecture-24.1.17.pdf

[13] Note that per. Article 63 of Brussels Recast, a company is regarded as domiciled at the place where it has its statutory seat, place of central administration, or principal place of business.

[14] See Article 4 of Brussels Recast, (C-281/02) Owusu v Jackson [2005] 2 W.L.R. 942, Vedanta Resources Plc v Lungowe [2019] UKSC 20.

[15] Note that there are conflicting views on this. See by contrast the views of Professor Briggs (https://www.combar.com/wp-content/uploads/2020/02/Prof-Adrian-Briggs-QC-Brexit-lecture-24.1.17.pdf) and the Combar conflict of laws sub-group – (https://app.pelorous.com/media_manager/public/260/COMBAR%20Brexit%20Conflict%20of%20Laws%20%20Jurisdiction%20Report%20as%20sent%20to%20MoJ%2011.1.17%20%28002%29.pdf).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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