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Brexit changes to civil justice cooperation may make arbitration more appealing for some

As well as representing a profound change in the UK-EU trading relationship, Brexit affects the regime for UK-EU cross-border disputes, in particular in relation to questions of jurisdiction and the enforceability of UK court judgments.

There should, however, be little immediate adverse impact on international arbitration in the UK and we do not anticipate London’s position as one of the world’s leading arbitral centres to change.  In fact, Brexit could lead to increased use of international arbitration (and in some areas increased UK-based arbitration) and recourse to UK bilateral investment treaties.

International Arbitration Review

Risk of reduced enforceability of certain English court judgments in some EU Member States

The Recast Brussels Regulation and Lugano Convention regimes no longer apply to English court judgments, save in relation to certain legacy matters. While the UK is seeking to rejoin the Lugano Convention, it is not yet clear whether the EU will consent to this. In the meantime, the UK has rejoined the Hague Convention on Choice of Court Agreements 2005, which allows for the enforcement of judgments between the UK and EU (and other Contracting States), but only where the relevant contract contains an exclusive jurisdiction clause. The Hague Convention will not apply to exclusive English jurisdiction clauses entered into before 1 October 2015, the date the UK became party to the Hague Convention in its capacity as an EU Member State. It is unclear whether it will apply to clauses entered into after that date but before the UK’s departure and immediate re-accession on 1 January 2021. Pending any re-accession to the Lugano Convention, where the Hague Convention does not apply, parties must look to national law in each Member State to determine whether their English judgment will be enforced.

A potential move away from asymmetric jurisdiction clauses

In some sectors, in particular certain financial markets, “asymmetric” English jurisdiction clauses (where one party is required to litigate in the English courts but the other party is free to bring proceedings elsewhere) are commonplace. While such clauses are enforceable under English law, it remains uncertain whether certain courts in the EU will give effect to them and enforce related judgments. The French courts in particular have found such clauses to be unenforceable. Moreover, as noted above, the Hague Convention only applies to exclusive jurisdiction clauses and related judgments. Now that the transition period has come to an end, parties may therefore increasingly opt for excusive English jurisdiction clauses for transactions where an asymmetric clause may give rise to enforcement risk in a particular Member State. As discussed below, an arbitration clause may be an alternative option.

Arbitration is not directly affected by Brexit

The enforceability of arbitration awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and is, therefore, unaffected by Brexit. Arbitral awards rendered in the UK are as readily enforceable in all EU Member States as they were before the end of the transition period. English law disputes can be referred to arbitration seated in the UK just as easily as another EU Member State, which is important given that English law still remains very popular (even among non-UK parties) and is likely to continue to be chosen as the governing law for many commercial contracts. As such, arbitration may represent an attractive alternative for parties who may have identified issues as to the enforceability of their UK judgment in a particular EU Member State.

For English law governed contracts, the ability of the parties to set out agreed rules for any arbitration (such as requiring the arbitrators to be English law or common law qualified) may add an additional layer of comfort.

Brexit may mean it is easier to enforce an arbitration agreement

One way in which the English courts have historically been willing to uphold parties’ agreements to arbitrate is by way of an anti-suit injunction, an order restraining parties from bringing proceedings in the courts of another jurisdiction in breach of an arbitration agreement. Under the Recast Brussels Regulation regime, the English courts were prevented from granting anti-suit injunctions in relation to proceedings commenced before EU courts. Following the end of the transition period, however, English courts may once again be able and willing to grant anti-suit injunctions to restrain parties from beginning proceedings in EU courts in breach of an arbitration agreement. This may bolster the attractiveness of English-seated arbitration.

This article is part of the International Arbitration Review.

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