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BREXIT: JURISDICTION AND ENFORCEMENT OF JUDGMENTS (B2)

Commercial contracts will, almost always, contain clauses which deal with what will happen if a dispute arises during the performance of the contract which cannot be resolved amicably. There are several options for the parties. All these options have advantages (pros) and disadvantages (cons). These options include, of course, litigation and arbitration, among others.


When deciding, and agreeing, an appropriate procedure for resolving contractual disputes, one factor that must be considered is enforcement. In other words, if you get a decision in your favour (from a court or arbitral tribunal), how can, and how will, it be enforced? This is a practical issue, particularly if the parties to the contract are in different jurisdictions.


Parties to a commercial contract will almost always incorporate two particular clauses into their contracts. One will be a ‘governing law’ (or ‘choice of law’) clause. This will deal with the issue of which country’s laws will govern the contract. Many parties to cross-border commercial contracts choose English law to govern their contract, even if the parties to the contract have no connection to England. There are many reasons for this.


A second type of clause, called a ‘jurisdiction clause’ deals with where (in other words, in which country’s courts or tribunals) any potential future dispute will be heard.


However, as we have said, a real and practical problem is how any decision (of a court or arbitral tribunal) will be enforced. This problem has come into sharp focus recently in relation to the British exit (‘Brexit’) from the European Union, and in the light of the Trade and Cooperation Agreement (TCA) between the United Kingdom and European Union (EU) which was agreed in December 2020.


The TCA does not contain any provisions on civil judicial cooperation. Until 1st January 2021, the UK had applied EU instruments – of particular relevance here is the Brussels Regime, contained in an (amended) EU regulation of 2012 and also the Lugano Convention. At the current time, there is still uncertainty about what will replace this regime. For now, issues of jurisdiction and enforcement of judgments will be determined by the Hague Convention on Choice of Court Agreements or by national laws. The current situation is not, by any means, ideal – particularly for parties entering into new commercial agreements.


On the bright side, the position with regard to arbitration (as a dispute resolution mechanism) is clearer. Brexit will not affect the recognition and enforcement of arbitration clauses. Of course, whether the parties feel that arbitration – as opposed to other methods of dispute resolution, such as litigation – is appropriate in their case is another issue entirely. However, the current uncertainty, and potential problems, in relation to the enforcement of judgments after Brexit may mean that more parties will consider arbitration as a means of dispute resolution. That remains to be seen.


Of course, the English courts – and in particular the Supreme Court of the UK - have recently reached a number of important decisions in relation to arbitrations. These include Enka v Chubb [2020] UKSC 38, which we posted about in October 2020, here:


https://www.cambridgelegalenglish.com/post/arbitration-enka-v-ooo-insurance-2020


and Halliburton v Chubb [2020] UKSC 48, an important recent case on arbitrator impartiality.


Whatever the future may hold, for lawyers, one of the important takeaways from these developments is that they will need to consider, very carefully, issues of, and in relation to, dispute resolution when drafting commercial contract clauses.



FOOD FOR THOUGHT


Think carefully about the reasons why parties to transnational (cross-border) commercial contracts often choose English law to govern their agreement.


What are the pros and cons for parties to commercial agreements in choosing litigation or arbitration as the preferred method of dispute resolution?


© Cambridge Legal English Academy 2021

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