Choice of court agreements after Brexit
This guidance sets out the implications from the end of the Brexit transition period for cross-border disputes covered by a choice of court agreement.
- for UK lawyers advising clients in cross-border civil and commercial disputes involving parties from EU member states where there has been a choice of court agreement
- unless the UK accession to the Lugano Convention on Recognition and Enforcement of Judgments is ratified, in which case Lugano takes precedence
From the end of the transition period, EU frameworks, including the Brussels Regulations, no longer apply to the UK (with the exception of ongoing proceedings).
Unless the UK application to accede to the Lugano Convention has been approved, the Hague Choice of Court Agreements Convention 2005 will be the key legal framework for disputes where the parties have agreed an exclusive choice of court.
The Hague Choice of Court Agreements Convention 2005
The Hague Choice of Court Agreements Convention 2005 ensures the effectiveness of choice of court agreements made between parties to international commercial contracts.
The European Union, Denmark, Mexico and Singapore are parties to the 2005 Convention.
China, North Macedonia, Ukraine and the United States signed the 2005 Convention but have not yet ratified it.
The UK previously participated in the 2005 Convention by virtue of EU membership. The EU ratified the 2005 Convention in 2015 and it entered into force from 1 October 2015.
On 28 September 2020, the UK deposited its instrument of accession to the 2005 Convention to ensure that it continues independently its participation in the 2005 Convention from 1 January 2021.
There are two issues regarding the scope of the 2005 Convention.
Firstly, the 2005 Convention applies only to exclusive choice of court agreements.
Secondly, there is a divergence of views between the UK and the EU as to from when the UK is member of the 2005 Convention.
These two issues are likely to provoke a degree of uncertainty and litigation in the future.
Exclusive choice of court agreements
The first issue is that the 2005 Convention applies only to an exclusive choice of court agreement.
Article 3(a) states an agreement will be exclusive, if it appoints only one court with jurisdiction.
Furthermore, article 3(b) of the 2005 Convention deems an agreement to be exclusive “unless the parties have expressly provided otherwise”.
Finally, article 22 provides that the contracting states can make declarations on the applicability of the 2005 Convention to non-exclusive choice of court agreements if an agreement between the parties meets the requirements of article 3(c) and designates a court of one or more contracting state.
If an agreement is not an exclusive choice of court agreement, the local law of a signatory will apply to the case at hand. This covers questions as to whether the choice of court agreement is validly concluded.
There is also the possibility of asymmetric or unilateral choice of court agreements, which are typical in international financial agreements, and where generally the lender has a range of courts in which to sue, while limiting the borrower to the courts of a single state.
While such asymmetric clauses are commonplace in many finance agreements, there is disagreement across jurisdictions about whether they are exclusive or non-exclusive for the purposes of the 2005 Convention.
In the UK, although the explanatory report to the 2005 Convention suggests that asymmetric clauses fall outside its scope, Cranston J’s obiter comments in Commerzbank v Liquimar had suggested a different view. However, more recently, the Court of Appeal in Etihad v Flother referred in obiter comments to the explanatory report as “a strong indication” that asymmetric clauses fall outside the Hague Convention.
In order to resolve this issue, the UK and EU could make reciprocal declarations that the 2005 Convention applies to non-exclusive jurisdiction agreements as well as exclusive jurisdiction agreements on the basis of article 22, but there has been no positive indication about this to date.
The effective date of entry into force for the UK
The 2005 Convention applies only to choice of court agreements concluded after its entry into force.
The position of the EU Commission in August 2020 was that the 2005 Convention will enter into force between the EU and UK only upon the UK becoming a party in its own right to the 2005 Convention (in effect from 1 January 2021). This created some uncertainty for parties with choice of court agreements.
The UK considers that the 2005 Convention has continued to apply without interruption from its original entry into force date when the 2005 Convention entered into force for the EU: 1 October 2015. This has been stipulated by the UK in Ministry of Justice guidance and in its declaration accompanying its deposit of the instrument of accession.
Notably, the Hague Conference on Private International Law (the depositary of the convention and ratifications by participating states) states that the 2005 Convention entered into force for the UK in October 2015.
Practical advice for firms and lawyers
Determining the nature of a choice of court agreement clause will be crucial as to whether the 2005 Convention will apply. Existing client contracts should therefore be checked for asymmetric clauses.
The date the choice of court agreement is concluded should also be checked. Existence of such a clause could affect enforceability because local law will apply.
With regards to drafting new client contracts, consider the most appropriate choice of court clause you are proposing for that agreement.
- where the parties are based
- where proceedings should be brought
- where any judgment would need to be enforced
To avoid the possibility of non-enforcement of a judgment in an EU member state, consider whether there are appropriate alternatives to standardised choice of court clauses, such as arbitration and local law.