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Brexit Contract Issues - Choosing a Jurisdiction to Decide Disputes

on Wednesday, 11 October 2017.

Sue Malthouse - one of our London based IT and Commercial Partners, discusses a current concern in drafting commercial contracts whilst the terms of Brexit remain unclear - where will any dispute be decided?

What Is the Position on Future Enforceability of Judgements?

One of the many potential legal uncertainties arising from the Brexit process relates to the future enforceability of judgements. The current position is that judgements obtained through the English courts can be enforced in other EU jurisdictions. As a result it has become best practice when drafting commercial contracts to provide that the contractual terms are to be interpreted under English law, and subject to the exclusive jurisdiction of the English courts. This solution both provides certainty and reduces client costs in the event that the contract is litigated.

There is however no clarity at the moment as to what the position will be post-Brexit, and therefore whether this approach remains workable, particularly for contracts being concluded now which will run past 2019.

To follow current best practice and provide for exclusive English court jurisdiction may result in judgements obtained in England in relation to contracts with an EU connection (for example, through the nationality of one of the parties or the place of performance) having no simple or cost-effective means of enforcement within the EU or international arena. On the other hand, to opt for non-exclusive English jurisdiction opens up the possibility that one of the parties may start proceedings in another permitted jurisdiction, thus involving the client in the expense and uncertainty of foreign litigation.

What Approach Should You Take?

We are therefore recommending clients whose commercial contracts have an international or EU element to consider a stepped approach. The preferred option remains exclusive English jurisdiction, but provides that where this would result in a potentially unenforceable judgement, either party may opt for a specified alternative.

One fall-back alternative is international arbitration in London which, although it involves the expense and procedural complexity of the arbitration process, at least has the advantage of being internationally enforceable.

Thinking outside the box, it also makes sense to consider carefully 'beefing up' the contractual dispute resolution procedure so that it becomes a mandatory pre-litigation step, and also provides clear processes for working through specific types of disputes which are likely to arise under the contract.

 For further information, please contact Sue Malthouse in our Commercial Contracts team on 020 7665 0915.

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