Enforcing Your Contractual Rights in the EU - Best Practice in the Run Up to Brexit
Until the terms of the Brexit deal are clear, there is some uncertainty around the ease with which business will be able to enforce their rights against EU counterparties following Brexit. We take a look at how best to mitigate those risks.
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 costs in the event that a 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 the 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, resulting in the expense and uncertainty of foreign litigation.
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.
Whichever approach you adopt, we recommend that you review the terms of your contracts with EU counterparties - particularly those which are likely to extend beyond 2019 - and consider whether you need to take any steps to mitigate your risk on Brexit.
For more information, please contact Doug Locke in our Commercial Law team on 020 7665 0915.