UK international and cross-border arbitration rules face post-Brexit shake-up

Written by Robert Stokes

FINANCE DIRECTORS whose companies make the most of London being a centre of cross-border commercial litigation and international arbitration services will have to keep a close eye on how these conflict resolution services may change as a result of Britain quitting the European Union (EU).

With the UK government continuing to stress that it intends to follow the wishes of the June 23 Brexit referendum result, there could be significant changes to the laws that underpin such legal cases when they are staged in Britain, although arbitration procedures would face less disruption.

As it stands, law firm Baker Botts has stressed to Financial Director, the law that matters is the Brussels I Regulation (Recast) – known widely in the cross-border commercial litigation as ‘the Recast Regulation’ . It governs how civil and commercial cases and disputes are held and where they are held regarding courts and tribunals in EU member states. It also says how companies and EU courts should recognise and enforce such judgments.

But if Brexit happens, this law would no longer apply in the UK.

A team led by Chris Caulfield and Dr Johannes Koepp in the firm’s London office suggests four possible options for the UK to replace this regulation, and financial directors will need to keep a close eye on discussions:

*Option one – basically no change – the UK agrees with remaining EU members to apply a regime in London that is similar to the Recast Regulation;

*Option two – not much change – the UK signs and ratifies the Lugano Convention 2007, which currently extends application of the Brussels litigation system to European Free Trade Association (EFTA) member states, such as Switzerland – EFTA is a trade bloc to which a Brexited Britain may belong;

*Option three – Britain signs and ratifies another international treaty on allocating courts and tribunals to cross-border commercial disputes, such as the Hague Convention on Choice of Court Agreements 2005 (devised by the Hague Conference on Private International Law) – here the rules that operate in London might diverge in real terms from the EU system; and

*Option four – return to the Brussels Convention 1968 regime, which was superseded by Recast Regulation’s predecessor in 2001, but would give guidance on how cross-border litigation decisions made in London could be recognised in the rest of the EU.

“Compared to the Recast Regulation, the Brussels Convention is obviously not as advanced a regime,” Dr Koepp concluded. “But in the absence of a new treaty, it might be the most likely fallback position and seems clearly to be preferable to a return to applying the common law in disputes with a pan-European element.”

As to arbitration, the current predominant view among leading practitioners is that London would remain one the world’s most important centres.

Ed Poulton, a London-based partner in the dispute resolution team of Baker & McKenzie, tells Financial Director that as arbitration is governed by the New York Convention, an international treaty outside EU law, a Brexit should have little material impact on current or pending arbitration proceedings. He added that a Brexit “certainly should not affect the likely outcomes or analysis of the merits of those proceedings and, therefore, the provisions or notes that corporations should be making in their annual accounts.”

Baker Botts thinks that London should maintain its status as a key centre for both commercial litigation and arbitration because of its “highly respected” arbitration bar, “outstanding facilities”, and “arbitration-friendly judiciary”. The firm suggests arbitration in London might even benefit because some restrictions under EU law – for example, on intra-European anti-suit injunctions – might no longer apply.

Baker & McKenzie, however, note that English and EU law could develop differently from each other in the long-term should a Brexit divorce take place, so that legal practitioners and businesses would be well advised to not necessarily take EU laws and standards for granted in deals and disputes that involve British business activity if the UK quits the EU.