Brexit under the Withdrawal Agreement: The implications for disputes

It now seems inevitable that the UK will leave the EU on 31 January 2020 at 11pm GMT under the terms of the Withdrawal Agreement concluded between the UK and the EU on 19 October 2019. In this post, we consider the implications for commercial litigation involving the English courts, both during the transition period established under the Withdrawal Agreement (which ends on 31 December 2020) and following the end of the transition period. We have also updated our decision tree on the enforcement of English judgments in the EU post-transition, which you can access here.

Although the Withdrawal Agreement provides that the transition period may be extended for “up to 1 or 2 years” by agreement before 1 July 2020, the UK government has ruled out any extension in the legislation implementing the Withdrawal Agreement which is currently working its way through Parliament (the European Union (Withdrawal Agreement) Bill 2019-2020). That could be changed by further legislation, or a temporary arrangement could be reached between the UK and the EU to similar effect as an extension of the transition period, but for present purposes we have assumed that transition will end on 31 December 2020. At that point, what happens – in relation to disputes and many other areas – will depend largely on what, if anything, is agreed between the UK and the EU in the interim. There are, however, a number of respects in which transitional provisions under the Withdrawal Agreement will continue to affect the position after the transition period itself comes to an end.

It should be noted at the outset that arbitration with a seat in London will not be affected by Brexit. Arbitration is not regulated by EU law, and the UK and all EU Member States are signatories to the 1958 New York Convention. Accordingly, arbitration clauses will remain effective and arbitral awards will continue to be enforceable in the same circumstances as currently. Continue reading

Commercial Court finds asymmetric jurisdiction clause is exclusive jurisdiction clause for purposes of recast Brussels Regulation

The Commercial Court has held that an asymmetric or unilateral jurisdiction clause is an exclusive jurisdiction clause within article 31(2) of the recast Brussels Regulation. The English court was therefore entitled to continue with its proceedings where it was the chosen court but proceedings had been commenced earlier in Germany: Etihad Airways PJSC v Prof Dr Lucas Flother [2019] EWHC 3107 (Comm).

In doing so, the court followed earlier cases, in particular the Commercial Court decision in Commerzbank Aktengesellschaft v Liquimar Tankers Management [2017] EWHC 161 (Comm) (see our post here). It observed, however, that even if there had been no prior authority, it would have had no difficulty in reaching the same conclusion.

Article 31(2) was a new provision in the recast Brussels Regulation, which took effect in January 2015. It was designed to defuse the so-called Italian Torpedo, whereby a counterparty could delay a resolution in the chosen court by racing to commence proceedings first in some other EU state, and the chosen court would then have to stay any proceedings under the “first seised” rule. Under article 31(2), the court chosen under an exclusive jurisdiction clause takes priority. There has however been some uncertainty as to whether an asymmetric clause (which requires one party to sue in the chosen jurisdiction but gives the other greater flexibility) falls within article 31(2).

The present decision will give comfort to parties who have the benefit of an asymmetric jurisdiction clause, as it suggests they will not be susceptible to the Italian Torpedo tactic. However, as the decision is first instance, it may not be the last word on the subject – particularly as the Court of Appeal gave permission to appeal in the Commerzbank case. It is also worth noting that after Brexit (and depending on what is agreed during any transition period) the Italian Torpedo will not be relevant to the English courts in any event, as the Brussels regime will no longer apply. Continue reading

Court of Appeal holds that UK anchor defendants can be sued for the sole purpose of establishing jurisdiction against foreign co-defendants

The Court of Appeal has held, by a majority, that the jurisdiction rules in the Brussels regime allow a defendant to be sued in a co-defendant’s domicile (rather than their  own domicile) even if the sole object of bringing the proceedings against the “anchor” defendant was to bring the foreign-domiciled defendant within the jurisdiction: JSC Commercial Bank Privatbank v Kolomoisky and Bogolyubov and others [2019] EWCA Civ 1708.

Although the decision was in the context of article 6(1) of the Lugano Convention, the conclusion applies equally to the identical provisions regarding co-defendants in “closely connected” claims in the Brussels Regulation (article 6(1)) and the recast Brussels Regulation (article 8(1)).

Accordingly, provided a claimant has a sustainable claim against an anchor English defendant, which it intends to pursue to judgment, it will be entitled to rely on the relevant EU rules to join a foreign defendant, where the court accepts that the claims are so closely connected that it is expedient to hear them together to avoid the risk of irreconcilable judgments. Jurisdiction will not be refused on the basis that the sole purpose in bringing the action was to sue the foreign defendant in the same proceedings.

The decision is also important for its ruling on the question of whether EU jurisdictional rules can be applied by analogy, or “reflexively”, to circumstances falling outside the rules’ scope. The court held that the Lugano Convention rules as to when a court may stay its proceedings in favour of parallel proceedings in another Convention state (or lis pendens) could be applied by analogy where the foreign proceedings were in a non-Convention state.

The findings regarding reflexive application are of particular interest in the context of a no deal Brexit scenario. In that scenario it is uncertain whether the courts of the remaining EU states will only have a power to stay their proceedings in favour of English proceedings in the circumstances specified in articles 33/34 of the recast Brussels Regulation (ie where the English court was first seised) or whether they will have a residual discretion to do so outside those circumstances, for example where there is an English exclusive jurisdiction clause. Previous High Court authority has taken the view that, given that  articles 33/34 expressly incorporate some degree of reflexive operation, it was not open to find that there is a discretionary power outside of these provisions (Gulf International Bank BSC v Aldwood [2019] EWHC 1666 – see our post).

While the court in this case did not directly consider that question, and the issue is ultimately a matter for the CJEU, the decision may leave open the scope for an argument that there is such a residual discretion. Continue reading

High Court finds England proper forum to hear claim against further party where claimant had no real choice over where to sue anchor defendants

The High Court has held that England was the proper forum to determine a dispute against an additional defendant, so as to avoid multiple proceedings and the risk of irreconcilable judgments. The defendant was a necessary or proper party to the claims made against the anchor defendants and the claimant had no real choice where to sue the anchor defendants as the claims against them came within English exclusive jurisdiction agreements: ED&F Man Capital Markets Ltd v Come Harvest Holdings Ltd and others [2019] EWHC 1661 (Comm).

The court rejected an argument, based on the Supreme Court decision in Lungowe v Vedanta plc [2019] UKSC 20, that the claimants could have sought to have all claims determined in Singapore, and therefore could not establish that the English court was the proper forum based on the risk of multiple proceedings and irreconcilable judgments. In Vedanta the court held that the risk of irreconcilable judgments was not a “trump card”, as the risk arose purely from the claimants’ choice to proceed against one defendant in England rather than, as was available to them, against both defendants in Zambia. This was particularly so in circumstances where the dispute was overwhelmingly Zambian in focus and nature.

The facts in ED&F differed substantially, as the claimant was bound to sue two of the defendants in England under exclusive jurisdiction clauses; there was no evidence to suggest that the anchor defendants would have been willing to give up those rights; and the concept of choice in Vedanta could not be stretched so as to require a party to act in breach of contractual promises as to jurisdiction and then seek to persuade the English court not to grant an anti-suit injunction restraining Singapore proceedings.

Overall, the High Court considered that the claims in this case required a single forum for their resolution and England was the only place where that could be achieved.

This case demonstrates that the risk of irreconcilable judgments, while not decisive post Vedanta, may still be a very important factor in determining the appropriate forum, particularly where the claimant has no real choice over where to sue the anchor defendant. Continue reading

Court of Appeal confirms jurisdiction to restrain foreign arbitration even where England is not the natural forum for the dispute

The Court of Appeal has partly upheld the injunction granted by the Commercial Court restraining the pursuit of arbitration proceedings seated in Lebanon: Sabbagh v Khoury and others [2019] EWCA Civ 1219.

In doing so, it confirmed the power of English courts to restrain a foreign arbitration on grounds that the foreign arbitration is oppressive and vexatious and provided helpful guidance on the exceptional circumstances in which English courts may exercise this power. In particular:

  • English courts have the power to grant such an anti-arbitration injunction where it is just and convenient to do so.
  • Where it is clear that the dispute is within the scope of the arbitration agreement, no injunction should be granted.
  • Where it is clear that the dispute is outside the scope of the arbitration agreement, either because it is common ground between the parties or because of a previous determination, the court may grant an anti-arbitration injunction but only if the circumstances of the case require it (eg when the proceedings are considered oppressive and vexatious).
  • It is not a precondition to the grant of such an injunction that England be the “natural forum” for the underlying dispute.
  • Save in the case of exclusive jurisdiction agreements, the grant of an anti-arbitration injunction remains an exceptional step.

For further information, please see this post on our Arbitration Notes blog.

High Court finds there is no power to stay English proceedings to give effect to exclusive jurisdiction clause in favour of non-EU court unless proceedings were commenced first in the foreign court

The High Court has held that there is no power under the recast Brussels Regulation to stay English proceedings against an English domiciled defendant in favour of proceedings in a non-EU court commenced pursuant to an exclusive jurisdiction agreement in favour of that court, unless the foreign proceedings were commenced before the English proceedings: Gulf International Bank BSC v Aldwood [2019] EWHC 1666 (QB).

In a number of High Court cases decided under the Brussels I Regulation, which preceded the recast Brussels Regulation, the court held that the English court had a power to stay in favour of a non-EU court in some circumstances, including where there was an exclusive foreign jurisdiction clause in favour of the foreign court (see our posts here and here). This was on the basis that the provisions in the Brussel I Regulation could be applied by analogy, or reflexively. In other words, as an EU court had to stay its proceedings in favour of another EU court where there was an exclusive jurisdiction court in the other court’s favour, the same should apply where the chosen court was in a non-EU country.

The recast Brussels Regulation introduced new express powers in articles 33 and 34 giving an EU court the discretion to stay its proceedings in favour of identical or related proceedings in a non-EU country where the foreign proceedings were first in time. That left open the question what powers, if any, the court had where the foreign proceedings were second in time but there was an exclusive jurisdiction clause in favour of the foreign court.

The High Court has now held that there is no power to stay outside of the express provisions of articles 33 and 34 of the recast Brussels Regulation. The court commented that some aspects of reflexive effect have been incorporated into the recast Regulation; finding that there is a discretionary power outside of these provisions would conflict with the principles underpinning the interpretation of the Regulation, such as legal certainty and predictability.

This is a first instance decision, and it would not have been necessary for the judge to decide the point as he found the jurisdiction clause to be non-exclusive rather than exclusive. However, the decision potentially casts doubt on the effectiveness of English exclusive jurisdiction clauses in the event of a no deal Brexit where proceedings are commenced first in an EU member state court and where the Hague Convention on Choice of Court Agreements 2005 is found not to apply – either because the clause was agreed before the Convention came into force for the UK (whether that is taken to be 1 October 2015, or 1 November 2019 when the UK is due to rejoin the Convention in its own right – see this post) or because of the domicile of the parties (if for example all parties are EU-domiciled, the rules in the recast Brussels Regulation will take precedence over the Convention for jurisdiction purposes). In those circumstances, if the approach taken in the present case is correct, an EU27 court  will only be able to stay proceedings commenced in breach of an English exclusive jurisdiction clause where the English proceedings were commenced first in time.

It is also worth noting that the decision is consistent with the High Court judgment in UCP Plc v Nectrus Ltd [2018] EWHC 380 (Comm) (considered in this post), which similarly found – though in a very different context and without such a detailed analysis of the arguments relating to reflexive effect – that the court’s powers to stay proceedings in favour of a non-EU court under articles 33 and 34 are exhaustive. Continue reading

Upcoming webinar – The Hague Choice of Court Convention 2005 and the Hague Judgments Convention 2019: When and how will they apply?

On Tuesday 23 July 2019 (1-2pm BST), Anna Pertoldi and Jan O’Neill will deliver the latest in our series of webinars for Herbert Smith Freehills clients and contacts spotlighting legal and practical issues relevant to litigating cross-border disputes.

This webinar  will focus mainly on the Hague Convention on Choice of Court Agreements 2005 which applies where there is an exclusive jurisdiction clause. The scope of the 2005 Convention is currently limited, but in the case of a no deal Brexit it will assume increased importance as a potential means of protecting English jurisdiction clauses and enforcing English judgments in the EU. The webinar will examine:

  • The Convention’s scope – what it will and will not cover
  • Its relevance in a Brexit context, including the UK’s accession plans and risks arising over timing
  • How the Convention works in practice – similar to the Brussels regime but with some important differences

It will then consider the new 2019 Hague Judgments Convention (finalised on 2 July 2019) which, when in force, will apply to a wider range of judgments.

This webinar looks in some depth at these important Conventions and the issues they give rise to. It is relevant to you if you are negotiating jurisdiction clauses or may need to enforce a judgment after Brexit in an EU member state.

The webinar is part of our series of HSF webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or the archived version can be accessed after the event. Please contact webinars if you would like to register for a webinar or obtain a link to the archived version.

New Hague Judgments Convention: finally adopted but may be some years before impact is felt

On Tuesday, 2 July 2019, the Hague Conference on Private International Law finalised a new treaty on enforcement of judgments: the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, or the 2019 Hague Judgments Convention.

The new Convention has been a long time in the making. Its origins go back to 1992, when work began on a general convention dealing with jurisdiction and enforcement of judgments. Political consensus could not be reached, initially, and so the Hague Conference decided to focus on the area where consensus was possible – jurisdiction and enforcement of judgments where the relevant court was chosen under an exclusive jurisdiction clause. That resulted in the 2005 Hague Choice of Court Convention.

The new Convention goes much further than the 2005 Convention, in that it is not limited to judgments based on exclusive jurisdiction clauses. And, in contrast to the 2005 Convention, employment and consumer contracts are within scope.

The Hague Conference press release describes the 2019 Convention as “a gamechanger in international dispute resolution”, saying it will be a single global framework, enabling the free circulation of judgments in civil or commercial matters, which will provide “better, more effective, and cheaper justice for individuals and businesses alike”.

The 2019 Convention is welcome, but it will of course only apply between those countries that ratify it and bring it into force. The European Commission announced on Wednesday that it will now start the process of preparing EU accession to the Convention, although the timescale for accession is uncertain. The UK will also be looking closely at accession in its own right in a post-Brexit scenario, subject to any transitional arrangements that may be agreed with the EU. But it is worth noting that the Convention won’t come into force for any state until (approximately) 12 months after ratification, and even then it won’t apply unless the proceedings that led to a judgment were instituted at a time when the Convention was in force for both the state of origin and the state where the judgment is to be enforced. This means that there will be some considerable time before the Convention applies to any judgment, even if the EU and the UK (and other countries) take early steps to accede to it.

Some may hope that the 2019 Convention will provide an alternative route to the easy enforcement of English judgments post-Brexit, when the dynamics for enforcement will become significantly more complex as the recast Brussels Regulation and the Lugano Convention will no longer apply to the UK (as discussed here and here for example). But the 2019 Convention should not be seen as a complete answer, in part because of the likely delay before its impact is felt, and in part because its effect is more limited than the Brussels/Lugano regime (recognition and enforcement can be refused on broader grounds, for example, and it deals only with enforcement rather than jurisdiction – apparently work is underway on a further instrument addressing jurisdiction). So while it is certainly a positive step, it is still hoped that the UK and EU will be able to agree other arrangements more closely replicating the current regime, including an agreement for the UK to join the Lugano Convention.

Anna Pertoldi
Anna Pertoldi
Partner
+44 20 7466 2399
Maura McIntosh
Maura McIntosh
Professional support consultant
+44 20 7466 2608
Jan O'Neill
Jan O'Neill
Professional support lawyer
+44 20 7466 2202

Court of Appeal finds exclusive jurisdiction clause in settlement agreement with employee ineffective, as it was not entered into after the particular dispute had arisen

The Court of Appeal has held that an exclusive jurisdiction clause in a settlement agreement between an employer and employee was not effective to give jurisdiction to the chosen court. The dispute related to an individual contract of employment and the jurisdiction agreement had not been entered into after the particular dispute had arisen, as there had been no prior communication between the parties concerning the issue: Merinson v Yukos International UK BV [2019] EWCA Civ 830.

Article 22 of the recast Brussels Regulation provides that, in matters relating to individual contracts of employment, an employee may only be sued in the courts of their domicile. A jurisdiction clause cannot therefore be relied on by the employer, unless (under article 23(1)) it was entered into after the dispute had arisen.

In this case the Court of Appeal found that, for a jurisdiction clause to be effective under article 23(1), at the time it is concluded the parties must disagree on a specific point and proceedings between them must be imminent or contemplated. It is not enough that there is merely a potential, rather than an actual, dispute between the parties.

This decision is significant as it means that a jurisdiction clause in a settlement agreement entered into with certain categories of defendants (such as employees, consumers and insurance policy holders) will only be effective in respect of matters actively in dispute at the time the settlement is reached. It will not extend to the release of potential future disputes under wide releases in the agreement, even if those disputes are within the separate contemplation of the parties, if they are matters relating to the employment contract, or consumer contract, or insurance policy. Continue reading

Commercial Court gives guidance on definition of ‘consumer’ under Recast Brussels Regulation in cryptocurrency futures trading case

The Commercial Court has confirmed that an individual investor, with substantial means and more knowledge and experience than the average person, may still be considered a ‘consumer’ for the purposes of Article 17 of the Recast Brussels Regulation (No 1215/2012), even when contracting to trade a specialised product such as cryptocurrency futures: Ramona Ang v Reliantco Investments Limited [2019] EWHC 879 (Comm).

Where article 17 applies, the consumer can only be sued in the courts of their domicile, whereas the consumer has a choice as to whether to bring proceedings in that court or in the courts of the defendant’s domicile. These provisions will trump an exclusive jurisdiction clause in the relevant contract (subject to limited exceptions, such as where the jurisdiction clause is entered into after the dispute has arisen).

The decision provides some clarification as to the test to be applied when considering whether an individual investor is a consumer for these purposes. It emphasises that the key question is the purpose for which the investment was entered into, and whether (as article 17 requires) that purpose can be regarded as being outside the individual’s trade or profession. Each case will turn on its facts.

For more information see our Banking litigation e-bulletin on the decision.