Brexit and Legal Disputes: British Law and Place of Jurisdiction in London?

At present, London is one of the most important places of jurisdiction and arbitration worldwide. However, this could soon change, as the Brexit jeopardizes the mutual recognition of court decisions. Therefore, we advise against choice of law in favor of British law, as well as agreements on British courts as places of jurisdiction. Arbitration clauses can provide safety.

English is the lingua franca of the international economy. Therefore, it seems obvious to submit contracts to English law and to agree on London as place of jurisdiction. However, there are also good arguments against such choices: Proceedings in Great Britain are tedious and extremely costly and with the imminent Brexit, you should be even more careful.

Enforceability of court decisions in the EU

To date, the responsibility of courts, as well as the enforceability of court decisions in international traffic has been regulated EU-wide by the European Jurisdiction and Enforcement Regulation (Europ. Gerichtsstands- und Vollstreckungsordnung – “EUGVVO”). According thereto, decisions which have been reached in an EU member state are also enforceable in other EU member states. This will change both ways with the Brexit. Without the EUGVVO a title which was decided and enforced in Germany will no longer be easily enforceable in the UK. It is therefore advisable to enforce titles against debtors whose estate lies primarily in the UK as soon as possible. With respect to newly concluded contracts, we advise not to choose the UK as place of jurisdiction for the following reason: if the enforcement of an English decision shall also apply outside Great Britain, than a title received in Great Britain must first be recognized for enforcement or adapted to the other law.

The advantage of arbitration proceedings

The situation regarding arbitration proceedings is simpler. The recognition and enforcement of arbitration rulings is governed by the New York Convention or the ICSID Convention. A Brexit would not change this. Decisions of arbitration courts therefore remain enforceable in all directions (German arbitration rulings in the UK, British arbitration rulings in Germany and elsewhere in the EU) even after Great Britain leaves the European Union. However, so-called anti-suit injunctions might reappear. If a contract contains an arbitration clause, then such clause usually stipulates that proceedings before state courts are excluded until the conclusion of the arbitration proceedings. If one of the contractual parties nevertheless files a suit before a state court, then the defendant may argue that the called upon court is not responsible pursuant to the arbitration clause. At the same time, the defendant may call upon a state court at the place of the arbitration court to invoke an anti-suit injunction. Such anti-suit injunction involves the statement that according to the arbitration agreement the legal proceedings are to be resolved by an arbitration proceeding, as well as an application to prohibit the injunction defendant to continue the proceeding before an incompetent state court. The European Court of Justice (“ECJ”) finds that such anti-suit injunctions are not consistent with European law, as they deny the injunction defendant his or her right to legal protection, denies the member states’ courts their right to decide about their competences (which is also stated in the EuGVVO) and also because these anti-suit injunctions undermine the trust of the member states in their legal systems and legal administrative organs. Following a Brexit, UK courts would no longer be bound to such rulings and could safeguard arbitration agreements that choose an arbitration court in the UK through anti-suit injunctions.

Uncertain development of British law

British law is popular in international business relations although it has a few downsides compared to German law. It is less codified; contracts are interpreted by strictly relying on the wording and less by taking the meaning of the regulation into account. Under consideration of the imminent Brexit, it is even less advisable to rely on British law. At present, an extensive harmonization of legal relations exists based on the common market, because secondary law is immediately applicable in the form of regulations and numerous guidelines have led to a consistent development of law in the member states. Following a Brexit, the regulations would no longer immediately apply in the UK. Although national law which is based on those regulations would at first continue to exist, the harmonization will most probably eventually be reversed. It can be expected that British law will eventually develop away from continental European legal conceptions after a Brexit. For those who apply the law this will cause considerable legal uncertainty, which can be easily avoided by choosing another member state as place of jurisdiction. Contracts that include a choice of law clause in favor of British law should be modified accordingly; at least in the event that Great Britain leaves the European Union.

Gerhard Manz