- The consequences in terms of applicable law will likely be limited
- A jurisdiction clause in general terms and conditions may be insufficient
- Consumer law may require attention where diverging future regulations are concerned
The consequences in terms of applicable law are likely to remain limited
Should parties not have included a choice of law in their agreement, then EU-courts apply the Rome I Convention to determine applicable law. Currently, the courts of the UK also apply this Convention. However, this will in principle change after the transition period (as the Rome I Convention will then no longer apply to the UK). Should, after this, a party initiate legal proceedings in the UK (and provided the courts of the UK have jurisdiction), the courts of the UK will determine the applicable law based on their own rules of international private law, instead of the Rome I Convention.
At first, it was highly uncertain which rules or regulations will apply. Some considered that the courts of the UK might apply the predecessor of the Rome I Convention, the "Convention on the Law applicable to Contractual Obligations" (to which the UK will remain a party, even after they have left the EU); others expected that the courts of the UK might apply general law. However, both options now appear unrealistic, as the British government has demonstrated its willingness to transpose the relevant provisions from the Rome I Convention into local law. Legislation has already been enacted for this purpose (a so-called statutory instrument) which, as it stands now, will enter into force after the transition period. The mechanism of determining applicable law therefore appears to be very limited in this way.
In the unlikely event that the above does not take place, it will be uncertain which rules will apply. However, this issue will only arise if proceedings are initiated before any of the courts of the UK; should proceedings be started before EU-courts, then the EU-courts will continue to apply the Rome I Convention – also where British parties are involved.
A jurisdiction clause in general terms and conditions may be insufficient
After the transition period, the UK will no longer be a party to the Brussels I recast Regulation, which addresses which courts have jurisdiction as well as whether foreign judgments may be executed. It seems that, instead, the courts of the UK are going to apply the Hague Choice of Court Convention. This Convention appears to be rather stricter than the Brussels I recast Regulation where the jurisdiction clauses are concerned. The English wording of the Hague Choice of Court Convention explicitly refers to an "exclusive choice of court agreement". This wording suggests that parties should reach mutual agreement on the competent court. This begs the question whether a unilateral jurisdiction clause in general terms and conditions – which may not be explicitly agreed between the parties – meets this requirement.
The UK had filed an act of accession to the Hague Choice of Court Convention at the end of December 2018, but the UK withdrew it early this year. While doing so, the UK stated its intention to submit a new act of accession at an appropriate time before the end of the transition period, which it did on 28 September 2020. Taking into account the fact that it takes 3 months to enter into force, the Hague Choice of Court Convention will in principle enter into force/will remain in force after the transition period.
The UK has also formally applied to accede to the Lugano Convention. Although countries such as Norway, Iceland and Switzerland have already indicated to support the accession, the European Commission seems to be holding back for the time being. This Convention may first enter into force 3 months after unanimous approval has been obtained from all contracting parties and an instrument of accession has been deposited. This process should therefore have been completed before 1 October 2020 in order for it to enter into force directly after the transition period ends. Should (although at a later date) the UK become a party to the Lugano Convention, the consequences in terms of jurisdiction and the enforcement of judgments will be fairly limited from that time of accession, as the provisions of this Convention are very similar to the provisions of the predecessor of the Brussels I recast Regulation.
Consumer law may require attention where diverging future regulations are concerned
Each EU country (including the UK) has transposed EU consumer law into local law. We do not expect Brexit to majorly affect this – although problems may arise where the interpretation of this EU consumer law by the courts of the UK will differ from that of the EU Court of the Justice. The jurisdiction of the EU Court of Justice will come to an end. The relevant question then arises as to how the UK will subsequently deal with the EU Court of Justice case law. This could potentially affect consumer's abilities to exercise their rights. We do expect, however, that where future consumer law is concerned, EU consumer law and local UK consumer law will be diverging, as the UK will no longer be obliged to implement the many rules that the EU is currently developing within this area of law. In principal, diverging systems in themselves are not necessarily problematic. This may change, however, if it should turn out that the local rules applied in the UK are stricter than those developed by the EU.
Practical advice for (drafting) commercial contracts
Given all the above mentioned uncertainties, we advise to always include a jurisdiction and choice of law clause in your contracts. Should your contracts not include such a clause (or should it only be contained in the applicable terms and conditions), we advise you to agree on jurisdiction and choice of law in an amendment on that existing contract. This way, both parties avoid any unnecessary uncertainties and focus on their business instead.
Please also see the articles on the impact of Brexit in other practice areas. For a more detailed analysis of the impact of Brexit on your business, please do not hesitate to contact any of our experts.