Brexit and the courts of London, or how England scrambles to remain a relevant jurisdiction
Commercial and financial transaction documentation commonly refers to the London courts to adjudicate any dispute. After Brexit, this forum clause may be problematic. The HCCC is a solution of sorts - parties may have to reconsider their choice of court.
On 28 December 2018, the United Kingdom acceded to the Hague Choice of Court Convention (“HCCC”), which will enter into force on 1 April 2019. With the accession, the UK government anticipates a hard Brexit. Should the UK leave the EU without any additional agreement in place (aka a ‘hard Brexit’ or ‘no deal-Brexit’), the opposability of choice of forum agreements in favour of UK courts may become uncertain. From the UK’s accession notification, it follows that the accession will only take place if: (i) the Brexit Withdrawal Agreement is not ratified and approved by the UK and the EU; and (ii) the Agreement does not enter into force on 30 March 2019. In view of the UK’s Parliament’s recent resistance to the Withdrawal Agreement, a hard Brexit has become the most likely scenario. All the more reason to further examine the UK’s motives for wanting to accede to the HCCC.
The text of the HCCC was adopted in 2005, but the convention only entered into force on 1 October 2015. The convention lays down uniform rules on jurisdiction and recognition and enforcement of foreign judgments in civil and commercial matters. It says that a court of a Contracting State chosen by the parties to a dispute shall have jurisdiction, that the non-chosen courts shall respect the choice of forum agreement, and that they shall consequently suspend or dismiss proceedings in case they are seized of the matter. Moreover, a judgment given by the chosen court of a Contracting State, must be recognized and enforced in the other Contracting States, subject to limited grounds for refusal.
A peculiarity of the HCCC is that in 2009 it was signed and ratified by the European Union, which became a Member of the Hague Conference on Private International Law in 2007. Because of the EU’s ratification, the EU Member States (except Denmark) were automatically bound by the HCCC. Until now, the HCCC has enjoyed modest success in terms of contracting states: in addition to all EU Member States (including Denmark, having acceded in 2018), the only other states bound by this convention are Mexico, Singapore and Montenegro (although the US, China and Ukraine are signatories, they have not yet ratified the convention). Taking into account that between EU Member States, the Brussels Ibis Regulation (No. 1215/2012) takes precedence over the HCCC, the practical relevance of the HCCC is currently limited. However, in the likely case of a hard Brexit – with no other agreements between the UK and the EU on jurisdiction and recognition and enforcement in place – the importance of the HCCC is expected to increase significantly.
The UK’s accession to the HCCC aims to provide legal certainty by securing existing and future choice of forum agreements in favour of UK courts (or courts of other jurisdictions). Jurisdiction clauses giving exclusive jurisdiction to the London courts in particular are widespread, especially in financial and insurance contracts. For example, interbank loans typically contain a choice of forum for London courts, as do derivative contracts, collateralised finance agreements and other wholesale financial contracts. This is so not only when these agreements are concluded between parties of different jurisdictions, but also in purely domestic transactions.
At present, the Brussels Ibis Regulation requires all other courts within the EU to respect a choice of forum agreement in favour of the court of another Member State. However, when the UK’s membership to the EU ceases to exist, the UK will no longer be a Member State within the meaning of the Brussels Ibis Regulation. As a consequence, the Regulation does not oblige the other Member States’ courts to give effect to a choice of court agreement for the UK courts, leaving the extent to which a court is bound to respect such jurisdiction clause to the national level. Absent an alternative solution, after Brexit it may thus differ from Member State to Member State whether Member State courts will recognize any choice for UK courts.
Moreover, a judgment given by a UK court that has assumed jurisdiction on the basis of a choice of forum will no longer fall under the Regulation’s liberal rules on recognition and enforcement. Consequently, absent an alternative solution, judgments rendered by chosen UK courts after Brexit will not automatically be recognized and enforceable throughout the EU. Obviously, this would be disastrous for a significant number of agreements that are critical for financial stability.
Acceding to the HCCC provides a safety net for the two problems just identified, as under the HCCC, other Contracting States, including all EU Member States, remain obliged to respect any choice for UK courts as well as any judgment rendered on the basis of such a forum choice. Thus, the HCCC would prevent the risk of choice of forum clauses for UK courts and judgments rendered on that basis from becoming unenforceable after Brexit.
It should be noted that the UK’s accession to the convention was necessary, even though the UK has been bound by the HCCC as of 2015. After all, the UK is only bound by the HCCC by virtue of its membership to the EU. The HCCC does not regulate the legal implications of a Member State leaving the EU, but presumably the UK’s status as a HCCC Contracting State would automatically cease to exist after it withdraws from the EU. However, some questions remain. First, the HCCC will enter into force for the UK on 1 April 2019. More precisely, it will govern all choice of forum clauses made after 31 March. Brexit, however, is now planned for 29 March 2019 and the Brussels Ibis Regulation will thus cease to be binding on the UK on that date. What will happen to a choice of court agreement concluded on 30 and 31 March?
Second, as discussed above, the ‘Note Verbale’ accompanying the UK’s accession mentions only two conditions: 1) the entry into force on 30 March 2019 of the Withdrawal Agreement, in which event the UK will be treated as an EU Member State for the duration of the transition period (at least until 31 December 2020); and 2) no agreement (hard Brexit), in which event the UK accedes to the HCCC. However, the note does not mention the option of a delayed Brexit decision, which now seems to have become a realistic possibility.
Third, and perhaps most worrisome, the substantive scope of the Brussels Ibis Regulation is broader than the HCCC, as the Brussels Ibis Regulation also covers a number of matters that are excluded from the HCCC’s substantive scope, including carriage of goods, competition claims, and tort claims for damage to tangible property not arising from a contractual relationship. These are important limitations, and for all proceedings relating to these matters, after Brexit it may thus differ from Member State to Member State whether Member State courts will recognize any choice for UK courts. Moreover, whilst the HCCC only regulates jurisdiction, and recognition and enforcement of judgments rendered on the basis of jurisdiction clauses for a single court (exclusive jurisdiction), the Brussels Ibis Regulation also covers non-exclusive jurisdiction clauses. Also for all proceedings relating to jurisdiction clauses for multiple courts, after Brexit it may thus differ from Member State to Member State whether Member State courts will recognize such a jurisdiction clause.
The UK’s accession to the HCCC thus provides a partial solution to the negative impact of a hard Brexit on choice of forum clauses in favour of the UK courts, but the convention is no full-fledged alternative to the Brussels Ibis Regulation. It may therefore be advisable for parties in international commerce and finance to reconsider any choice of forum for UK courts.