Brexit and choice of law clauses
There are many questions following upon the Brexit Referendum – not just political and economic, but legal. The Referendum has no immediate legal effect. The UK (and therefore Scotland) will remain part of the EU, and subject to EU law, until at least two years following the trigger of Article 50 of the Lisbon Treaty. Nevertheless, the UK Government now faces the considerable challenge of extracting the UK from the European legal regime.
One key consideration for businesses involved in commercial cross-border contracts will be the new framework that will require to be established between the EU and the UK in relation to the governing law of contracts and jurisdiction for contractual disputes, including exclusive jurisdiction clauses.
Choice of law
It is important to remember that the governing law of a contract need not necessarily be the same as the court which has jurisdiction over any dispute arising from the contract. Indeed, it is often the case that the courts in one EU member state apply the law of another member state.
Currently, the courts of EU member states apply the Rome I Regulation to consider the governing law of a particular contract. Fortunately, this is one area in where little change is expected. The Rome I Regulation applies to a non-EU governing law as it applies to the law of an EU member state. In the event that the governing law of the contract is Scots law, this will continue to be upheld in terms of Rome I post-Brexit. Equally, even though changes to the Rome I rules as they apply in the UK are possible post-Brexit, it is likely that the Scottish courts would continue to uphold a party’s choice of law.
The jurisdiction of courts in the EU is directed by the Brussels I Regulation (recast). This Regulation contains a variety of rules which determine which EU member state should have jurisdiction in civil and commercial disputes and seeks to avoid parallel court actions in different member states. Generally, a choice of jurisdiction by parties will be upheld.
One suggestion that has been mooted for the UK post-Brexit is entry into the European Economic Area (EEA) in order to obtain access to the free market. In such circumstances the UK may accede to the Lugano Convention which currently applies between the EU and EEA states such as Norway and Iceland.
A key point to note in relation to Lugano, however, is that, unlike the Brussels recast regulation it does not ensure that where parallel court actions are brought in another jurisdiction in contravention of an exclusive jurisdiction clause, the litigation in that jurisdiction will be sisted (frozen) to allow the chosen court to determine jurisdiction.
Another option would be the Hague Convention on Choice of Court Agreements which does protect the validity of exclusive jurisdiction clauses, but its relevance is limited in global terms, as it has only been ratified by Mexico, Singapore and the EU.
Enforcement of judgments
Another risk if the Brussels Regulation will no longer apply to the UK (and therefore to Scotland) is the additional bureaucracy which may be required to ensure that Scottish judgments are enforceable in Europe and vice-versa.
The Scottish perspective
A further question arises regarding the Scottish dimension, given its separate legal system. It remains to be seen what, if any, agreement the Scottish Government will be able to reach regarding Scotland’s continuing relationship with the EU following Scotland’s remain vote in June. It appears unlikely that the Scottish Government would be competent, in terms of the Scotland Act 1998, to negotiate the continuing application of the Brussels Regulation in Scotland, should the UK Government decide that Brussels should no longer apply.
The possibility of a second independence referendum, which, according to Nicola Sturgeon, is “on the table” adds further questions to the mix. An independent Scotland may, in the interests of certainty, seek to retain the Brussels regime but would also be required to determine a new framework with the remainder of the UK.
In the meantime, the rules of jurisdiction between the three UK jurisdictions will continue to be contained in the Civil Jurisdiction and Judgments Act 1982, which applies similar rules to the Brussels Regulation. At present, in most cases, you should not need to revise a Scottish (or English) exclusive jurisdiction clause in your contract.
With continued political uncertainty, it is likely that this is an area of law which will be the subject of ongoing change in the years to come. MacRoberts can advise you on all aspects of commercial contracts, including drafting and enforcement.
Contact MacRoberts LLP for advice on Brexit
At MacRoberts, we have teams of experts ready to advise you on the potential legal implications of the UK’s exit from the EU. We can advise your business on the issues arising across the full range of sectors and legal disciplines.