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Brexit negotiations must make cross-border contract disputes clear cut

25 May 2017
The Times (subscription required)
The forthcoming election has been billed as an opportunity to ensure that a single government remains in office through to the end of the Brexit negotiations and beyond, without a 2020 election looming on the horizon. But given the complexity and detail involved in negotiating the terms of the UK's exit from the EU, it is not surprising that the election campaign has focused more on who might be leading the UK negotiating team rather than the substance of those negotiations.

As the negotiations get under way, the business community will be keeping a close eye on likely future trade and customs arrangements between the UK and EU, in particular whether the objective in the government White Paper of securing the "freest and most frictionless" trade possible is met.

Meeting this objective is not just about avoiding tariff, regulatory and customs problems, but anyone trading in goods and services across international borders will also need to be confident that they can enforce their legal rights if a contractual relationship sours or invoices go unpaid – it needs to be clear which country's law will apply and which court will hear any dispute.

The first of these is relatively straightforward. Following Brexit, the existing EU Regulations on governing law will remain binding throughout the EU to the same extent as now. Where contracting parties have agreed a choice of law, these Regulations generally require that choice to be upheld, even where the chosen law is that of a country outside the EU – so the remaining member states will continue to uphold English choice of law clauses post-Brexit.

These Regulations can easily be adopted into English law as a set of self-contained rules which the English courts will continue to apply. This is one of the functions of the so-called Great Repeal Bill.

There is greater difficulty with how to determine which courts should take jurisdiction to hear cross-border disputes and how judgments will be enforced. There should be a way to retain the UK's place in the existing framework, or for bespoke arrangements to be agreed along substantially the same lines – this will depend on the terms of the UK's exit.

The EU/EFTA framework is not the end of the story: international treaties (such as the Hague Convention on Choice of Court Agreements) and the domestic rules in the EU and the remaining EU member states will be important considerations for anyone drafting dispute resolution clauses. Commercial parties are also looking ever more closely at arbitration as an alternative to court based dispute resolution.

Commentators across the legal profession and other industry bodies have rightly emphasised the importance of agreement on a clear framework to facilitate effective cross-border dispute resolution as part of an exit deal – it is hard to see how uncertainty would be in anyone's interests. But the underlying technical legal issues will not set many hearts racing, nor make front page news. That is not a bad thing – it provides the best environment to enable cool heads to reach agreement on these technical points, away from the cut and thrust of the political spotlight.

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