WHAT JUST HAPPENED?
Brexit? Law? Arbitration? Today’s article will discuss the implications behind Brexit affecting English arbitration.
WHAT DOES THIS MEAN?
There are 157 parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, including the United Kingdom and the other 27 Member States of the EU. Since the agreement does not depend on EU membership, Brexit will not affect an English arbitration award in a party under its provisions outside Europe.[1]
The courts have shown they are willing and able to act in support of arbitration, including enjoining foreign courts to restrict proceedings that have been initiated in violation of an arbitration agreement. In the UK arbitration is an effective alternative to dispute resolution and avoids the uncertainty of future EU rules on services. For this reason, arbitration may be the preferred way to bring a claim, and it will serve as an attractive, low-risk alternative for parties in the new post-Brexit legal landscape.[2]
Following recent case law, the European Commission has announced that investor-to-state arbitration agreements to settle disputes between investors and states within the EU are illegal. As part of the EU, English courts are bound by the ruling of the Court of Justice of the European Union (ECJ) not to issue injunctions to restrict proceedings initiated by an EU member state in violation of an arbitration agreement between the parties. Where an EU Member State is unable to prevent a party from commencing proceedings before a court of a Member State, an English court is free to implement the parties' arbitration agreement in order to prevent proceedings from being initiated or continued where the Member State has breached that arbitration agreement.[3]
When proceedings are initiated after the end of the transition period, the enforceability of EU judgements before English and other UK courts (and vice versa) is governed by the relevant national rules for the enforcement of judgments from third countries and where these rules apply (see section on the jurisdiction of agreements ) (The Hague, 2005).[4]
HOW DOES THIS IMPACT THE LEGAL SECTOR?
It remains to be seen whether Brexit will make arbitration more popular. A key reason for choosing arbitration over litigation is the ability to enforce arbitration awards against states which are parties to the New York Convention as enforcement of foreign court judgments against them would be problematic. Arbitration, particularly commercial arbitration, is unlikely to be affected by Brexit.[5]
The general consensus is that withdrawal from the EU will not have an impact on substantive arbitration, as arbitration is excluded by law from the scope of European jurisdiction under the enforcement regime of Regulation 1215 / 2015 (recast of Brussels Regulations). Recognition and enforcement of UK judgments against the EU is possible under the provisions of national law, but entails additional costs and delays and is subject to a number of procedural safeguards. The choice of law and jurisdiction to be implemented in the UK after Brexit will facilitate the enforcement of these judgments, but will require multilateral cooperation.[6]
In the event of Brexit, combined with its status as a global financial centre, the United Kingdom will remain the preferred centre for resolving disputes. Given the jurisdiction, the call for fairness and impartiality, and the reasoned decisions of experienced referees, it is doubtful whether Brexit will affect the choice of English arbitration law. The UK could also gain a competitive advantage over other courts in EU member states which could be prevented from (or unwilling) to issue injunctions relating to courts brought outside the EU.[7]
London has enjoyed unrivalled status as one of the most popular arbitration seats for some time. London's success as a hub of arbitration can be due to certain characteristics of English law, trust in the parties and the English legal system due to its efficiency, impartiality and effectiveness. English legal factors have positioned London as the preferred seat, as well as factors such as location, language, culture and efficiency of litigation[8].
The resolution of international disputes plays a major role in the workload of the English courts because they have jurisdiction over disputes over laws and agreements that are not governed by English law, no matter where the parties are based. The International Arbitration System is based on the New York Convention and allows for recognition of national courts and arbitration agreements as well as full international enforcement of arbitral awards. Brexit will therefore not affect international arbitration and enforceability of arbitral awards.[9]
The EU rules governing the Rome I and Rome II laws do not extend to arbitration. Arbitration laws will continue to apply after Brexit, as will the prudential jurisdiction of the courts. Unless further objections to arbitration are raised, English domicile arbitration offers a simple solution for enforcing English judgments in relation to the post-Brexit period.[10]
Recognizing and extending arbitral awards is governed by an international convention known as the New York Convention and by EU rules for enforcement of court judgments. The seat of the arbitral tribunal is influenced by the efficient and effective conduct of the proceedings, the outcome of appeals to the arbitration award and the availability of interim measures to support arbitration proceedings.[11]
At the end of the transition period, the Services Rules will no longer apply to English courts where court proceedings can be held in the EU. Brussels has recast the regulations as an EU instrument to harmonise jurisdiction for enforcement decisions within the EU, to prevent a race between two EU jurisdictions, to maintain the choice of forum for parties and to make automatic recognition of the enforcement of judgments by courts of EU member states within the EU. The EU Court of Justice in Lugano confirms the jurisdiction clause which confers jurisdiction to the court of a member state, making it easy to enforce a judgment of one of the Lugano states.[12]
Many parties involved in cross-border transactions will choose to have disputes settled by arbitration, as opposed to litigation, and international arbitration will remain unaffected by the impact of Brexit. Parties taking part in arbitration elections will continue to be legally binding after Brexit, and parties will be able to appeal to the English courts for injunctions against claims to prevent proceedings from being brought in another EU country.[13]
By LawMiracle
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REFERENCES:
[1] See https://www.insidebrexitlaw.com/blog/why-brexit-is-unlikely-to-have-any-impact-on-london-s-status-as-a-popular-seat-of-arbitration
[2] See https://www.garrigues.com/en_GB/new/brexit-boost-international-arbitration; https://www.morganlewis.com/pubs/2016/05/potential-impact-of-brexit-on-arbitration and https://www.insidebrexitlaw.com/blog/why-brexit-is-unlikely-to-have-any-impact-on-london-s-status-as-a-popular-seat-of-arbitration
[3] See https://www.lexology.com/library/detail.aspx?g=5e23dae4-ec66-4b83-b876-83c229f01643 and https://www.matheson.com/insights/detail/what-impact-will-brexit-have-on-arbitration
[4] See https://www.hklaw.com/en/insights/publications/2021/02/brexit-implications-for-dispute-resolution
[5] See https://www.hklaw.com/en/insights/publications/2021/02/brexit-implications-for-dispute-resolution and https://www.matheson.com/insights/detail/what-impact-will-brexit-have-on-arbitration
[6] See https://www.garrigues.com/en_GB/new/brexit-boost-international-arbitration and http://arbitrationblog.practicallaw.com/what-on-earth-happens-next-foreseeing-the-impact-of-brexit-on-international-arbitration/
[7] See https://www.morganlewis.com/pubs/2016/05/potential-impact-of-brexit-on-arbitration and https://www.insidebrexitlaw.com/blog/why-brexit-is-unlikely-to-have-any-impact-on-london-s-status-as-a-popular-seat-of-arbitration
[8] See https://www.morganlewis.com/pubs/2016/05/potential-impact-of-brexit-on-arbitration and https://legalisglobal.com/how-will-brexit-impact-arbitration-in-england-and-wales/
[9] See https://www.ashurst.com/en/news-and-insights/legal-updates/dispute-resolution-what-now/ and https://www.stevens-bolton.com/site/insights/articles/international-trade-how-will-brexit-impact-dealing-with-disputes
[10] See https://www.ashurst.com/en/news-and-insights/legal-updates/dispute-resolution-what-now/ ; https://www.matheson.com/insights/detail/what-impact-will-brexit-have-on-arbitration and https://www.mofo.com/resources/insights/190122-brexit-disputes-governing-law.html
[11] See https://www.lexology.com/library/detail.aspx?g=5e23dae4-ec66-4b83-b876-83c229f01643 and https://www.matheson.com/insights/detail/what-impact-will-brexit-have-on-arbitration
[12] See https://www.ashurst.com/en/news-and-insights/legal-updates/dispute-resolution-what-now/; https://iclg.com/cdr/expert-views/16835-a-false-dusk-the-outlook-for-disputes-in-the-uk-post-brexit and https://www.stevens-bolton.com/site/insights/articles/international-trade-how-will-brexit-impact-dealing-with-disputes
[13] See https://www.stevens-bolton.com/site/insights/articles/international-trade-how-will-brexit-impact-dealing-with-disputes
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.