Submission to English law and jurisdiction in post Brexit commercial contracts


On 31 December next, the United Kingdom will exhaust the transitional period after its departure as a member state of the EU and it seems likely that it will do so without reaching specific agreements with this supranational organisation on matters relating to cooperation in justice and home affairs. This may almost certainly mean the non-application in the UK of the rules of private international law produced by the EU. A prior analysis will therefore have to be made of what this departure without agreement may mean when faced with the drafting of a commercial contract and if one wishes to continue to rely on the English (or Welsh) courts and their laws.

The Community regulatory framework which guaranteed the full recognition and enforceability of the decisions of British courts in the other Member States, as well as the certainty of common rules of conflict with them, added to the elements of reliability and absence of language barriers (English being also the prevailing language in these contracts) is what has been advising a massive choice by these courts and laws when drafting those often ill-considered final clauses in the contracts. But will these advantages recognised to EU member states be lost after a Brexit without agreement? Because a quick, legally sound and understandable judgement would be of little value if the winning party does not have, for example, the possibility of enforcing it without resorting to mechanisms such as exequatur, or does not take into account, if it had agreed to submit to the law that the parties agreed upon.

Faced with this situation, what is the British legal sector alleging to maintain that nothing is going to change substantially in any case and, in the process, maintain an activity as lucrative as the litigation of international commercial contracts under its law and courts?

There are two possible solutions to the issue of exit without specific agreement between the UK and its former EU partners, based on two international conventions whose objects overlap in terms of choice of international jurisdiction clauses.

As regards international jurisdiction and the recognition and enforcement of judgments, the application of the 2005 Hague Convention on Choice of Court Agreements is announced as a first possibility, which is a regulation very similar to the one contained in the Brussels I bis Regulation (in fact the latter, among other things, adapted the regulation to this convention) on choice of court and to which the United Kingdom intends to become a party next year, the EU states being already members. In any event, it should be borne in mind that the Hague Convention will apply only to contracts concluded after the entry into force of the Convention, which in the United Kingdom has not yet done because it has not yet ratified it. Although the regulations are very similar, there are also small differences between this convention and the European regulations, such as the non-exclusive clauses on submission to a particular jurisdiction. These clauses are not covered by the Convention, although there is a presumption of exclusive jurisdiction and a mechanism is provided for Member States to extend the scope to such non-exclusive clauses by means of reciprocal declarations (Article 22 of the Convention).

As can be seen, despite the adaptation of the Regulation to the Convention, divergences between the two texts remain and it remains to be seen what interpretative problems will arise from the application of the two texts in cases where they overlap.

But there is a second option even closer to the provisions of the Regulation, and that is the application of the Lugano Convention in its 2007 version. This international convention, which derives from the former Lugano Convention of 1988 and links the EU with Switzerland, Norway, Iceland and, despite being a member of the EU, also Denmark in very similar terms to the regulation in the Brussels Ia Regulation, although not entirely identical. And despite the opinions of the British side defending the non-ratification of the agreement as a result of having been a member of the European Free Trade Association, it would appear that it would be necessary, following its passage through the EU (it was the EU and not the United Kingdom that ratified the Lugano Convention of 2007), to re-verify the process required for the Convention to be in force between the two parties. This is without taking account of the fact that that Convention, despite its similarity in the rules for recognising jurisdiction and the decisions of the courts of the other parties, does not provide the same facilities for the enforcement of those decisions and that, having obtained a decision in a United Kingdom court, mechanisms such as the exequatur procedure would have to be used to give effect to it in an EU Member State. And all of this without taking into account that being part of the Association, if this were the option for joining this treaty, would mean taking into account the case law of the Court of Justice of the European Union, to which the British government has objected on the grounds that it does not wish to be linked to that court, which at present is a contentious point in the post-Brexit negotiations, apparently non-negotiable for the United Kingdom.

It therefore seems that the situation will become irremediably difficult unless the United Kingdom brings the European treaties on these matters into its domestic legislation or signs similar agreements to Brussels I bis with each member state, as has been said, but this is still the subject of speculation for the time being.

With regard to applicable law agreements, it seems in principle that the European Union should have no problem in admitting submission to the rules of England and Wales, so valued for their flexibility, commercial orientation and certainty given the abundant interpretations of their extensive application in the business world. But there are a number of issues to consider when making a contract subject to UK rules and whether it is compatible with the purposes sought. For example, on the basis of Article 3(4) of the Rome I Regulation, and using the classic example of the agency contract, if we seek to circumvent mandatory European law (imagine that the UK amends its laws and eliminates the agent's clientele fee) by making the contract subject to English law, the party who wished to see those obligations set aside will see that an EU court ignores the submission to that law contrary to jus cogens in the Member States. And if the contract has no connection with the UK, then of course those laws will have the sole potential to serve as a kind of contractual clause by reference, with no other effect between the parties than to have saved them the drafting of the terms.

In short, what in the past was a standard clause in international commercial contracts that was drafted almost by default has become, after the Brexit, a gateway to conflict if the ongoing negotiations between the EU and the UK do not reach consensual solutions in matters of judicial cooperation in the coming months. In the meantime, and whether or not such agreements are reached, recourse to international arbitration will be even more advisable in order to avoid the uncertainties, slowness and other disadvantages that submission to the courts entails and which, aggravated by the pandemic, can only be expected to worsen. Surely, in contracts of certain importance due to their amount or the interests at stake, the costs will more than compensate, even those of a lawyer drafting the terms in each case, and not resorting to standard models.

Ignacio Ramos. Lawyer

Larrauri & Martí Abogados

Comercial Law


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