15 September 2016

Plotting the course: Dealing with uncertainty-disputes post-Brexit vote

This article was written by Dorothy Murray (partner) and Matthew Wild (trainee solicitor), and first published in the September 2016 edition of Partnerships Bulletin.

Long term, multi-party infrastructure projects can give rise to a number of disputes over time. Our infrastructure clients typically find four points at which dispute resolution (DR) choices arise:

  1. Contract negotiation – the parties consider the types of disputes that are likely to arise when selecting appropriate DR mechanisms and fora, including the quicker forms of DR such as expert determination or adjudication and the lengthier more detailed processes of litigation or arbitration.
  2. Occurrence of a dispute – the contract may expressly allow for a choice to be made – between arbitration and litigation, or in the courts of country A or B – or a party may choose ADR such as mediation before starting a formal process.
  3. Settlement – when opportunities for settlement arise, a party assesses the likelihood of a successful outcome against commercial considerations, time, cost, credit risk and enforcement.
  4. Enforcement – where there is no voluntary compliance with a judgment or award, the winning party must consider how and where to enforce.

Here we consider the impact of the Brexit vote on each of these issues.

As a preliminary point, as of the date of writing, nothing has changed. EU law remains in effect in the UK. Looking to the future, we do not know what form Brexit will take, to what treaties the UK will accede and which EU laws it will replicate in its own domestic law. The real issue facing decision makers now is uncertainty about the position that will apply on Brexit (whenever that occurs). This uncertainty won't be resolved any time soon.

The DR method most affected by this uncertainty is litigation, whether in the English Courts or in the courts of other EU Member States that may need to be enforced in England. The considerations as between English Courts and non-Member State courts have of course not altered.

Statutory adjudication is based on UK domestic law and will be unaffected. Contractual methods such as expert determination, the establishment of a disputes board or contractual adjudication will similarly be unaffected (at least until there is a question about how to enforce the resulting decision in the event of non-compliance).

Court proceedings are subject to three uncertainties:

  • First, jurisdiction – currently under the Recast Brussels Regulation all EU courts give effect to exclusive jurisdiction clauses in favour of other EU Member State courts by staying proceedings to allow that court to determine the matter. If the UK leaves the EU, much depends on what treaty replaces the Brussels Regulation (if any).  If questions of jurisdiction are to be determined by the court first seised, a party seeking delay could start a claim in a court known to take a long time to decide matters of jurisdiction, thereby side-tracking proceedings even if that court eventually declines to hear the claim (the so-called Italian Torpedo).
  • Second, the recognition and enforcement of judgments – currently English judgments are recognised and easily enforceable in the EU, and vice versa, thanks to the Brussels Regulation. Again, what happens post Brexit will depend on what replaces this within the UK, and as between the UK and the EU.
  • Third, service – the English civil procedure rules and the EU Service Regulation combine to make service of proceedings out of England on parties in other EU Member States relatively straightforward. Post Brexit, service is likely to be slower and more expensive, unless parties have appointed an agent for service within England. 

An arbitration choice will be unaffected by Brexit. Arbitration agreements are widely recognised and enforced by EU Member States (and in many other countries) pursuant to the New York Convention, as are arbitral awards. The Arbitration Act 1996 will not be affected by Brexit, nor will the English court’s generally pro-arbitration approach.

These uncertainties feed into the decisions to be made at each of the key decision points.

  1. Contract negotiation – parties drafting DR clauses now may be advised to consider arbitration rather than court litigation to avoid future uncertainties arising as to recognition of the parties’ choice of method, service and enforcement of the resulting decision. An arbitration under the LCIA Rules and seated in London could be a good alternative choice for an issue that would otherwise be heard in the English High Court. ADR and contractual DR methods are unaffected and should still be chosen where commercially appropriate. Another option we have seen are conditional clauses: in essence, English courts unless Brexit; if Brexit, arbitration.
  2. Occurrence of dispute – when selecting DR methods once a dispute has arisen, or in dealing with ongoing disputes, given future uncertainties in relation to court judgments, parties seeking resolution are advised to use the pre-Brexit period to "get on with it", either by selecting quicker methods or by pushing for a timetable that allows for a judgment to be obtained and enforced, if necessary, before any Brexit. If there are not suitable contractually agreed options already in place, the parties could agree, for example, to appoint an expert to determine the issue, or to refer the dispute to arbitration.
  3. Settlement – when weighing up the pros and cons of settlement, parties must add Brexit uncertainties (particularly as to enforcement) in to their thinking. For borderline cases, the balance may now be tipped in favour of a settlement.
  4. Enforcement – a party with an English judgment to enforce in the EU, or vice versa, should not sit on that judgment and run the risk of having to comply with a more onerous and time consuming enforcement process post Brexit.  

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