Leaving the European Union could cause complications for the enforcement of court actions against firms and entities in EU member states. Arbitration could offer an alternative

Nicholas Baatz

The consequences of Brexit for the UK construction industry are uncertain. In one area, however, the worst outcome can be anticipated – and perhaps mitigated.

This is the enforcement of judgments by UK firms against European Union (EU) companies and other entities. At present this is relatively uncomplicated because the UK is a member of the EU. If the UK leaves, the position may become more complicated and much less favourable.

Suppose a UK contractor receives defective materials from a supplier in an EU member state. The contract provides for the jurisdiction of one or other UK court over disputes. At present, the court of the supplier’s country will be obliged to recognise the choice of the UK court as the place where disputes will be litigated (Article 25 of EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) and will be obliged not to interfere (Article 31.2 of Regulation 1215/2012).

Once the UK contractor has obtained its judgment in the UK court, it will be able to enforce it in the supplier’s country as if it were a court judgment there (Article 36.1 and 39.1 of Regulation 1215/2012). The court in that country will be obliged to recognise and enforce the UK judgment, broadly without quibble, subject to limited exceptions such as public policy (Article 45). Enforcing the judgment should be as easy as enforcing a judgment in central Birmingham, being a practical aspect of access to the single market.

If and when the UK ceases to be a member of the EU then UK contractors will have no rights as to the choice of jurisdiction or enforcement under Regulation 1215/2012 in respect of the UK courts because that applies only to choice of jurisdiction of the courts of a member state (Article 25.1 and 31.2 of Regulation 1215/2012) and to judgments given by the courts of a member state (Article 2(a)), which the UK will no longer be.

Take away the member state status and rights under Regulation 1215/2012 cease.

What then? It may be that the UK will ratify the 2005 Hague Convention on Choice of Court Agreements. However, even if it does, there are complications: for example, that convention seems to allow the foreign court to reopen findings of fact on which the UK Court based its jurisdiction where judgment is given by default (Article 8(2)).

Another possibility is the UK could attempt to ratify the revised Lugano Convention of 2007 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, which essentially governs the relations of the EU member states and Denmark, Norway, Switzerland and Iceland. But there is also a problem with that possibility. The UK will have to apply to join in the revised Lugano Convention and could do so either because it was a member of the European Free Trade Association – which it currently isn’t – (Article 71) or otherwise (Article 72). In the latter case, any current signatory to the revised Lugano Convention can veto any applicant (Article 72(3)). Either way, the price of being allowed to join may well be, for example, UK agreement to the free movement of persons. Further, even the revised Lugano Convention does not contain the provisions introduced in Regulation 1215/2012.

All these processes may grind very slowly. In the meantime, enforcing a UK judgment in the suppliers’ country may be far from easy or quick. It will depend upon the law of the land in question.

What can be done? There may be a solution. If the contract provides for arbitration as the dispute resolution procedure then the UK company can take advantage of the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958.

The UK and over 150 other countries, including all the EU states, have ratified this convention and UK firms will be able to take advantage of it even if the UK leaves the EU. The New York Convention provides for the recognition of the choice of arbitration, for the recognition of the binding force of arbitration awards, and their enforcement in convention states on terms substantially the same as those applicable to the enforcement of domestic arbitration awards in the convention state. Recognition and enforcement may only be refused on limited grounds.

Each contract will raise its own considerations. For example, the laws of the Republic of Ireland may make the recognition and enforcement of UK court judgments uncomplicated even when Regulation 1215/2012 does not apply. That would have to be considered.

However, anticipation and mitigation of the uncertainty of future enforcement of UK judgments may suggest that UK companies should futureproof against the uncertain consequences of Brexit in this area. One strategy might be to incorporate arbitration clauses into their contracts and rely upon the 1958 New York Convention rather than whatever may end up as the regime for recognition and enforcement of court judgments.

Nicholas Baatz is a QC at Atkin Chambers