This material was prepared prior to the UK vote on 23 June 2016.
With the referendum for Britain potentially leaving the European Union (“Brexit”) fast approaching on 23 June 2016, a “leave” vote could have far-reaching consequences for commercial litigation in the courts of England and Wales.
Any uncertainty caused by a leave vote would likely be an unwelcome development for potential litigants. Further, in a post-Brexit United Kingdom, could there be a rise in litigation under contractual force majeure clauses?
Commercial contracts regularly contain a force majeure clause, which excuses a party or parties from performing their obligations under a contract following an event (or events) outside of their control.
Whether a leave vote constitutes a force majeure could well be a source of contention between contracting parties. For example, it is possible that a leave vote would result in import taxes being imposed by EU Member States on UK imports. Similarly, the United Kingdom could impose import taxes on imports from EU Member States. Any import tax imposed on goods (be that from the United Kingdom or EU Member States) would likely increase the price of that good for the importer and, in turn, the end purchaser (if different).
Depending on when a contract was negotiated, a party could argue that both parties did not foresee such taxes at the time that they entered into the contract, and therefore one of them would like to bring the contract to an end.
The question would inevitably arise as to whether the imposition of new taxes as a result of a leave vote should be considered a force majeure, allowing a party to bring a contract to an end without incurring liability. Although the answer to that question cannot be known at this stage, and may well depend on the drafting of the specific force majeure clause, it is an issue that would almost certainly come before the courts for determination at an early stage. The location of such a court would likely depend on any agreement reached between the United Kingdom and EU Member States about service out of the jurisdiction and enforcement of judicial awards.
With increasing trade among EU Member States (recent statistics by Eurostat show an increase in intra-EU trade of 4.7% between 2014 and 2015, representing the sixth consecutive annual rise), many disputes involve an EU element, be that the domicile of one of the parties or the performance location of the contract. In those circumstances, the only option available to a potential claimant in England and Wales may be to commence a claim by serving a claim form out of the jurisdiction. Ensuring that all of the necessary rules and procedures are complied with is crucial; failure to properly serve a claim form could result in the claim failing before it has begun.
The Recast Brussels Regulation (Regulation 1215/2012) and the 2001 Brussels Regulation (Regulation 44/2001) (the Brussels Regulations) set out when the courts of England and Wales have jurisdiction to hear a claim with an EU element and are to be considered alongside the EU Service Regulations (Regulation (EC) 1393/2007) (together, the Regulations) that establish the procedure for serving a claim form out of the jurisdiction.
Should a leave vote occur, the Regulations would not apply to the United Kingdom, and the process of serving a claim form in an EU Member State would likely (in the short-term, at least) require the permission of the court; a process that would increase both the time and cost of serving a claim form out of the jurisdiction.
One option for the United Kingdom would be for an agreement under which it signs up to the Regulations as Denmark has done (although the Recast Brussels Regulation is not yet in effect in Denmark at this writing). However, one cannot be certain that such an option would even be open to the United Kingdom. If that option was not available, the United Kingdom could find itself having to negotiate numerous agreements with EU Member States in respect of the service of claim forms (and other documents). Should individual agreements be required, certain EU Member States could apply stricter rules for service in their jurisdictions, making the process more time consuming and, ultimately, costly. An extreme position would be an EU Member State simply refusing to allow service of a claim form in its jurisdiction, although that is unlikely.
It is unclear how potential litigants would respond to such a development, it is certain that any ambiguity about the process of commencing a claim would result in an increase in the time and cost of such a process.
Enforcing an award by the court of an EU Member State in another EU Member State is governed by the Brussels Regulations, with one of their aims to make such enforcement a straightforward process.
Should there be a leave vote, the Brussels Regulations would not apply to the United Kingdom, leaving the position and enforceability of judgments by the courts of England and Wales in an EU Member State uncertain. Such uncertainty would likely be a cause of great concern for litigants and potential litigants who, after going through the litigation process, want to know that judgments are binding in EU Member States. Conceivably, it could result in a drop in the volume of litigation commenced in the courts of England and Wales, with potential litigants instead beginning litigation in the courts of an EU Member State (where they are able) to ensure peace of mind about the enforceability of any judgment in other EU Member States.
As mentioned earlier, the United Kingdom could theoretically seek to follow Denmark’s position and sign up to the Brussels Regulations, but until any such agreement were reached, potential litigants could approach the courts of England and Wales with a level of caution.
Although much may be unknown about the effect of a leave vote, we do know that it would cause a great deal of uncertainty for litigants and potential litigants. With litigation carrying inherent risks, any additional uncertainty would be an unwanted development.
For more than three decades, Morgan Lewis has represented companies and institutions doing business in the United Kingdom and globally. Our Brexit team of lawyers have been advising clients on a variety of legal issues in the run up to the decision and are assessing the complex short- and long-term implications of the June 23 vote. Our Brexit Resource Centre will continue to provide guidance on the legal and business implications of the United Kingdom’s decision to leave the union. To view this alert and others, and to gain immediate access to our most recent guidance on Brexit, please visit the Brexit Resource Centre. In addition, please feel free to speak to your usual contact at Morgan Lewis or to contact any one of the Brexit Team via Brexit@morganlewis.com.
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