Choice of court agreement and enforcement: Brexit as a pitfall

There was great joy and relief when, fittingly for Christmas, it was announced that there was an agreement between the EU and the UK on trade and economic relations for the post-Brexit period.

However, a closer analysis of the agreement shows that it does not eliminate all the problems caused by Brexit and already highlighted in our various seminars on this topic. Two aspects that are very important for practice remain problematic:

1. How will court judgments be recognised and enforced in the future?
2. What has to be taken into account when agreeing on the place of jurisdiction?

  • Until 31.12.2020:
    In the pre-Brexit period, the so-called Recast Brussels Regulation also applied to the UK, and laid down clear and uniform rules on jurisdiction, choice of court agreements and the simple recognition and enforcement of both foreign judgments in the UK and UK judgments in the rest of the EU. This Regulation has lapsed in relation to the UK because of Brexit. Court proceedings already initiated under the Recast Brussels Regulation remain unaffected by Brexit.So, what regulations currently apply and what should be taken into account?
  • From 01.01.2021:
    Fortunately, the UK is a party to the 2005 Hague Convention on Choice of Court Agreements, which, contrary to its title, not only deals with issues relating to the validity of a choice of court agreement, but also contains basic rules on the recognition and enforcement of judgments given pursuant to such a choice of court agreement. However, it does not apply to several areas of law, such as insolvency law, the carriage of passengers and goods, marine pollution, limitation of liability for maritime claims, general average and emergency towing and salvage, certain intellectual property and copyright issues.However, if we are dealing with a situation where the parties have not concluded a (valid) choice of court agreement within the meaning of the Hague Convention, or if a matter excluded from the scope of that Convention is involved, the question arises as to how to proceed. A court will then examine the effectiveness of a choice of court agreement according to its national law. For recognition and enforcement, the “Convention between the Federal Republic of Germany and the United Kingdom of Great Britain and Northern Ireland on the Mutual Recognition and Enforcement of Judgments in Civil and Commercial Matters” of 14 July 1960 is likely to apply. However, the rules established here are less recognition and enforcement friendly than they were under the Recast Brussels Regulation.Should this convention not apply either, recognition of British judgments would have to be obtained via sect. 328 of the German Code of Civil Procedure (ZPO); a path that experience has shown to be difficult and lengthy.

    For questions of jurisdiction, recognition and enforcement, the courts will apply the procedural law in force when the application is made. Therefore, in this respect, it is irrelevant when the contract in question was concluded, so that contracts already existing before Brexit are also affected if a legal dispute develops from them now.

    The situation can be applied in a mirror image to the recognition and enforcement of German or other European court judgments in the United Kingdom. Here too, unless bilateral or multilateral agreements or conventions apply, the national rules of the United Kingdom apply. This may mean that a judgment of a court of a European state is easier or more difficult to enforce in the United Kingdom than a judgment of another European state. Overall, therefore, relations with companies in the UK lose legal certainty.

  • Is there hope for improvement?
    There is, however, a silver lining in the form of the UK’s aspiration to accede to the Lugano Convention. The Lugano Convention is largely similar to the rules of the Recast Brussels Regulation. However, the UK’s application for accession is dependent on the agreement of the other Convention members and so far, at any rate, little has been done on the part of the EU to allow the UK to enjoy membership of this Convention. Thus, for the foreseeable future, it cannot be assumed that the rules on jurisdiction, recognition and enforcement under the Lugano Convention will apply in relation to the UK.
  • Recommendation for action in practice
    As a recommendation for action, the agreement of an explicit jurisdiction of state courts is desirable so that the advantages of the 2005 Hague Convention can be relied upon. However, in order to ensure that all areas of law are covered, i.e. also those excluded from the Hague Convention, the agreement of an arbitration clause in the contract is a sensible alternative. The enforcement of the arbitral award is covered by the so-called New York Convention of 1958, which is outside EU law and has 157 contracting states. It is irrelevant whether the parties use the relatively expensive arbitration in the UK or German arbitration for example under the rules of the GMAA (Germany Maritime Arbitration Association) or the DIS (Deutsche Institution für Schiedsgerichtsbarkeit). From a continental European perspective, the latter have the advantage of a relatively economical procedure (e.g. no elaborate disclosure procedure to find out the facts of a case) and are usually significantly less expensive.