English choice of court agreements are a key component of the UK’s success as a leading centre for intentional dispute resolution. The first week of November 2018 has seen the UK government publishing guidance and a draft statutory instrument which indicate some of the steps the UK intends to take to protect these agreements after Brexit.
The current protections
A crucial consideration for international businesses selecting an English choice of court agreement for the resolution of their contractual dispute is whether such agreements will be respected by foreign courts outside of the UK? Will a foreign court give effect to an English choice of court agreement and decline to exercise their own jurisdiction over a claim brought in breach of such an agreement? Will such courts recognise and enforce an English judgment when jurisdiction was founded on an English choice of court agreement?
Currently the position is a happy one. English choice of court agreements are to be given effect to in the courts of some 33 other countries as a result of three international schemes that apply solely by virtue of the UK’s membership of the EU. These are:
The 2005 Convention
The 2005 Convention is a multilateral international treaty aimed at ensuring the effectiveness of exclusive choice of court agreements between parties to international commercial contracts that applies far beyond Europe. The current Contracting Parties to the 2005 Convention are Denmark, the EU, Mexico, Montenegro and Singapore.
Yet the potential for an increase in the operative scope of the 2005 Convention is considerable. China, the United States and Ukraine have all signed it though not yet ratified it. The indications given by Chinese commentators is that the PRC is likely to give effect to the 2005 Convention sooner than later.
In the courts of its Contracting States, the 2005 Convention provides the jurisdiction rules for determining which court can hear a case, as well as the obligations of a court not chosen when faced with an action commenced in breach of an exclusive jurisdiction agreement in favour of another Contracting State. It also provides for the recognition and enforcement of judgments given by courts of Contracting States selected in an exclusive jurisdiction agreements, including the documentation needed to have the judgment recognised and the defences available to a judgment debtor.
EU signed the 2005 Convention on behalf of its Member States
The EU, as a “Regional Economic Integration Organisation” (“REIO”), acceded to the 2005 Convention in accordance with the provisions of Articles 29 and 30 of the same. This process required the EU to declare that “… that it exercises competence over all the matters governed by this Convention and that its Member States will not be Parties to this Convention but shall be bound by virtue of the signature, acceptance, approval or accession of the Organisation” (See Article 30(1), (3)). That was done on 11 June 2015.
Thereafter, in accordance with Article 31, the 2005 Convention entered into force on 1 October 2015. Since then, although not a Contracting Party to the 2005 Convention in its own right, by solely reason of its EU membership, the UK has applied the 2005 Convention to choice of court agreements concluded as from that date.
At present, within Europe, the scope of the 2005 Convention is limited. While the UK is a member of the EU, the 2005 Convention does not apply to proceedings governed by either the Brussels I (Recast) Regulation or the Lugano Convention (2007), as Article 26 of the 2005 Convention makes it clear that it shall not affect the application by a Contracting State of a treaty, whether concluded before or after that Convention, in cases where none of the parties is resident in a Contracting State that is not a party to that Convention, nor does it apply to the rules of REIO that is a party to it, which concerns the recognition and enforcement of judgments as between the Member States of that REIO (such as the Brussels I (Recast) Regulation itself).
But things could be very different after Brexit if there is no new arrangements entered into between the UK and the EU and the EEA / EFTA States. When the UK leaves the Brussels I (Recast) Regime, and before becomes a member of the Lugano Convention in its own (which is probable, though the latter is in need of updating), the 2005 Convention may become the main instrument for the recognition of such clauses between the UK and the EU 27, at least for a period of time.
Preserving the status quo– as best we can
As things stand, when the UK leaves the EU, English choice of court agreements will lose the protections of all three of those international instruments. In particular, it seems highly likely that the 2005 Convention will cease to apply to English choice of court agreements in the courts of other Contracting States from 11 p.m. on 29 March 2019.
The fear is that this might produce uncertainty over the validity of English choice of court agreements. As a result, the government indicated in their August 2017 paper, “Providing a cross-border civil judicial co-operation framework- A future partnership paper”, that it remains committed to continuing to participate in the 2005 Convention after the UK leaves the EU.
In their 13 September 2018 “no-deal” technical notice, the Government rather vaguely declared that:
“In the event of no deal, we would take the necessary steps to formally re-join the 2005 Hague Convention on Choice of Court Agreements in our own right (we currently participate because of our EU membership). It is anticipated that the convention would come in to force across the UK by 1 April 2019. Where appropriate, individuals and businesses would need to consider what this would mean for any existing choice of court agreements made under either the Brussels regime or the 2005 Hague Convention, including the implications of any gap in coverage by the 2005 Hague Convention between 29 March and 1 April 2019.”
This notice raised some eyebrows, not least because of the suggested timing of when the 2005 Convention would re-enter into force after Brexit. For Article 31 of the 2005 Convention declares that:
“The Convention shall enter into force on the first day of the month following the expiration of three months after the deposit of the second instrument of ratification, acceptance, approval or accession referred to in Article 27”.
In order for the 2005 Convention to come into force across the UK on 1 April 2019, the UK would have to deposit the required instrument by 31 December 2018. What was not discussed was whether the UK was legally able to do that, because the UK ceded competence in international judicial cooperation in civil matters to the EU under what is now Article 81 TFEU (ex. art 65 TEC), which is why the EU was able to accede to the 2005 Convention in the first place.
Would the UK government be seeking the approval of the EU before depositing the instrument of accession prior to leaving the EU? No answer was given.
In addition, what about the “gap” for any choice of court agreements entered into between Exit Day and the day when the 2005 Convention re-enters into force in the UK? Even on the UK government’s own calculation that would be from 11 p.m. on 29 March until the 1 April 2019. What would be the status of such agreements?
The Foreign & Commonwealth Office’s new publications
The Foreign & Commonwealth Office has now published a Command Paper (Cm 9723) and Explanatory Memorandum dealing with the UK’s intentions regarding the 2005 Convention (https://www.gov.uk/government/publications/ms-no112018-convention-on-choice-of-court-agreements).
The Explanatory Memorandum indicates that in the event that the Withdrawal Agreement is ratified and comes into force upon exit day “… the EU and UK’s intention is that during the Implementation Period [i.e. until 31 December 2020 as things currently stand] the UK will continue to be bound by the Convention by virtue of its EU party status”. How the UK could retain its “EU party status” when it is not an EU Member State was not explained, nor was there any suggestion that any other Contracting Party to the 2005 Convention accepted this EU and UK intention as being valid.
However, in order to provide for continuity and legal certainty, and as part of its “no deal” planning, the UK government intends to deposit the instrument of ratification for the 2005 Convention by the end of December 2018. But the Explanatory Memorandum is again silent as to whether EU approval for this is considered to be either required or will be sought for doing this. It looks as if the Government will simply proceed and see what happens.
The Draft Statutory Instrument
As for “plugging” the 3 day gap between 29 March 2019 and 1 April 2019, the UK has decided to craft its own solution for its own courts. A new statutory instrument, the pithily titled “The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018” (S.I. 2018 No. 1124) http://www.legislation.gov.uk/uksi/2018/1124/pdfs/uksi_20181124_en.pdf) has been laid before Parliament and will come into force on Exit Day.
Those 2018 Regulations, which require detailed study to make sense of them, provide for a UK court to give effect to choice of court agreements concluded by a non-EU contracting state prior to Exit Day, and to give effect to those agreements that were concluded in favour of any contracting State (including EU Member States) during the (hopefully) 3 day gap before the 2005 Convention re-enters into force in the UK. The 2018 Regulations require:
“… courts in the different jurisdictions of the UK to treat these agreements (unilaterally) as if the Convention continued to apply without that gap (save in respect of a choice of court of a Member State of the European Union concluded before exit day, where prior to that date the Convention was in any event disapplied by Article 26(6)).”
But, as the Explanatory Memorandum rather coyly admits, this is a UK only solution, and there is no guarantee that the courts of other Contracting States will reciprocate:
“…Of course, the UK cannot legislate for how existing choice of court agreements where a court in a part of the UK is the chosen court will be treated by other Contracting Parties to the Convention before the re-entry into force of the Convention for the UK.
The 2005 Convention and Insurance Contracts
The Explanatory Memorandum does indicate that, in acceding to the 2005 Convention, the UK intends to make declarations under Article 21 which continue the effect of the EU’s existing declarations in relation to insurance contracts. The intended declarations are:
“1. The United Kingdom of Great Britain and Northern Ireland will apply the Convention to insurance contracts in the following cases:
(a) where the contract is a reinsurance contract;
(b) where the choice of court agreement is entered into after the dispute has arisen;
(c) where, without prejudice to Article 1 (2) of the Convention, the choice of court agreement is concluded between a policyholder and an insurer, both of whom are, at the time of the conclusion of the contract of insurance, domiciled or habitually resident in the same Contracting State, and that agreement has the effect of conferring jurisdiction on the courts of that State, even if the harmful event were to occur abroad, provided that such an agreement is not contrary to the law of that State;
(d) where the choice of court agreement relates to a contract of insurance which covers one or more of the following risks considered to be large risks:
(i) any loss or damage arising from perils which relate to their use for commercial purposes, of, or to:
(a) seagoing ships, installations situated offshore or on the high seas or river, canal and lake vessels;
(c) railway rolling stock;
(ii) any loss of or damage to goods in transit or baggage other than passengers’ baggage, irrespective of the form of transport;
(iii) any liability, other than for bodily injury to passengers or loss of or damage to their baggage, arising out of the use or operation of:
(a) ships, installations or vessels as referred to in point (i)(a);
(b) aircraft, in so far as the law of the Contracting State in which such aircraft are registered does not prohibit choice of court agreements regarding the insurance of such risks;
(c) railway rolling stock;
(iv) any liability, other than for bodily injury to passengers or loss of or damage to their baggage, for loss or damage caused by goods in transit or baggage as referred to in point (ii);
(v) any financial loss connected with the use or operation of ships, installations, vessels, aircraft or railway rolling stock as referred to in point (i), in particular loss of freight or charter-hire;
(vi) any risk or interest connected with any of the risks referred to in points (i) to (v);
(vii) any credit risk or suretyship risk where the policy holder is engaged professionally in an industrial or commercial activity or in one of the liberal professions and the risk relates to such activity;
(viii) any other risks where the policy holder carries on a business of a size which exceeds the limits of at least two of the following criteria:
The United Kingdom of Great Britain and Northern Ireland declares that it may, at a later stage in the light of the experience acquired in the application of the Convention, reassess the need to maintain its declaration under Article 21 of the Convention.”
In essence, these reflect the category of “large risk” insurance contracts found in EU law, in e.g. Article 5(d) and Annex A of the First Non-Life Insurance Directive (73/239/EC) as amended, for which provision is made in the special jurisdiction in matters relating to insurance in Section 3 of the Brussels I (Recast) Regulation (1215/2012), and for choice of law purposes are reflected in Article 7 of the Rome I Regulation on the law applicable to contractual obligations (593/2008) (see e.g. M McParland, The Rome I Regulation, (OUP 2015), Chap 13, (paragraph 13.122 following).
Post Brexit, it seems increasingly likely that the 2005 Convention will become a far more significant instrument. Litigators involved in cross-border disputes will need to get to grips with its provisions sooner rather than later.
Michael McParland QC, 12th November 2018.