Brexit: The impact on Debt Collection and Cross-Border Dispute Resolution
Rome and Brussels regulation
After a long negotiation process, the UK will officially leave the EU at the end of the year. A transition period has been in place until 31 December 2020. During this period the UK has still been complying with all EU rules and laws. The question is what will happen in the new year?
For all our clients seeking debts from the UK, we are mindful that the end of the year is fast approaching, and they are keen to know how debt collection after Brexit will proceed and how the laws may affect their surrounding cases.
The most relevant pieces of EU legislation surrounding debt collection after Brexit and cross border dispute resolution are the Rome I and II and Brussels Regulation.
- Rome I sets out which law should be used to interpret contracts with an international element (i.e. contracts agreed by parties headquartered in different countries);
- Rome II deals with non-contractual obligations;
- The Brussels regulation is used to determine which court will have jurisdiction to rule over a dispute involving more than one country in the EU.
Issue of applicable law
Rome I & II
It is important for our clients to note that for their contracts already concluded before the end of the transition period (December 31st 2020), that the Rome I Regulation will apply retrospectively. Creditors have thankfully been offered assurances from the withdrawal agreement since the current rules will continue to apply to contracts agreed before the end of the transition period.
Businesses that have already entered into contracts that included an applicable law clause will be respected following the transition period.
Furthermore, the UK has taken steps to incorporate Rome I and II into its own domestic legislation. This takes effect immediately following the end of the transition period. Therefore, in the immediate aftermath of Brexit, the UK, and the EU will follow more or less the same rules on these topics. However, this may change in the long-term, as EU and UK law will start to diverge.
Brexit is in a constant state of flux, three weeks before the end of the transition period there is still a possibility of a No-Deal Brexit. However, even if after the transition period there is no-deal in place, the situation regarding applicable law under the Rome I and II regulation (which all remaining EU countries will still use) will not be any different. This is because they have a universal application, and do not follow mutual reciprocity. This means that relevant clauses must be respected by EU states, whether that law is from within the EU27 or from an outside jurisdiction such as the US or Canada, or now the UK.
Issue of competent court
The status of the Brussels Regulation and the legislation surrounding the competent court is more complicated.
The Brussels Regulation will continue to operate for cases where proceedings were brought before the end of the transition period. Companies who have had a cross-border EU dispute or debt collection case would have been advised to begin proceedings before December 31st 2020 to benefit from this.
Unlike the Rome I and II regulations, the Brussels Regulation is not universal and does follow the rule of mutual reciprocity between states. This means there may be an increased risk of disputes surrounding which court can hold jurisdiction over a contract.
The UK is taking steps to avoid these potential issues by seeking to join the Lugano Convention. The Lugano Convention governs court jurisdiction and the enforcement of judgments between the EU and European Free Trade Association (EFTA) states. These include Switzerland, Iceland, Liechtenstein, and Norway and is a mirror image of the 2001 Brussels Regulation. However, joining the Lugano Convention is not a straightforward affair. The UK will need approval by the EU and there are several reasons why this may not be granted, principally anti-suit injunctions which the current EU regime prohibits. As it stands, the UK will not gain this approval before the end of the transition period.
The UK is also acceding to the Hague Convention, although this offers much less protection than the Brussels Regulation or the Lugano. One positive aspect it will bring is the possibility to include an exclusive jurisdiction clause in an agreement. It would be advisable for contracting parties to use exclusive jurisdiction clauses in their contracts with UK parties.
Keeping these complications and uncertainties in mind, our claimants who are seeking to enforce a court judgment against a UK debtor in another member state should do so before the end of the transition period if still possible at this late stage to avail of the Brussels Regulation.
Conclusion and recommendations
In 2021 and beyond, European creditors who are arranging concluding contracts with UK parties should be more careful when considering their approach to subjects such as applicable law, jurisdiction, and dispute resolution clauses. This includes provisions clarifying which court has jurisdiction and which country's law applies to the contract.
If you have a case or situation where you need assistance, please do not hesitate to contact our firm for guidance. We would be more than glad to assist you!