One of the most useful assets in the classic board game Monopoly is the famous get out of jail free card. A player who finds themselves in jail can utilize it to ‘free’ themselves, almost immediately, but more importantly without paying a monetary penalty.
But what has Monopoly got to do with Brexit or arbitration? Whilst the similarities may not be immediately obvious, for commercial agreements made after 11:00 pm on 31 December 2020, jurisdiction clauses that specify arbitration are in many ways a legal get out of jail free card.
The significance of the above date will not have been lost on readers. It is officially known as IP (implementation period) completion day, or more precisely, the day on which the UK legally left the EU. Prior to that date, if you had a commercial agreement between a party in the UK and one in another Member State, which contained a jurisdiction clause in favour of a local court, your options in relation to matters such as determining jurisdiction and enforcement were a lot more straightforward.
For example, a UK party with a German judgment made in proceedings instituted before 1 January 2021, is entitled to enforce that judgment in the UK under the Recast Brussels Regulation as if the judgment was made locally. In other words, that party can use all the enforcement methods available to a party which had obtained a judgement in the UK. It is important to stress that the dividing line is set not by the date judgement is awarded, but by the date that proceedings are instituted.
So what of proceedings instituted after IP completion day? Regimes such as the Recast Brussels Regulation no longer apply. Whilst the UK applied to join the Lugano Convention (a regime based on the original 2001 Brussels Regulation made between the EU and EEA-EFTA countries such as Switzerland) on 8 April 2020, the EU has not yet consented to its accession. In fact, in a communication addressed to the European Parliament dated 4 May 2021, the European Commission recommended that consent should not be provided. For the time being therefore, the application is somewhat in limbo.
Where does that leave commercial contracts made after IP completion day? As set out above, if proceedings have been instituted before then, then questions about jurisdiction can be determined by and enforcement can be conducted via European regimes such as the Recast Brussels Regulation. For agreements where proceedings have not been instituted before IP completion day, but where a dispute suddenly arises, jurisdictional questions and matters of enforcement are a bit more complicated. If the Hague Convention on the Choice of Court Agreements does not apply, then parties will need to look to local law for the answer.
How then can you avoid getting stuck in this jurisdictional quagmire? Whilst not suitable in every case, incorporating an arbitration agreement in your next commercial contract is often a viable solution. In addition to being a highly effective method of resolving disputes (whilst also keeping the details away from public eyes), arbitration has two key benefits in the context of Brexit.
First, any questions as to jurisdiction are usually capable of being resolved by the arbitral tribunal itself. Details such as the forum, rules and any procedures can be set by the wording of the arbitration clause.
Second, awards can be enforced under the New York Convention, which has been adopted by over 150 state parties. In short, this means that it is far easier to enforce an arbitration award than a court judgment.
So next time you are negotiating a commercial agreement1 involving parties in the UK and the EU, don’t forget the get out of jail free card sitting in your back pocket.