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12 October 2020

Brexit: Exclusive jurisdiction clauses after transition period

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As no doubt many of you are already aware, the United Kingdom is no longer a Member State of the European Union. However, the United Kingdom’s status vis-à-vis its relationship with the European Union and Member States is governed by the Withdrawal Agreement entered into between the United Kingdom and the European Union. The transition period Withdrawal Agreement is set to expire on 31st December, 2020.

Exclusive Jurisdiction Clauses

One of the provisions of the Withdrawal Agreement relates to private international law and the reciprocal recognition of the ability of parties to a commercial agreement to choose the United Kingdom’s courts as the forum to resolve disputes between them, via exclusive jurisdiction clauses.

Under the Withdrawal Agreement, even though the United Kingdom is no longer a Member State, the reciprocal arrangements under the relevant piece of European Union legislation, the Recast Brussels Regulation, continue to apply, if one of the contractual parties is a United Kingdom entity, or even if none are.

Should the Withdrawal Agreement expire without any further agreed arrangements between the United Kingdom and the European Union, as seems quite possible, there is some doubt as to whether exclusive jurisdiction clauses in contracts entered into prior to 1 January, 2021 that allow the parties to have the United Kingdom courts resolve disputes, and bars other European Union Member States’ courts from hearing the dispute, will be valid.

This doubt would also apply to contracts entered into on or after 1st January, 2021 should the United Kingdom not enter into the 2005 Hague Convention on Choice of Court Agreement in its own right, although it does seem likely that it will do so.

Why does this matter?

If exclusive jurisdiction clauses can be challenged by a party to the contract due to the doubts referred to above, such a party may be able to enter into what is known as forum shopping in the event of a dispute between the parties.

What this means is that a party can apply to courts other than a United Kingdom court (perhaps its home courts) to persuade that court that it should have the jurisdiction to hear a dispute, giving that party an advantage over other parties to the dispute. This may put the other parties to the contract/dispute at a disadvantage in dealing effectively with the legal proceedings that subsequently result. This issue is likely to be more urgent in multiparty agreements where there are multiple possible jurisdictions in the absence of a binding exclusive jurisdiction clause.

Additionally, a commercial agreement that contains an exclusive jurisdiction clause in favour of European Union courts may prompt a party to that agreement to seek to start any proceedings in the United Kingdom courts, on the basis that the United Kingdom is no longer bound to recognise the binding nature of the exclusive jurisdiction clause.

Weinhold Legal would urge those who are party to existing commercial agreements that contain an exclusive jurisdiction clause in favour of United Kingdom courts to review those agreements urgently and to seek legal advice about how those clauses may be changed or restated in such a way that they will unquestionably fall within the 2005 Convention, in order to avoid the uncertainty as to the effectiveness of such clauses.

Source: Weinhold Legal, Legal Alert | Brexit Edition, 9 October 2020

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