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Brexit and European international private and procedural law

November 14, 2016

The worst case scenario has now materialized. The United Kingdom is to leave the European Union (probably in 2019). While the Brexit campaigners clearly failed to give sufficient consideration to the legal and economic consequences of this step, the European Union is also inadequately prepared for this scenario (for which the EU is obviously to blame to a much lesser extent).

Burkhard Hess

Text: Burkhard Hess

The ramifications of departure for international private and procedural law are also unclear. Brexit will undoubtedly be disadvantageous for London as a place of justice. Many effects will occur immediately. As the content of any transitional agreement cannot be anticipated at this stage, it is reasonable to start from the assumption that no special transitional provisions will be established. The following reflections aim to outline the course of action required for the forthcoming negotiations using a few selected examples and to explore various political options for the European Union and the United Kingdom.

The United Kingdom will become a third country

Upon the United Kingdom’s departure, the European legal instruments relating to the UK will cease to apply and it will become a third country from the perspective of Union law.

Large areas of modern, European civil procedural law will cease to exist without replacement in the United Kingdom. That applies, for example, to European procedural law in matrimonial matters, European insolvency law, European small claims and payment proceedings, as well as the new system of European patent jurisdiction, the introduction of which the United Kingdom had particularly advocated.

The commitment to treaties concluded by the European Union with third countries under international law will also lapse. This applies at least to treaties which the Union concluded based on exclusive external competence, which is often the case in European international private and procedural law. As competence for concluding such treaties under international law will be returned to the United Kingdom upon its departure, they will clearly have to be renegotiated.

The EU member states will apply the provisions of Union law for third countries to the United Kingdom in future or the autonomous law of member states where Union law does not provide for special provisions. This is except where bilateral legal assistance treaties or multilateral agreements from the period prior to the United Kingdom’s accession to the EU exist which will then apply.

Reverting to the 1960s

This would apply, for example, if the European regulations on the jurisdiction of courts ceased to apply as a result of Brexit. They would then be replaced by previous recognition agreements. An agreement from 1960 between the United Kingdom and Germany exists in this area which at the time sought to restrict the obstacles to recognition applicable then. It was a modern agreement in the 1960s but nevertheless now seems like an anachronism in view of the regulations produced within the EU in the meantime. In place of the modern model – which is based on mutual trust in the proper execution of civil justice, the use of forms to simplify cross-border exchange and the fundamental willingness to recognize equivalent judicial systems in principle – an unnecessary formal system of cross-border civil law will enter into force that does not have flexible means of resolving issues that arise through dialogue between the judges concerned.

For parties who have chosen London as a place of jurisdiction, the exclusion of the United Kingdom from the European freedom of judgement will have significant ramifications. In future, how British rulings are recognized and executed on the continent will have to be evaluated in each individual case. Such legal fragmentation will result in delays, legal uncertainty and additional costs. Unilateral measures by the British legislator will not automatically prevent such disadvantages, even if it is conceivable that British international procedural law will remain closely aligned with European regulations in future.

Immediate impact

A misconception about Brexit is the assumption that everything will remain as it was during the transitional period. The legal framework conditions will not initially change ostensibly. However, parties must consider the United Kingdom’s impending departure with immediate effect when making contractual arrangements (e.g. the wording of dispute resolution clauses). In light of this situation, blindly entering into agreements giving jurisdiction to courts in London is ill-advised even at this stage.

The restrictions of jurisdiction and arbitration agreements in European financial market law are already having practical “pre-effects”. A regulation here explicitly prohibits financial service providers from third countries from agreeing a place of jurisdiction or arbitration procedure in third countries. These provisions require direct need for action. Dispute resolution clauses in currently negotiated financial instruments and securities must be adapted to the future legal situation. Any existing agreement with London as the place of jurisdiction or arbitration should be amended in favour of other places of jurisdiction on the continent (or in Ireland) as a precautionary measure.

The restrictions of European capital and financial market law affect London directly as a place of jurisdiction. In particular, in the market segment of banking, capital market and insurance law, London courts currently decide on the majority of all disputes in the European judicial area. If the city can no longer be determined as a place of jurisdiction, this will have implications in other areas of law too.

Insolvency law

The British legal services market currently has significant shares especially in the cross-border insolvency and restructuring market. That is likely to change with Brexit as the central coordinating instrument, the European insolvency regulation, will cease to apply on the deadline date. It is unclear whether the United Kingdom will implement the revised 2017 regulation at all. Ongoing proceedings can still be concluded under the previous 2002 version. Owing to the lack of an international agreement, the autonomous international insolvency law of the EU member states will apply after Brexit. While the cross-border recognition and coordination of insolvency proceedings cannot be excluded, it will nevertheless be laden with significant legal uncertainty.

Matrimonial and family relations law             

The so-called Brussels IIa regulation, which governs the jurisdiction of courts on matrimonial and family relations matters within the EU, also lapses on the exit date. This is also likely to have an impact on London – the “capital of divorce” – as a place of jurisdiction. The British courts currently handle a disproportionately high number of divorces of the superrich. The European divorce regulation is used creatively here, but Brexit will change that. The 1970 Hague Convention, governing the recognition of divorce and legal separation, will be reactivated in place of the regulation. However, it has never been ratified by Germany. Family procedural law and a bilateral agreement from 1960, which covers family and status matters, will then apply to British-German relations. However, it only recognises the decisions of “higher courts” which does not include the family courts established at district court level. There may also be a need for amendment for the German legislator here.

In the field of family relations, the termination of the European regulation will not directly create any loopholes as the United Kingdom has ratified the Hague Convention on the Protection of Children and the Hague Convention on Child Abduction. These conventions will remain in force, although the accelerated return procedures governed in the EU will obviously lapse. This also means that the well-known enforcement shortcomings of the Hague Convention in relations between the EU member states and the United Kingdom will re-emerge.

European patent jurisdiction

The United Kingdom’s departure also means that the unified European patent will no longer apply there. As the European Patent Court is structured as a court of the participating EU member states, the United Kingdom will not have recourse to the dispute settlement system. Neither judges nor lawyers from the United Kingdom will work at the European Patent Court. Parties from the United Kingdom may appear there independently to protect their rights. The premises rented in London for the central department of the European Patent Court for chemical and pharmaceutical patents will not be occupied as this department of the European Patent Court will be relocated to a participating member state (probably Italy). As a result, London as a judicial location will lose an extremely profitable market of high-cost disputes.

Brexit and loss in terms of legal culture

Brexit presents international private and procedural law with huge challenges of which only a few examples can be mentioned here. In the final instance, however, the technical problems of departure will be overcome, even though no detailed transition regime is to be established.

Brexit nevertheless signifies a major loss in terms of legal culture for European private and procedural law, especially for civil proceedings, because European civil procedural law has obtained major impetus from the United Kingdom. Continental law and legal practice, including the European Court of Justice, were confronted with the alternative concepts of common law. This is distinguished by the fact that it is not just based on laws, but also on major previous court rulings – cases of precedent – and is also developed by judicial interpretation. The interpretation of jurisdiction clauses has not been contested in as much detail or with such subtlety in any other EU member state as in the United Kingdom. The power of argument of British lawyers will represent a loss, and the dogmatic but equally pragmatic approach of common law for achieving feasible solutions will leave gaps.

It can only be hoped that the politicians in the United Kingdom and players on the continent succeed in preventing the political consequences of an ill-advised referendum which is not provided for in the form by the constitution of the United Kingdom. This should mean less legal rupture than prematurely claimed at political level. In short, an “exit from Brexit” must remain the primary political objective to maintain the progress made by the Union and to achieve further goals of European integration in the interests of the democracies and citizens of Europe.

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