REUTERS | Ueslei Marcelino

Arbitration in flux: Brexit and UK’s place in international arbitration

While the decision to leave the EU in 2016 may now seem like it was in the distant past, its repercussions continue to shape the future of the English legal profession. For arbitration, the disruption has created new opportunities and unforeseen obstacles. Jurisdictional clauses that once seemed adequate now appear lacking. The uncertainty surrounding English litigation may be to the benefit of arbitrators. However, to take full advantage of the sector’s potential for growth, new barriers to English practitioners operating abroad must be overcome.

Arbitration or litigation?

On 28 June 2021, the European Commission informed the Swiss depositary of the 2007 Lugano Convention that they will not be in a position to consent to the UK’s accession. This was not a surprise, given the Commission’s assessment on the UK’s application in May 2021. The Commission wrote to the European Parliament and the Council that the UK was a “third country without a special link to the internal market” trying to utilise “a flanking measure of the internal market”. The European Council may yet have a final say, but for now, the UK has been left out in the cold.

Accession would have provided significant benefits for, and a sense of continuity to, English-seated litigation. While the UK was still a member of the EU, the jurisdiction of English courts was recognised by all member states. This was thanks to the Recast Brussels Regulation. The Regulation also ensured that judgments made by these courts could be enforced throughout the EU. The UK Government had hoped that the mutual recognition of jurisdiction and judgments could be maintained post-Brexit through continued participation in the Lugano Convention.

Instead, English courts will now have to rely upon the Hague Convention on Choice of Court Agreements to ensure their recognition in the EU. It will offer some continuity, ensuring that where an agreement names the English courts as the party’s exclusive choice of court, their judgments and awards will be recognised. However, it leaves uncertainty where an exclusive choice of court has not been made explicit by the contracting parties. Moving forward, those that favour the English courts for settling their disputes will need to ensure that their agreements contain jurisdiction clauses that leave no doubt as to where any case should be heard.

While the dust settles and uncertainty remains, we may see a boost to English-seated arbitration. Arbitral agreements have been shielded from the disruption caused by our shifting relationship with the EU. This is due to the mutual recognition of arbitral judgments and awards that is supported by the 1958 New York Convention. Every EU member is a contracting state to this Convention, alongside each independent member of the Lugano Convention.

English arbitration has been going from strength to strength in recent years. According to the 2020 LCIA Annual Casework Report, the LCIA saw a record 444 referrals in 2020. 407 of these referrals were pursuant to LCIA Rules, an 18% increase from 2019. 342 of these were seated in England and 317 were governed by English law. While the ongoing effects of the global pandemic will no doubt have contributed to these record figures, the fact remains that English-seated arbitration offers an attractive alternative to litigation.

Troubles abroad

But London is not the only prominent seat for international arbitration. While English law remains one of the most popular choices of governing law for cross-border agreements, such agreements will often stipulate that any arbitration be seated outside of England. Forums such as Paris, Geneva and The Hague offer increasingly attractive alternatives to London. British arbitrators may increasingly have to travel abroad to practice in these locations, but with the UK and EU’s mutual recognition of arbitrators’ professional qualifications ending, the industry is seeking to quickly re-establish the pre-Brexit status quo.

With the end of rights to freedom of movement, arbitration practitioners based in England who are required to travel to EU or EFTA states will need to familiarise themselves with the new rules governing such stays under the UK-EU Trade and Co-operation Agreement (TCA), which was agreed on 24 December 2020 and came into force on 1 May 2021. Part 2, Title II, Chapter 4 of the TCA sets out various categories of business visitors and the particular rights for temporary stays that will be guaranteed for such individuals. Of these, the least onerous and likely most commonly used is the category of “short-term business visitor”, which allows for a visa-free stay of up to 90 days in any six-month period. Other visa categories prescribe titular and contractual obligations for their use, and practitioners will have to carefully consider their terms of engagement before applying for them.

Arbitration professionals should also consider Article 194 of the TCA, under which UK lawyers can practise home jurisdiction or public international law covering “designated legal services”. While this term is defined to include arbitration services, there is an express restriction from acting as an arbitrator. Further, as English lawyers are expressly prevented from advising on EU law (Article 193(a), TCA), parties should be wary of tactical moves by adverse parties raising objections if the subject matter of the arbitration requires consideration of EU law.

Finally, it is worth noting that both the provisions for travelling business visitors and legal services are subject to “non-conforming measures” specific to each member state. This is a broad exception, set out in Annex 19 to the TCA. Therefore, UK arbitration professionals will also have to check the specific rules in the member state in which they wish to work (Article 195, TCA).

With regard to qualifications, the Mutual Recognition of Professional Qualifications Directive (2005/36/EC), which had enabled arbitrators who were EEA nationals to have their qualifications recognised in other EEA states, ceased to apply in the UK from the end of the transition period. The TCA does not contain any provision to recognise professional qualifications, although it does contain a mechanism allowing for this in the future. However, there is no requirement for any request for recognition to be granted (Article 158, TCA).

Only time will tell exactly how much of an appetite member states have for enforcing these provisions of the TCA. It may be the case that such provisions never fall to be tested in any material way due to the adverse effects the pandemic has had on international travel, but practitioners should bear in mind the serious consequences of a breach if they do choose to practise abroad in person

London trainee solicitors Jonathan Bryant and Sam Jeffreys contributed to the drafting of this blog post.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: