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Bremaining optimistic: impact on London arbitration following Brexit

This blog considers the impact of Brexit on London arbitration and, in particular, the effect of losing many EU Regulations that currently form the core of England’s conflicts, and choice, of law positions in three key areas:

Choice of law

Section 46 of the English Arbitration Act 1996 (AA 1996) governs the applicable substantive law. The tribunal is required to decide the dispute in accordance with the parties’ chosen law or, if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal. If, or to the extent that, there is no such choice or agreement, the tribunal applies the law determined by the conflict of laws rules which it considers applicable.

As a matter of practice, parties will often expressly choose English law when agreeing to London arbitration. Where the parties are silent, the tribunal will often deem the choice of the English seat as an implicit choice of English law. As such, it is unlikely that the tribunal will, in the usual course of events, actually come to consider the choice of law provisions applicable under English law, which are currently governed by the Rome I Regulation on the Law Applicable to Contractual Obligations (Rome I) and the Rome II Regulation on the Law Applicable to Non-Contractual Obligations (Rome II).

However, if Rome I no longer applies post-Brexit, then it is possible that, unless any further regime is put in place, the tribunal will be more than likely to apply the English law as it stood prior to Rome I and Rome II. This will result in the following regimes:

  • In relation to contractual claims, the tribunal will apply the Contracts (Applicable Law) Act 1990 (which had incorporated the Rome Convention, subject to two reservations, prior to it becoming a Regulation). Thus, the position in contract law will remain similar to the current position.
  • In relation to tort claims, the tribunal will apply the Private International Law (Miscellaneous Provisions Act) 1995, where the analysis will focus on the country in which the events constituting the tort occurred (under section 11 of the 1995 Act), rather than on the location of the damage under Article 4 of Rome II. Whilst the tortious position could therefore be different, this is potentially a more sensible approach, as it ensures that the law of the state which has the closest factual connection with the tort governs the matter.

In our view, the difference to the choice of law position will therefore be minimal; where there is change it is to be welcomed.

Anti-suit injunctions

Currently anti-suit injunctions cannot be granted against litigants who bring a claim before the courts of another EU member state in breach of an exclusive English jurisdiction clause (Turner v Grovit) or an arbitration clause (West Tankers). Upon Brexit, the main options for resolving jurisdictional questions between the UK and EU countries are as follows:

  • The UK signs up to the Brussels (Recast) Regulation in similar terms to Denmark in 2005 (when they signed up to the Brussels Regulation). In this case, the new provisions, including the expansive recital 12, would apply. The broad approach taken by the Advocate General in Gazprom OAO V Lithuania may be adopted by the Court of Justice of the European Union (CJEU) in the future, such that anti-suit injunctions in support of arbitration are held to be outside the Brussels (Recast) Regulation.
  • The Lugano Convention governs as it does for a European Free Trade Association (EFTA) state (for example, Iceland, Norway, Switzerland). This is unaffected by the Brussels (Recast) Regulation due to Article 73(1) and thus does not have the expanded recital 12 noted above. An interesting issue in this eventuality is whether or not the CJEU’s decisions would be followed. If not, the English courts may be able to take a purposive approach of the Convention’s terms in light of the Brussels (Recast) Regulation and Recital 12, and uphold anti-suit injunctions in support of arbitration.
  • Technically, the UK remains a party to the Brussels Convention, so in theory we could revert to that residual framework. However, if we do not agree to the Brussels (Recast) Regulation, it is unlikely we will agree to this convention; the Lugano Convention is a more obvious option.
  • A new treaty is signed by the UK with the EU, which leaves open anti-suit injunctions in support of arbitration; whether there is the political will for this is unclear. There is also the possibility of unilateral agreements on recognition and enforcement with individual EU states.
  •  The UK does not enter any new agreement allocating jurisdiction with the EU or its members. This would result in the English court simply applying English law as they currently do to non-EU states (where that relationship is not currently governed by the Brussels (Recast) Regulation under, for example, Article 33) with the main result being that anti-suit injunctions in support of arbitration would most definitely be an option.

If the English court were, once again, able to issue anti-suit injunctions in support of arbitration (and scupper, for example, the Italian torpedo), it is likely to increase the popularity of England as the seat and venue for arbitration in contrast to its European neighbours.

Enforcement of awards

Enforcement should be unaffected because the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), which is a unique international instrument, has been ratified by all of the EU states.

However, the interesting point is to contrast this with English judicial judgments. These will either require a treaty (similar to the possibilities discussed above) to ensure reciprocal enforcement or they will depend on foreign domestic rules. Given the current political climate, it is unclear whether other European nations will agree to any such treaty; therefore, arbitration may be viewed as a safer option than court proceedings.

Conclusion

In our view, the impact of Brexit on arbitration practice is likely to minimal. To the extent that it is felt, it is likely to be positive because:

  • Section 46 of the AA 1996 will be unaffected and to the extent that tribunals have to revert to English national law (i) there will be little change to the choice of law rules in contract, and (ii) reverting to the 1995 Act and the location of the damage for tortious claims is, potentially, to be welcomed.
  • There is a possibility that the English court will be able to issue anti-suit injunctions in support of arbitration in circumstances where their European neighbours cannot. This would give England a competitive advantage over its main local rivals, such as Paris and Geneva.
  • There should be no issues of enforcement. This is governed by the New York Convention and is unaffected by EU rules, unlike court judgments, which will need to be dealt with in due course.

Whether the wider economic circumstances have any significant long term impact on the choice of London as a seat remains to be seen, but, with London’s historical positives, there are good reasons to remain optimistic.

 

For other views on the impact of Brexit on arbitration, see:

Stone Chambers Ishfaq Ahmed Andrew Dinsmore

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