At 11:00 pm on 31 December 2020, the Brexit transition period ended, and the UK’s departure from the European Union (the “EU”) was complete. Whilst the UK and the EU concluded the Trade and Cooperation Agreement (“TCA”) on 24 December 2020, which would provisionally govern the future relationship from 1 January 2021 onwards, the UK and the EU did not – unsurprisingly perhaps – agree on any future regime governing cross-border judicial cooperation and enforcement of judgments in relation to civil and commercial matters. Whilst there remains considerable uncertainty regarding the legal regime governing UK-EU court proceedings, international arbitration as a tool for resolving cross-border disputes remains unaffected. Brexit may have, in fact, made English Law and London as a seat of arbitration more attractive. This article briefly discusses why London continues to be an attractive seat for international arbitration amongst users globally.
Brexit does not impact the enforcement of London seated arbitral awards
The end goal in any dispute is to eventually be able to successfully enforce a judgment (in the case of litigation) or an award (in the case of arbitrations) in a jurisdiction where the losing party has assets. With Brexit leading to non-applicability of both the Brussels Recast Regulation (Regulation 1215/2012), which governed the enforcement of UK court judgments across the EU and the 2007 Lugano Convention, which resembles the Brussels Convention in most respects, there remains uncertainty with respect to cross border enforcement of judgements in the UK and the EU, at least until the UK is approved as a member of the Lugano Convention.
Amidst all this confusion, the regime governing the enforcement of arbitral awards remains unchanged. The arbitral awards are commonly recognised and enforced under the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”), to which the UK and the EU member states are signatories in addition to over 150 other countries. All the countries, which are signatories to the New York Convention, apply the same rules while enforcing a foreign arbitral award rendered anywhere else in the world. Brexit has no effect on the membership of the New York Convention and therefore, courts in the UK and the EU member states will continue to enforce arbitral awards rendered in either jurisdiction in the same way.
Brexit returns England its decision making power
Not only does the attractiveness of London as a seat for international arbitrations continue but Brexit makes London even more attractive as a jurisdiction for international arbitrations. As part of the EU, English courts were bound by the judgments of the Court of Justice of the EU (“CJEU”) and could not grant anti-suit injunctions restraining proceedings commenced in another EU member state in breach of the arbitration agreement between the parties. Whilst the EU member states will still not be able to restrain parties from wrongfully commencing proceedings in a member state court, English courts are now free to give effect to the arbitration agreement between the parties and to prevent proceedings being brought (or continued) in any EU member state in breach of such agreement to arbitrate the dispute.
The EU public policy also no longer forms part of the English public policy anymore. The English courts will no longer be forced to refuse to enforce an arbitral award which may be against the EU public policy, as was previously the case for the purposes of Article V(2)(b) of the New York Convention.
Brexit does not impact the advantages of London as a seat for international arbitration
The seat of the arbitration impacts the efficient and effective disposal of proceedings, the outcome of a challenged award and the availability of interim measures in support of arbitration. The English Arbitration Act 1996 is a contemporary piece of legislation which strives to enforce the parties’ agreement to arbitrate, with little scope for intervention from the English courts. The English courts’ supervisory jurisdiction is limited and the English judgments rendered in the recent past on issues relating to arbitration serve to underline the pro-arbitration outlook of the English courts. London has long been a popular seat of arbitration even for parties having no connection with London due to the pro-arbitration features of English law and the impartial, effective and independent legal system.
In addition, London has built a state-of-the-art arbitration infrastructure with arbitration centres and institutions providing most up-to-date hearing facilities – for example, the relatively new International Arbitration Centre in the City of London. Further, the convenience of having solicitors and barristers with specialist skills, arbitrators and experts – all in one place – adds to London’s attractiveness as a seat of arbitration. London did not derive any of these advantages from its membership of the EU or the EU law and therefore, the advantages that London has to offer as a seat remains unaffected by Brexit. In 2017 itself, Lord Thomas argued that Brexit “will have no effect on London’s key strengths”.
Over the past several years, use of international arbitration has grown exponentially in several sectors, particularly in construction and infrastructure, oil and gas, mining and aviation disputes. One sector that remains to step out of its comfort zone is banking and finance. Banks and financial institutions have historically preferred to settle disputes before the English courts, particularly due to the availability of summary dismissal and default judgment procedures. In international arbitration, parties are free to agree to give such powers to the tribunals. Many arbitration institutional rules, including Article 22 of the LCIA Rules 2020, Rule 29 of the SIAC Rules 2016, Article 43 of the HKIAC Rules 2018 and Article 22 of the ICC Rules 2021 (read with Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration), already provide for early dismissal of claims. Of course, neither in court proceedings nor in arbitrations, should such measures be utilised frivolously.
Against the backdrop of Brexit and its impact on UK-EU litigation, now may be the time for banks and financial institutions as well as for parties more generally to consider including arbitration – seated in London and governed by English law – as the dispute resolution mechanism in their agreements, particularly where EU member states are involved or parties have assets in the EU.
Authored by Srishti Jain, Associate.