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March 19, 2019

Competition Litigation After Brexit


At the moment of writing, it appears likely that the UK will not leave the EU on 29 March, though how long any delay will be (or indeed what the final outcome of the negotiations and parliamentary votes will be) is far from certain. If and when Brexit does take place, subject to a deal with the EU, there will almost inevitably be some very significant changes in the regimes governing dispute resolution in international disputes between UK and EU parties. It is unlikely that the UK will remain within the familiar framework, the Recast Brussels Regulation and the Rome Regulations, that governs jurisdiction, enforcement and choice of law in dispute resolution in litigation the UK.

What does this mean for competition litigation in the UK? It depends on whether (i) Brexit occurs under the terms agreed in the Withdrawal Agreement and Political Declaration on the future relationship between the UK and the EU (the Withdrawal Agreement), or (ii) the UK government refuses to ratify the Withdrawal Agreement (or any other kind of formal arrangement such as the so-called "Norway deal") and instead leaves the EU without an agreement. The details of the rules applying between the UK and the EU 27 will likely change, but the majority of the changes that are currently anticipated post-Brexit will not affect the UK's effectiveness as a centre for dispute resolution. Jurisdiction, enforcement, and choice of law will be governed instead by the common law rules that have always applied to countries (such as the US) with which the UK has no other agreement or treaty arrangement.

International Commercial Arbitration—No Change

An important and often overlooked point is that the regime governing international commercial arbitration will not change. The New York Convention of 1958 created a system of mutual recognition of arbitration agreements and awards among all of the 159 signatory states, including all members of the EU. The UK acceded to the New York Convention in 1975. Unlike many other international treaties and conventions, the UK's membership of this regime does not depend upon its membership of the EU. Jurisdiction in international arbitration is based on the parties' contractual agreement to submit disputes to arbitration. Choice of law is a governed by the national laws of the place of the situs. The New York Convention will continue to provide its users with certainty concerning both enforcement of an award made in the UK or in any of the other signatory states, including the EU 27, and enforcement in the UK of an award made in any other signatory state, again including the EU 27.

Although most competition disputes are referred to national courts, arbitration can be used in certain circumstances. Some competition disputes are founded on a contractual relationship, in which case an explicit contractual arbitration agreement may apply to such as dispute, as the English Court determined was the case in Microsoft Mobile Oy (Ltd) v. Sony Europe Ltd [2017] EWHC 374 (CH). In other cases, parties to a competition dispute can agree to refer their claims to arbitration.

Litigation—All Change (Maybe)

Litigation is a different matter. As a member of the EU, the UK has benefited from a series of EU conventions and regulations which apply unified rules on jurisdiction, cross-border enforcement and choice of law.

  • The Recast Brussels Regulation establishes a rule that within the EU, the court first seized has jurisdiction to decide upon its own jurisdiction before courts in other jurisdictions dealing with the same dispute may issue any rulings. In addition, a judgment from the courts of one member state is enforceable in any other member state as if it were a judgment of the courts in the state of enforcement. The Lugano Convention operates a system very similar to the Recast Brussels Regulation which is applicable among the countries of the EFTA, with the exception of Liechtenstein (being Iceland, Norway and Switzerland) and EU member states.
  • The Rome I and Rome II Regulations provide a system for establishing applicable law in contractual and non-contractual disputes. Rome I is founded on the principle of party autonomy, subject to a number of limited exceptions designed to protect certain categories of contract parties (such as consumers and employees) and to implement certain public policy objectives. With those limited exceptions, the court will respect the parties' choice of law. Where no choice is expressed in a contract, Rome I sets out the mechanism to determine the governing law. Similarly, for claims sounding in tort or delict, Rome II sets out principles governing the approach that EU national courts must take to establishing the choice of law. The same principles are applied by courts across the EU, leading to a degree of uniformity of approach.

Under the current plans, each of these regimes will remain in place until the end of the transitional period on 30 December 2020 if the Withdrawal Agreement is ratified by the UK government, but none of them will continue in the event of a no-deal Brexit.

Jurisdiction and Enforcement

If the UK parliament ratifies the Withdrawal Agreement, under Article 67(2) the Recast Brussels Regulation will continue to apply to the recognition and enforcement of judgments where this is sought before the end of the transition period on 31 December 2020. This will maintain the status quo until the end of December 2020, giving the UK and the EU further time within which to reach a long term arrangement on the recognition and enforcement of judgments.

The UK government and the European Commission have both published documents setting out how each of them intend to deal with jurisdiction issues and the enforcement of EU judgments if the UK leaves the EU without an agreement.

According to the UK government's draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 (the Exit Regulations), in relation to all proceedings commenced before Brexit occurs, the UK courts will generally continue apply the Recast Brussels Regulation relating to jurisdiction and to the enforcement of judgments issued by EU courts. In addition, the Exit Regulations allow the UK courts to exercise discretion to stay pre-existing proceedings if a subsequent case is launched in an EU member state based on the same cause of action between the same parties, as this would prevent parties facing multiple proceedings. In this way, the UK government is seeking to minimise disruption by continuing to apply the Brussels Regulations to cases commenced before Brexit, while recognising that the EU may not take the same approach. The Recast Brussels Regulation is retained for UK domiciled consumers and employees, who can only be sued where they are domiciled, and who remain entitles to sue a business or employer in the UK if they do business there.

With these exceptions, the Exit Regulations generally repeal the Recast Brussels Regulation and the Lugano Convention. Jurisdiction and enforcement will be considered for cases filed after Brexit under the English common law rules, unless and until an agreement is reached on these matters with the EU.

Under these tried and tested rules, which have applied in the UK for many years in relation to most non-EU countries, the English court will generally take jurisdiction if proceedings can be served on the defendant within the jurisdiction or where there is another connection with the UK sufficient to justify service out of the jurisdiction. The English court will not be bound to stay litigation on the basis that there is pre-existing litigation in an EU state on the same cause of action between the same parties, as is the case under the Recast Brussels Regulation. However it is likely that the UK court will continue to exercise its discretion at common law to do so in appropriate cases.

Enforcement of EU judgments will be a more complex matter than under the existing Recast Brussels Regulation and the Lugano Convention. Under the English common law, a judgment creditor will be required to launch an action on the judgment as a debt, and it will be open to the English court to consider various aspects of the judgment afresh, including jurisdiction and matters of public policy. Again, these are the same rules as the UK has applied for many years in relation to judgments from most non-EU countries.

The EU's position on jurisdiction in the event of a no-deal Brexit is similar to that adopted by the UK. In its Notice to Stakeholders, Withdrawal of the United Kingdom and EU rules in the field of Civil Justice and Private International Law, the EU states that where proceedings involving a UK domiciled defendant are pending within an EU member state court on the date of Brexit, the current rules under the Recast Brussels Regulation will continue to apply. However, the Notice does not address how courts in the EU should deal with pre-existing litigation in the UK on the same cause of action between the same parties. It remains an open question whether the EU courts would defer to the UK courts in those circumstances.

On enforcement of UK judgments, the EU's position is rather different from that set out in the UK's Exit Regulations. The EU's Notice states that EU member state courts will not apply the Recast Brussels Regulation rules on enforcement to UK court judgments unless exequatur proceedings have been completed before Brexit. This is true even in circumstances where the judgment was handed down or the enforcement proceedings were commenced before exit day. Unless this condition is satisfied, enforcement will be a matter of the national laws of the state where enforcement is sought. It is expected that UK judgments will generally be enforced by the EU national courts, but national procedural complexities will make this a less straightforward process than has been the case under the Recast Brussels Regulation.

Both jurisdiction and enforcement of judgments are also dealt with by the Hague Convention on Choice of Court Agreements of 2005 (the Hague Convention), to which the EU, Mexico, Singapore and Montenegro are presently signatories. The UK acceded to the Hague Convention on 28 December 2018, and the Hague Convention will enter into force for the UK on 1 April 2019 in the event of a no-deal Brexit. This would result in a new regime applying which follows largely the same principles as the Recast Brussels Regulation. However, this will only apply where the parties to a dispute have agreed an exclusive jurisdiction clause in favour of one of the contracting states, further that agreement must have been concluded after the Hague Convention came into force for that state. The Hague Convention regime will therefore only apply in relation to the UK to contracts with an exclusive jurisdiction clauses entered into on or after 1 April 2019.

Choice of Law

If the Withdrawal Agreement applies to Brexit, the Rome Regulations will continue to apply in the UK during the transition period until the end of December 2020. Article 66 of the Withdrawal Agreement provides that Rome I will continue to apply to contracts entered into before the end of the transition period, and Rome II will continue to apply to events giving rise to damage which occur before the end of the transition period. In the event of a no-deal Brexit, the UK's European Union (Withdrawal) Act 2018 provides that both Rome I and Rome II will be adopted into UK law after Brexit, at whatever date that might occur, so the UK will continue to apply the same principles after Brexit. Whatever the circumstances, it is expected that the same principles of choice of law will continue to apply in the UK.

Effect on Competition Disputes in the UK

Any competition disputes referred to arbitration will continue to be governed by the same rules, regardless of Brexit. For cases referred to litigation, the Recast Brussels Regulation governing jurisdiction and enforcement in the EU will continue to apply until the end of any transitional period under the Withdrawal Agreement. In the event of a no-deal Brexit these arrangements will cease to apply in the UK. Instead, the same national laws that apply to most non-EU countries, including the US, will also apply between the UK and the EU 27. This may mean that there is a higher risk of duplicative litigation in the UK and the EU, and so far as enforcement is concerned will likely add procedural complexities, but is not expected to result in lower levels of enforcement. The rules on choice of law will remain unchanged.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.