Brexit And Choice Of Law Clauses

There are many questions following upon the Brexit Referendum – not just political and economic, but legal. The Referendum has no immediate legal effect. The UK (and therefore Scotland) will remain part of the EU, and subject to EU law, until at least two years following the trigger of Article 50 of the Lisbon Treaty. Nevertheless, the UK Government now faces the considerable challenge of extracting the UK from the European legal regime.

One key consideration for businesses involved in commercial cross-border contracts will be the new framework that will require to be established between the EU and the UK in relation to the governing law of contracts and jurisdiction for contractual disputes, including exclusive jurisdiction clauses.

Choice of law

It is important to remember that the governing law of a contract need not necessarily be the same as the court which has jurisdiction over any dispute arising from the contract. Indeed, it is often the case that the courts in one EU member state apply the law of another member state.

Currently, the courts of EU member states apply the Rome I Regulation to consider the governing law of a particular contract. Fortunately, this is one area in where little change is expected. The Rome I Regulation applies to a non-EU governing law as it applies to the law of an EU member state. In the event that the governing law of the contract is Scots law, this will continue to be upheld in terms of Rome I post-Brexit. Equally, even though changes to the Rome I rules as they apply in the UK are possible post-Brexit, it is likely that the Scottish courts would continue to uphold a party's choice of law.

Jurisdiction

The jurisdiction of courts in the EU is directed by the Brussels I Regulation (recast). This Regulation contains a variety of rules which determine which EU member state should have jurisdiction in civil and commercial disputes and seeks to avoid parallel court actions in different member states. Generally, a choice of jurisdiction by parties will be upheld.

One suggestion that has been mooted for the UK post-Brexit is entry into the European Economic Area (EEA) in order to obtain access to the free market. In such circumstances the UK may accede to the Lugano Convention which currently applies between the EU and EEA states such as Norway and Iceland.

A key point to note in relation to Lugano, however, is that, unlike the Brussels recast regulation it does not ensure that where parallel court actions are...