Post-referendum litigation—no need to panic

Dispute Resolution analysis: Tom Williams, an associate in the litigation department at Harrison Clark Rickerbys, considers what the EU referendum result means for ongoing cases and upcoming litigation.

Has the referendum result posed questions for litigation strategy?

In the short and medium term, the referendum result is unlikely to have any direct effect on the litigation process itself. One view is that until the legal framework changes—something which is years away—there is no need for wholesale revision of litigation strategy. Even when changes do occur, they may not have any appreciable impact on how the vast majority of litigation in England and Wales is conducted. The immediate message for clients, particularly those already engaged in litigation, is ‘don’t panic’.

However, litigation is not conducted in isolation. The legal framework may not have changed, but the commercial context has. The political and economic uncertainty resulting from what was, to many, an unexpected result, together with the clear lack of planning and direction as to what happens next, has already caused significant financial (and political) volatility. In the longer term, some businesses may need to fundamentally alter their trading models if they are to survive and the frank position is that no one knows what Britain may look like, politically or economically, in five to ten years.

Litigation is an inherently risky activity. There can be no doubt (and, anecdotally, clients have already confirmed) that years of uncertainty will, for the vast majority, make litigation appear more risky still. Commercial strategy and therefore litigation strategy will necessarily change to reflect this, although it is not clear how. There could be increased reluctance to embark on litigation and a corresponding increase in early settlement and the use of alternative dispute resolution. On the other hand, there may be a rush to court to ensure cases are dealt with in the window before significant changes do occur.

What does the result mean for ongoing or pending domestic cases that deal with EU law?

In the short term, domestic cases concerning EU law will be dealt with in exactly the same way. The English and Welsh courts are able to interpret and make decisions in relation to EU law, whether it applies indirectly by way of primary UK legislation or directly by way of European instruments. In doing so, they must have regard to the jurisprudence of the Court of Justice of the European Union (CJEU) and, where they do not feel competent to make an authorities decision on EU law, the case should be referred to the CJEU to determine the issue in question. Following this, the case will be returned to the domestic court to apply the determination to the facts of the case.

Existing or pending cases which do not require reference to the CJEU may well be dealt with by the domestic courts before the legal framework changes. However, cases which are or are likely to be referred to the CJEU may be caught in limbo.

References to the CJEU can take months or years to be determined. The moment of formal exit from the EU could occur while a case is about to be, or has already been, referred to the CJEU. Arrangements will have to be made in relation to such cases, and it is open to negotiation as to what those arrangements may be. Will there be transitional arrangements whereby existing cases will continue to be referred to the CJEU (sensible, but will there be any appetite for this in Europe) or will the mechanism for referral simply cease to exist? As matters stand, a client cannot be advised with any certainty whether any future case dealing with a matter of EU law may, at some stage, be referred to the CJEU.

The second issue to consider is what will be left of EU law in the UK when the formal exit occurs. In theory, when the UK leaves the EU those EU laws which applied directly will simply cease to bind the UK. We do not know how Parliament will resolve this issue. Will there be time to adopt any laws we wish to keep in advance and discard those we do not? Will there be a blanket incorporation of all existing rules until such time as they are individually disapplied? To what extent will the substance of EU law remain part of UK law? What appears sensible or even fair may not correlate with what is politically achievable or what actually occurs. Even if the substance of the EU law remains in place in the short term after the formal exit, there will be a naturally divergence between how those laws are interpreted in the EU and in the UK.

What about existing or pending cross-border litigation?

Currently cross-border litigation in EU Member States is subject to a standard set of directly applicable rules. The Brussels Regulation Recast (Regulation (EU) 1215/2012) provides (a measure of) certainty in relation to matters of jurisdiction (meaning, for example, that proceedings are automatically stayed if a case is issued in breach of an exclusive jurisdiction clause) and allows for the ‘passporting’ of judgments to be enforced in another Member State. Regulation (EC) 593/2008 (Rome I) and Regulation (EC) 864/2007 (Rome II) likewise provide a set of rules for determining questions of governing law, while Regulation (EC) 1393/2007 (the Service Regulation) regulates the service of judicial and extra-judicial documents between Member States. The cumulative effect of these Regulations is to provide a framework within which the risks of cross-border are minimised such that it facilitates cross-border trade.

There is no immediate change to this legal framework and therefore no immediate effect on existing cases, which are likely to be resolved before any formal exit.

All of the Regulations giving effect to this framework will cease to apply on any formal exit and it is unclear how they will be replaced. It is likely, but not guaranteed, that the UK will become a signatory of the 2007 Lugano Convention (which currently applies as between EU Member States and Iceland, Switzerland and Norway), which broadly mirrors but does not fully replicate the provisions of the Brussels regime in relation to jurisdiction and the enforcement of judgments. Similarly, the UK may well become a signatory to the Hague Convention on Choice of Court Agreements, which currently applies as between EU Member States (excluding Denmark) and Mexico, and allows for recognition of exclusive jurisdiction clauses and enforcement of judgments made pursuant to them in contracting states. The provisions of the Rome I and Rome II Regulations in relation to rules for establishing governing law will be harder to replicate, since there is no broadly similar international convention and countries outside the EU tend to apply their own rules. The recently approved Hague Principles on Choice of Law in International Commercial Contracts may in time provide a framework for international agreement on the application of governing law rules in a commercial context, but the timescale of this is uncertain.

In any case, there is no guarantee that the UK will replicate as far as possible the current position. There is a possibility, albeit an unlikely one, that the UK will become far more isolated, with its jurisdiction, laws and judgments not being recognised by other Member States. This could lead to parallel proceedings being issued in the UK and abroad (which may reach different conclusions) or the prospect of obtaining a judgement that cannot be enforced outside of the UK. The prospect of such a framework is likely to make cross-border litigation, and therefore cross-border trade, far less appealing.

Should lawyers be advising clients to hold off on starting proceedings until certain issues are resolved or should they be speeding things up now?

This depends very much on the facts of the case. Save in relation to the knock-on commercial effects of the referendum result, there is no reason why domestic cases should be approached any differently.

In relation to cases that deal with substantive issues of EU law—particularly those that are likely to require a referral to the CJEU—there may be an argument for speeding matters up, to ensure that they can be dealt with before any formal exit and related changes occur. (This is, of course, on the basis that the client’s case depends on the EU law in question. It may suit defendants to drag matters out to take advantage of the uncertainty.)
Likewise, a party with a potential cross-border claim may wish to press on to ensure that it can be dealt with within the current legal framework and that any judgment can be recognised and enforced in another Member State. (Again, this may be a compelling reason for a defendant to drag matters out.)

However, it should be remembered that no changes are imminent and it is likely (although not guaranteed) that when changes do occur the transitional arrangements will not be such that they will prejudice the majority of litigants. There may be reasons to press ahead with particular claims, but not at any cost.

Finally, in consideration of the ongoing uncertainty, lawyers may wish to advise their clients to consider adding arbitration clauses to suitable cross-border contracts—the operation of international arbitration and recognition of arbitration awards comprises a separate framework which may allow clients to bypass the traditional court system entirely, at least until the future becomes clear.

Tom Williams’ practice encompasses many aspects of commercial litigation and he has assisted clients in successfully resolving cross-border disputes. Harrison Clark Rickerbys specialises in dealing with international business matters, and also offers bespoke services to in-house counsel.

This article was first published on Lexis®PSL Dispute Resolution analysis on 22 July 2016. Click for a free trial of Lexis®PSL

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Author
Tom Williams
Associate Solicitor
Direct Dial: +44 (0)1905 744802
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Email: twilliams@hcrlaw.com