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Brexit and the legal market: choice of law and jurisdiction clauses

The Brexit process has reached an interesting phase. Since the fifth round of negotiations between the UK government and the European Union’s chief Brexit negotiator Michel Barnier concluded last week, it quickly emerged that little progress has been made.

The European Council is unlikely to agree to extend negotiations beyond the current remit – indicating that subsequent negotiations will focus on the withdrawal process rather than trade talks.

While the Brexit process creeps along, it has inevitably led to lots of debate as to whether the inherent uncertainty about the future legal and regulatory landscape might lead to changes in market practice.

Thomson Reuters’ webinar earlier this week, Brexit and the choice of law and jurisdiction clauses: views from Germany, Ireland and Italy, tackled the key issues surrounding Brexit and its implications for the legal market.

The webinar was hosted by Joanna Morris, Director of Commissioning Content and Laura Marianello, International Know How Editor at Thomson Reuters Legal. The expert panel included Cecilia Carrara, Partner, Legance (Italy), Dr Christoph Wolf, Partner, Baker McKenzie (Germany), and John Cronin, Partner, McCann FitzGerald (Ireland).

A new approach to governing law

The webinar hosts opened the discussion on a big issue: could parties to a cross-border transaction change their attitude to governing law in contracts as a result of Brexit?

English laws and UK courts have traditionally been a very popular choice for cross-border transactions. The reasoning for this stems from the benefits attributed to English law and the judiciary system, in particular its transparency, certainty, flexibility, and predictability, webinar co-host Marianello said.

However, the panel explained that given the current uncertainty swirling around Brexit, it is consequently affecting the decision making of parties.

Dr Wolf alluded to a common scenario which is currently of ‘most interest’ in Germany – where, for example, a Scandinavian and Italian counter-party historically prefer to use English law for the transaction. But he added that parties will now question whether this is the best option, ‘and even more so whether English courts could or would be a good choice,’ as a result of Brexit uncertainty.

The rest of the panel concurred, adding that potentially in the short to medium term other legal systems like Germany, France and Switzerland, may appear as a better neutral choice to non-English parties.

Jurisdiction clauses in cross-border transactions

The discussion moved on to address choice of law and jurisdiction clauses, and whether English courts could be at risk of becoming a less popular choice as a result of Brexit.

As pointed out by Cronin, ‘legal certainty and legal predictability are key to international cross-border transactions’. Due to the uncertainty of Brexit, the result could be parties may change their attitude about governing law in contracts – as questions arise around the impact on the choice of law and jurisdiction clauses.

Motivated by the desire for certainty, parties are likely to have preference for dealing with the laws and courts of an EU member state – where harmonised rules are available to rely upon in litigation of cross-border contracts. In that scenario, English courts – during Brexit and as eventually outside of the EU – would become a less popular choice for jurisdiction.

The desirability of English law and courts will likely diminish further when parties take into consideration the costs of litigation in English courts is rather high.

Arbitration on the rise

Parties are increasingly turning to arbitration as their preferred method for dispute resolution, and this trend is showing no sign of abating.

With London as historically the centre of international arbitration, questions have been raised as to whether it will retain this position following the UK’s exit from the EU.

The panel suggested that London is likely to remain at the centre of global arbitration – but the potential lack of confidence and continued uncertainty that Brexit is generating may somehow impact the status quo.

Speaking more broadly regarding Brexit, and its wider impact for the rest of the EU, the panel went on to conclude that, at this stage, it is difficult to suggest that their respective jurisdictions were reaping benefits of Brexit.

It did become clear, however, that there is a growing appetite in some EU countries for the use of local law and courts as an alternative to English law and courts.

In Germany, Dr Wolf claimed ‘there is a secular trend towards more of a demand for local law,’ while Carrara agreed, adding that ‘if we see high level professionals based in the UK returning to Italy or Frankfurt – it will bring with it, to a certain extent, a shift in legislation for commercial transactions.’

It is clear that Brexit is already starting to lead to some changes in legal market practice. But with the negotiations between the UK and the EU still in the early stages, the full effect of Brexit on the legal market across Europe is yet to be seen – and more change is inevitably on the way.

You can listen to the webinar in full below:

Brexit Freedoms Bill: What law firms should know Navigating and unlocking opportunities in the post-Brexit legal landscape Pulling the levers of growth at UK law firms Post-Brexit: A new report on meeting the challenge of legislative divergence Brexit and the future UK-EU relationship: the new beginning The Hearing: Episode 69 – Lady Hale The Hearing: Episode 67 – Brexit in the time of COVID-19 Brexit endgame looms against a backdrop of COVID-19 and economic turbulence The Hearing: Episode 57 – Gina Miller The Hearing: Episode 52 – Lord Neuberger