How has Brexit changed disputes with contractors or suppliers based in the EU?

The rules relating to disputes with a European element have changed as a result of Brexit and the end of the UK’s transition period on 31 December 2020. Despite those changes, we expect it to remain common for construction contracts to be entered into between UK and EU parties.  This article examines some of the effects of Brexit on disputes relating to such contracts.

Take the example of a contract between a UK employer (Cheddar) and an EU contractor (Brie) relating to a project in the UK.  The contract was entered into on 1 January 2021 (i.e. after the end of the transition period).  The contract provides for English law to apply, with the English courts to have exclusive jurisdiction over any disputes. A dispute arises, and Cheddar commences proceedings in the English courts on 1 April 2021. Judgment in Cheddar’s favour is given on 1 October 2021.

Has Brexit changed the position? And if so, how?

Choice of law 

• We expect that courts in EU Member States will continue to give effect to parties’ choice of law agreements in the same way as they did before 1 January 2021 (even if the chosen law is not that of an EU Member State).
• So EU Member States’ courts are likely to give effect to Cheddar’s and Brie’s choice of English law. 

Jurisdiction

• The new rules on jurisdiction generally require courts of EU Member States to recognise parties’ exclusive jurisdiction agreements (although there are more exceptions than for the old rules).
• Even if the new rules do not apply, EU parties like Brie will generally have a strong incentive to comply with an English exclusive jurisdiction agreement. If Brie failed to do so, Cheddar could apply to an English court for an anti-suit injunction against Brie. If granted, there would be a real risk that Brie could face penal sanctions if it attempted to litigate in an EU Member State.  

Enforcement

• The biggest change is likely to be to how Cheddar enforces its judgment against Brie in the EU. 
• The new rules require that any judgment granted by a court of a country specified in an exclusive jurisdiction clause must be recognised and enforced as expeditiously as possible. The precise procedural rules for doing so are for each EU Member State to set at a national level.
• As a result, in some EU states, the process may be more onerous than it was under the old rules. That may in turn increase the time and cost incurred by the enforcing party.  It will therefore be important to have local law advice from the jurisdiction for enforcement (ideally at the point dispute resolutions provisions are agreed by the parties).
• So if Cheddar needs to enforce its judgment in the EU, it may take longer and be more expensive than was the case under the old rules.
• In addition, there are a number of exceptions and limitations to the new rules. For example, they will not apply to disputes concerning real estate ownership, or some intellectual property disputes. Nor do they provide for the enforcement of interim injunctions.  

Conclusion

Overall, our view is that Brexit’s effect on disputes relating to construction contracts between EU and UK parties will be limited. The biggest change is likely to be to enforcement of English judgments in the EU. However, we are not expecting this to change our advice that it is generally preferable for disputes relating to domestic construction projects to be resolved through litigation rather than arbitration.