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The future of dispute resolution – a call for clarity

Mills & Reeve

Mills & Reeve dispute resolution partner Steve Allen considers the implications of the Government’s paper on ‘Civil judicial co-operation framework – a future partnership paper’

UK government’s publication of its policy paper on resolving cross border disputes published this week should receive a welcome but guarded response from West Midlands businesses. The principle that post-Brexit, Whitehall hopes to agree a process close to the current reciprocal system, which allows for simpler and faster resolution of cross-border disputes, is of vital importance – especially to Midlands firms with EU trade relations.

The EU is the region’s biggest trading partner and at present, 47% of exports from the West Midlands are to the continent, worth approximately £13bn to its economy. If the region is to maintain this current level of trade post-Brexit, achievable and sensible reciprocal measures must be put in place.

Businesses need to be able to continue trading, assured that if a contract turns sour, there is an international framework that will enable a fair and efficient resolution of the dispute. Key to this will be ensuring that any new system will allow judgments obtained in the jurisdiction of one contracting party be enforceable in the jurisdiction of other contracting parties.

If government fails to reach an agreement on a legal framework, judgments obtained in the courts of England & Wales may not be enforceable in other EU countries, unless provided for under the domestic legislation of the member state concerned.

This means that while a firm in the region may have taken advantage of the new Business & Property Court in Birmingham to obtain a judgment against a EU-based party, unless a mutual framework is in place to replace the current one, it may not be possible to enforce the ruling in the EU state concerned. This equally applies to urgent interim injunctions including freezing orders and anti-suit injunctions - a stark contrast to the current position where reciprocal rights exist under the Recast Brussels Regulation which regulates enforcement across EU borders.

The uncertainty generated on how future systems will take shape is hindering businesses, understandably nervous about entering into legally binding agreements with EU firms amidst a backdrop of the UK’s rhetoric of ‘taking back control’ of laws and getting a ‘clean break’ from the European Court of Justice.

Although this week’s paper hints towards ending ‘the direct jurisdiction’ of the Court of Justice, it fails to offer detail on how this might be achieved, taking into account ‘regional legal agreements, including the fact that the ECJ will remain the ultimate arbiter of EU law within the EU’. Another major concern is that England & Wales could become a far less attractive place for resolving disputes, which could see EU businesses steer away from incorporating an English jurisdiction clause in commercial contracts. This will likely impact both the cost and speed of resolving disputes for UK companies.

However, there are alternative means of resolving disputes, with arbitration - the process of gaining third party review and judgement - growing in popularity. For example the UK will remain a signatory to the New York Convention, the system that governs the enforcement of cross border arbitration awards,irrespective of the outcome of the EU negotiations..

Arbitration is an increasingly attractive way to resolve commercial disputes and provide that element of certainty that is lacking for UK businesses looking to trade within the EU.

In the current climate, businesses looking to protect themselves and forge ahead should think very carefully when including an express dispute resolution clause in their trading contracts. While English law should ideally remain the law of the contract, a staged dispute resolution clause, one that allows the parties to utilise an alternative mechanism before embarking on a binding contract (arbitration or litigation) is worth considering.

These tend to have some form of escalation procedure as the starting point in a dispute, followed by a formal mediation and then arbitration or litigation as the final resolution. This also benefits from the advantage of promoting the resolution of the dispute, at least initially in a less adversarial setting and on a more cost effective basis.

Businesses without such a dispute resolution clause in their contracts, or where litigation is the only option and a dispute has already arisen, would be well advised to take advantage of the current reciprocal arrangements.