EU law states that judgments in one member state must be recognised in other member states (exceptions to this rule are very narrow). When the UK leaves the EU, unless agreed otherwise, English court judgments will no longer be enforceable in the courts of EU member states under the Brussels regulations.  If no other arrangements are put in place, the enforceability (or otherwise) of UK judgments in the EU will depend upon the enforcement laws of each of the member states as they apply to non-EU judgments.

Arbitration has not historically been the most popular method of dispute resolution in loan agreements, litigation having generally been preferred.  However, it is one method of dispute resolution which will be unaffected by Brexit.  157 countries (including the other EU member states) are a party to the New York Convention, which requires the courts of the contracting states to give effect to an arbitration agreement in another contracting state (subject to certain limitations).   Therefore, when it comes to arbitration, unlike court judgments, it should be business as usual after Brexit.

Impact on opinions

From a bank’s perspective, where it is lending to or taking security from a foreign company, it usually obtains a legal opinion from the jurisdiction where the foreign borrower or guarantor is incorporated.  The provider of the legal opinion will usually be asked to include a statement that any judgment obtained in the English courts will be enforceable against the borrower/guarantor in its jurisdiction of incorporation.  Recently, we have seen some European law firms reluctant to provide this confirmation; some have also recommended that arbitration be included as an alternative method of dispute resolution in finance documents. The basis for this is to ensure that the lender is able to obtain an enforceable judgment post-Brexit (to cover off the possibility that no arrangements are put in place for the enforcement of English court judgments in the courts of EU member states).

Is arbitration the future?

Arbitration may be a more appropriate method of dispute resolution for finance parties than has been commonly thought. The ability of the parties to select an arbitrator with specialised legal know how and market expertise sticks out as being particularly useful, given the need for the person considering any dispute to be au fait with the wealth of jargon and acronyms used in banking and finance law.  This, coupled with the wide potential for enforceability of arbitral awards under the New York Convention,  confidentiality of the commercial arbitral procedures and uncertainty surrounding the enforceability of English court judgments, may mean that arbitration comes to the fore as a popular method of dispute resolution in finance documents.  The best option for lenders may be for the parties to agree to a unilateral jurisdiction clause that would allow only the financing bank to choose between court jurisdiction and arbitration. However, this does come with a strong health warning; whilst such clauses have been recognised as valid and enforceable under English law, unilateral (also referred to as asymmetric) jurisdiction clauses are on shakier ground in some jurisdictions, and the validity of unilateral arbitration clauses are on shakier yet ground, with a number of jurisdictions refusing to recognise or doubting their validity.

This blog post was written by Alison O’Kelly, for further information, please contact: 

Alison O’Kelly, solicitor, Banking and Finance

T: 0121 202 1450

E: Alison.OKelly@gateleyplc.com 

 


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.