July 23, 2018
35% of businesses choosing EU courts over UK due to Brexit uncertainty
- Will Brexit undermine London’s position as a global centre of dispute resolution?
- Businesses closely monitoring progress in Brexit negotiations over future legal regime
- Lack of progress could result in more businesses choosing courts outside the UK
LONDON – The UK’s decision to leave the EU may result in a substantial minority of businesses changing from having their contractual disputes heard in the UK to being heard in EU courts suggests research from Thomson Reuters Legal business, the world’s leading source of intelligent information.
35% of businesses surveyed by Thomson Reuters Legal business said they have already changed contracts so that disputes are heard in EU courts rather than in the UK.
Thomson Reuters says that although London has historically been a global centre for dispute resolution, Brexit could weaken this position. Uncertainty over whether the UK will continue to from a regime for mutual recognition of court judgments between the UK and EU Member States has caused concern amongst some businesses.
The research found that of the 35% of businesses surveyed changing dispute resolution clauses in their contracts, over half (51%) have chosen for disputes to be heard in EU courts, such as those in France or Germany, rather than in the UK.
Businesses monitoring Brexit negotiations for clarity over future legal regime
Although 65% of businesses surveyed have not made any changes to contracts as yet, two fifths of those (39%) say they intend to review contracts if there is no significant progress in negotiations before March 2019 on the future regime that will apply after Brexit for the mutual recognition of court judgments.
Of this group, over a third are considering selecting different jurisdictions or choice of law clauses in their contracts and 20% indicated that they are looking at arbitration instead. Arbitration is an alternative form of dispute resolution that resolves disputes outside of courts, judgments from which are enforceable under the New York Convention, which is not affected by Brexit.
The number of businesses conducting a contract review may increase even further in the lead up to March 2019 if no progress is made in negotiations. Many businesses may be adopting a ‘wait and see’ approach for now before deciding on whether to review contracts nearer the time. On 3 July 2018, ISDA (International Securities and Derivatives Association) announced that it had introduced Irish and French law versions of the ISDA Master Agreement to offer its EU/EEA members both common law and civil law solutions to address this risk associated with its English Law version.
Thomson Reuters adds that there is likely to be more appetite amongst businesses to change the approach to future contracts than to revise existing arrangements given the administrative burden this would place on in-house legal teams.
Jim Leason, VP, Market Development and Strategy in the Legal UK & Ireland business of Thomson Reuters, says: “Brexit uncertainty is causing concern as businesses want clarity over their trading arrangements for the future. The English legal system and professions that support it are major contributors to the UK economy. Selecting English law and the English courts has long been the preference for international commercial arrangements.”
“The fact that a third of businesses are revising dispute resolution clauses away from the English courts should be a concern for the UK’s legal profession. It is this initial selection in a contract that drives an entire industry of legal advice that supports transactional work, ongoing contract management and dispute resolution. If nothing concrete comes from Brexit negotiations soon or if there is a no-deal Brexit scenario, then more and more businesses will consider taking legal disputes elsewhere.”
“London has a long-standing reputation as a global legal centre. However, a poor outcome from Brexit could result in work and talent pivoting away from the UK legal services sector.”
All the respondents in the research stated that their business includes contracts with an international aspect and 40% said that over half of their business is currently international.
To access a copy of the report, please visit: The impact of Brexit on dispute resolution clauses.
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