This post comes to us from Sarah Garvey and Karen Birch, both conflicts of laws specialists at Allen & Overy.

We have prepared two short papers looking at the potential impact of Brexit on English governing law clauses and English jurisdiction clauses. In these papers we assess whether a decision by the UK to leave the European Union would make English governing law and jurisdiction clauses less attractive to commercial parties.

English law and the English courts have long been a popular choice for commercial parties doing business internationally. There are many reasons why this is the case. English law is widely considered to be comparatively certain, stable and predictable and the English courts have a deserved reputation for independence and expertise, for the commerciality and reliability of their decisions and for the willingness of judges to give effect to the contractual bargain struck between commercial parties.

The harmonisation of the rules applied by Member State courts to determine governing law in civil and commercial matters has been one of the success stories of the European project, at least where commercial parties are concerned. Member State courts (other than Denmark) now apply a uniform set of rules to determine what law they should apply to most commercial disputes. These rules provide that party autonomy is, for the most part, to be respected. As such, commercial parties can feel comfortable that a choice of English law (or any other law, including that of a non-Member State) will be upheld by Member State courts in the vast majority of cases. This certainty, combined with the similar degree of certainty arising from the harmonisation of rules on jurisdiction and the enforcement of judgments, enables parties to assess litigation risk and price deals more accurately when negotiating commercial transactions and reduces the risk of having to litigate under an unfamiliar or unintended law when disputes arise.

Similarly, the harmonisation of the rules applied by Member State courts in relation to jurisdiction and the enforcement of Member State court judgments in civil and commercial matters is widely considered to have been one of the most successful EU initiatives over the last 30 years. This assessment is arguably subject to one notable exception – the EU rules on related proceedings and associated "torpedo" litigation strategy (although following a revision to the relevant rules this tactic is now largely ineffective where there is an exclusive jurisdiction clause). Under these harmonised rules (now set out in the Recast Brussels Regulation EU 1215/2015, (the ‘Recast’)) party autonomy in commercial contracts is generally respected. Further, under the Recast, Member State courts must recognise and enforce commercial judgments given in other Member States, subject to very limited exceptions. A commercial party can be confident that its English judgment is as likely as a local judgment to be recognised and enforced in the courts of 27 Member States. This harmonisation has also reduced the risk of having to litigate in multiple jurisdictions when disputes arise (although costly and time-consuming jurisdiction battles are still common). The application of these EU rules is overseen by the Court of Justice of the EU to ensure an autonomous interpretation of these instruments across Europe.  

Should a UK exit from the EU impact commercial parties’ selection of English governing law and English jurisdiction clauses? We set out our views on this important question in these two papers, available here (impact of Brexit on English governing law clauses) and here (impact of Brexit on English jurisdiction clauses).