In this Q&A we first outline the impact of Brexit on (i) the choice of English law and (ii) the submission to the jurisdiction of the English courts in existing and future contracts between professional parties. In addition, we address the impact of Brexit on (iii) the recognition and enforcement of English courts’ judgements in Belgium, as well as (iv) arbitration clauses.
Over the years London has established itself as the bastion of European finance setting the standards for financial contracts often governed by the laws of England and subjected to the jurisdiction of the courts of England. As a consequence of the withdrawal of the UK from the EU, known as Brexit, which is effective as of 1 January 2021, the UK is no more an EU Member State but a third country. While everything hinted that there would be a hard Brexit, the EU and the UK unexpectedly reached an agreement on 24 December 2020, just a week before the end of the transition period. From now on, the “Trade and Cooperation Agreement” (the TCA) is the Treaty that will govern the relationship between the EU and the UK. Unfortunately, the TCA remains silent on judicial cooperation in civil and commercial matters.
Choice of law clause
Will the choice of English law remain a valid choice of law both for existing and for new agreements?
In principle, yes. The impact of Brexit on the choice of law rules will be limited.
Article 3(1) of the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the Rome I Regulation) allows contracting parties to freely choose the law that will govern their contractual relationship, whether the law in question is the law of a Member State or not. Because of the universal application of Rome I Regulation, Belgian courts shall thus continue to recognise the parties’ choice of English law to contracts, notwithstanding that England has become a third state.
Only when the application of English law would be in breach of overriding mandatory provisions of Belgian law or be incompatible with the public policy of Belgium, will English law be set aside.
Rome I Regulation provides indeed for the application of overriding mandatory provisions (Article 9) and rules of public policy (Article 21) of the forum, irrespective of the choice of law made by the parties.
Overriding mandatory provisions are those mandatory provisions which are regarded as crucial by a country for protecting its essential interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract. Not all Belgian mandatory provisions are overriding mandatory provisions. One must seek the real intent of the legislator in this respect. Pursuant to Article 9 of Rome I Regulation and notwithstanding the choice of English law made by the parties, a Belgian court shall apply Belgian overriding mandatory provisions and may give effect to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, insofar as those overriding mandatory provisions render the performance of such contract unlawful.
A Belgian court may also refuse to apply English law if such application is manifestly incompatible with the public policy of Belgium. However, there are very few applications of public policy in financial matters.
That said, while Brexit may have no immediate legal impact on the choice for English law, it can be expected that the prevalence of English law as standard for intra-European transactions may erode over time, especially to the extent that English law may gradually deviate and depart from EU widely applied legal principles and standards.
Is English law the appropriate law to govern agreements where no nexus with the UK exists?
There is no legal impediment as such, and it can be expected that market practitioners will continue to apply English law to many of their financial agreements, especially where the financial agreement has an international dimension or where the market heavily relies on widely used master agreements and templates originated under English law, such as the ISDA Master Agreement and the loan templates provided and developed by the Loan Market Association. As was already the case before Brexit, it is only where all elements (other than the foreign law chosen by the parties) relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, that the mandatory provisions of that other country would apply, irrespective of the law chosen by the parties. This in pursuance of Article 3(3) of Rome I Regulation.
However, for agreements in respect of which the choice of English law was made on or after 1 January 2021, the application of mandatory EU law, as implemented in the Member State of the forum, shall no longer be prejudiced by the parties’ choice of English law if all elements relevant to the situation at the time of the choice of law are located in one or more EU Member States. This in pursuance of article 3(4) of Rome I Regulation.
Submission to jurisdiction clause
Will Brexit have an impact on pending disputes?
According to Article 67(1) of the Withdrawal Agreement, EU rules on conflict of jurisdiction (including Brussels Ibis Regulation) will continue to apply in respect of proceedings filed before the end of the transition period (31 December 2020) both in the UK and in the Member States in situations involving the UK. The EU rules on conflict of jurisdictions also continue to apply where the court has been seized after the end of the transition period in an EU Member State or in the UK to “proceedings or actions that are related to such legal proceedings”. This concerns proceedings between the same parties involving the same cause of action. This position has been confirmed by the European Commission in its Notice to stakeholders published on 27 August 2020.
Will choice of forum clauses submitting to English courts remain valid and enforceable in Belgium?
Yes, but Regulation No 1215/2012 on Jurisdiction and Recognition and Enforcement of Judgements in Civil and Commercial Matters of 12 December 2012 (the Brussels Ibis Regulation) has, contrary to the Rome I Regulation, no universal application. The Belgian Court of First Instance will thus no longer apply the formalities and conditions as set out in Brussel Ibis Regulation for the recognition and enforcement of judgments rendered by English courts. The recognition and enforcement of English judgements will instead be governed by a different set of regulations and rules, depending on the situation, as explained below.
Although England has a long tradition of well-developed case law, it is to be seen whether market practitioners will continue to submit their agreements to English jurisdiction with the same willingness, especially where such agreements are not subject to English law or where these otherwise relate to intra-European transactions with no or hardly any nexus with the UK. One of the underlying reasons for Brexit was the will of the UK to no longer subject its judicial system to the powers of the Court of Justice of the European Union, and European parties may prefer for that reason to confer jurisdiction for intra-European matters on courts of a jurisdiction whose legal system remains subject to the rulings of the highest instance within the EU that must make sure that EU law is applied in the same way across the EU.
1. If the 2005 Hague Convention on Choice of Courts Agreements applies (exclusive choice of court)
In accordance with Article 5 of the Hague Convention No 37 of 30 June 2005 on Choice of Court Agreements (the 2005 Hague Convention) parties can validly choose to submit a dispute arising out of their contractual relationship to a designated jurisdiction. The application of the 2005 Hague Convention is however limited to choice of court clauses which are (i) exclusive, (ii) concluded between professional parties, (iii) in the framework of international situations and (iv) in civil and commercial matters.
The 2005 Hague Convention entered into force in the UK on 1 January 2021 (the first day of the month following the expiration of three months after the deposit of its instrument of accession on 28 September 2020).
The 2005 Hague Convention entered into force on 1 Octo1ber 2015 with respect to EU Member States. In its Notice to stakeholders, the European Commission takes the position that the 2005 Hague Convention is applicable between the EU and the UK with respect to exclusive choice of court arrangements agreed after 1 January 2021.
Belgian courts will thus recognise an agreement for the exclusive choice of English courts made on or after 1 January 2021. In such a case English courts shall be the only competent courts to decide on a dispute to which the agreement applies with the exception of interim measures of protection which are not governed by the 2005 Hague Convention.
An exclusive choice of court agreement for the purposes of the 2005 Hague Convention is an agreement concluded by two or more parties designating the courts (or one or more specific courts) of one Contracting State to the exclusion of the jurisdiction of any other courts. Pursuant to Article 22 of the 2005 Hague Convention, Contracting States may opt for a reciprocal declaration on non-exclusive choice of court agreements in which case also a non-exclusive jurisdiction clause falls under the scope of application of the 2005 Hague Convention. Neither Belgium nor the UK have made such a declaration.
2. If the 2005 Hague Convention on Choice of Courts Agreements does not apply
Although the exact conditions for the recognition of choice of forum clauses may vary in each Member State, all of them give effect to clauses designating the courts of a third country subject to limited exceptions.
For Belgium, unless a bilateral or multilateral treaty is applicable, the recognition of a choice of forum clause will be subject to the conditions set out in Articles 7 and 11 of the Code of Private International Law (the PIL Code), regardless whether the choice of forum clauses were agreed before or after 1 January 2021. When parties have validly agreed to confer jurisdiction on English courts and the case is pending before a Belgian court, the latter must stay its proceedings, unless it is anticipated that the English judgment is not amenable to recognition and enforcement in Belgium or unless the matter presents close connections with Belgium and the proceedings in England seem impossible or when it is unreasonable to demand that the action be brought in England.
Are asymmetrical or hybrid choice of forum clauses valid and enforceable under Belgian law?
Asymmetric jurisdiction clauses, which is a sub-category of non-exclusive jurisdiction clauses, require one party only (e.g. the borrower) to bring proceedings before the designated court while the other can seize any competent court of its choice. Such choice of law clauses are for example present in the in the LMA standard loan documentation and in the ISDA Master Agreements.
The Explanatory Report to the 2005 Hague Convention mentions explicitly that asymmetric jurisdiction clauses shall not be considered exclusive and the 2005 Hague Convention does not apply to asymmetric jurisdiction clauses.
The substantive validity of clauses conferring jurisdiction must be assessed under the laws of the designated Member State. While English courts have traditionally accepted the validity of hybrid or asymmetrical jurisdiction clauses, courts of certain EU Member States, such as France, Bulgaria and Poland, have recently refused to uphold the validity of asymmetrical choice of forum clauses, mostly within the context of Brussels Ibis Regulation.
So far, there is no published case law in Belgium which has refused to enforce asymmetrical or hybrid choice of forum clauses designating the courts of another Member State or of a third country. Parties are in any event well advised to carefully review the jurisdiction clauses if they wish to take the benefit of the 2005 Hague Convention.
To partially deal with the concern, the LMA has recently decided to add an optional two-way exclusive jurisdiction clause designating English courts pursuant to the 2005 Hague Convention, as an alternative to their traditional asymmetric exclusive jurisdiction clause.
Recognition and enforcement of English courts’ judgements in Belgium
English judgements falling within the scope of the 2005 Hague Convention (exclusive jurisdiction clauses)
Brussels Ibis Regulation provides for the automatic recognition and enforceability in a Member State of judgements taken in another Member State. It does not govern the recognition and enforcement of third country judgements, which remains the prerogative of the conflict of law rules of each Member State.
The analysis above with respect to the application of the 2005 Hague Convention is equally relevant for the recognition and enforcement of English judgements (see question 2.2).
The 2005 Hague Convention entered into force on 1 October 2015 with respect to EU Member States but only on 1 January 2021 in the UK as an independent Contracting State (see question 2.2.1). In its Notice to stakeholders, the European Commission takes the position that the 2005 Hague Convention is applicable between the EU and the UK with respect to exclusive choice of court arrangements agreed after 1 January 2021.
As member of the 2005 Hague Convention, Belgium will recognise and enforce a judgement rendered by an English court pursuant to an exclusive jurisdiction clause agreed on or after 1 January 2021. English judgements rendered on the basis of choice of forum clauses agreed prior to 1 January 2021 may, however, not benefit from recognition under the 2005 Hague Convention.
Contrary to the Brussels Ibis Regulation, the 2005 Hague Convention does not provide for the automatic and direct recognition and enforceability of judgements in civil and commercial matters. The recognition and enforceability of a judgment in civil and commercial matters rendered by English courts will thus need to be determined by a Belgian Court of First Instance. A copy of the English court’s decision meeting the conditions necessary for its authenticity according to English law accompanied by a document which establishes that, according to English law, the decision is enforceable and was served, will need to be submitted. In the case of a default judgement, the seizing party will need to demonstrate, by providing the original or a certified copy, that the document instituting the proceedings or an equivalent document was served on the defaulting party in accordance with English law. In addition, (a certified copy or other evidence of the existence) of the exclusive choice of court agreement must be submitted.
The Court of First Instance will, however, not review the English judgement on its merits. Recognition and enforceability of the English courts’ judgement shall only be refused by the Court of First Instance based on the limitative grounds enumerated in Article 9 of the 2005 Hague Convention:
- the agreement was null and void under English law, unless the English court has determined that the agreement is valid;
- a party lacked the capacity to conclude the agreement under the laws of Belgium;
- the document which instituted the proceedings or an equivalent document, including the essential elements of the claim,
- was not notified to the defendant in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant entered an appearance and presented his case without contesting notification in the court of origin, provided that English law permitted notification to be contested; or
- was notified to the defendant in Belgium in a manner that is incompatible with fundamental principles of Belgium concerning service of documents;
- the judgment was obtained by fraud in connection with a matter of procedure;
- recognition or enforcement would be manifestly incompatible with the rules of public policy in Belgium, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of Belgium;
- the judgment is inconsistent with a judgment given in Belgium in a dispute between the same parties; or
- the judgment is inconsistent with an earlier judgment given in another State between the same parties on the same cause of action, provided that the earlier judgment fulfils the conditions necessary for its recognition in Belgium.
The decision on enforceability can be appealed within 1 month of its notification. Third parties may file an opposition against the enforceability decision if it adversely affect their rights. A limited appeal before the Belgian Supreme court is possible against the judgement of the court of appeal. Because of the significant judicial backlog in Belgium, in particular in Brussels, the obtaining of a decision by the Court of First Instance may take months and a proceeding in appeal may take years. An enforceability decision shall, in principle, be enforceable, notwithstanding appeal, unless stated otherwise.
English judgements falling outside the scope of the 2005 Hague Convention
Brussels Ibis Regulation provides for the automatic recognition and enforceability in a Member State of judgements taken in another Member State. It does not govern the recognition and enforcement of third country judgements, which remains the prerogative of the conflict of law rules of each Member State.
On 8 April 2020, the UK applied to accede to the 2007 Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (the 2007 Lugano Convention). If the 2007 Lugano Convention were to enter into force for the UK, the recognition and enforcement in Belgium of all English court judgements would be governed by a regime which is more or less equivalent to the one of the Brussels Ibis Regulation. The main distinction would be that the Lugano Convention has not (yet) been adapted to reflect innovations brought by the Brussels Ibis Regulation, more in particular the abolition of exequatur.
The United Kingdom’s decision to join the Lugano Convention is remarkable as protocol No. 2 of the 2007 Lugano Convention requires signatory states to pay “due account to” rulings of the Court of Justice of the European Union (the CJEU). The UK’s accession to the 2007 Lugano Convention would thus implicate that English courts would need to continue to comply with the case law of the CJEU, in particular in the field of anti-suit injunctions.
However, to accede to the Lugano Convention, the UK would first need to either join the European Free Trade Association (EFTA) or obtain the unanimous consent of the other contracting parties to the Lugano Convention, including the EU.
Considering that the Lugano Convention is currently not applicable, it is debated whether, in the event no further legislative action is taken, the specific terms and formalities of recognition of judgements by English courts shall be governed by:
- 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the 1968 Brussels Convention):
- the Convention between the United Kingdom and the Kingdom of Belgium providing for the reciprocal enforcement of judgements in civil and commercial matters, with Protocol, signed at Brussels on 2 May 1934 (the 1934 Convention between the United Kingdom and Belgium); or
- the Code of Private International Law (the PIL Code).
Is the 1968 Brussels Convention applicable again?
Pursuant to Article 68 of the Brussels I and Brussels Ibis Regulations, both Regulations “shall, as between the Member States, supersede the 1968 Brussels Convention, except as regards the territories of the Member States which fall within the territorial scope of that Convention and which are excluded from this Regulation pursuant to Article 355 of the TFEU”.
The 1968 Brussels Convention is as such still in force, as is the English transposition act.
Whether this means that the 1968 Brussels Convention would become applicable again between EU Members States and the UK, having left the EU, is debated. However, we believe there are good arguments to conclude it is not.
Despite its qualification as an international treaty, the preamble of the 1968 Brussels Convention states the Convention is the result of the contracting parties intention to implement article 220 of the Treaty of Rome by virtue of which the European Economic Community wanted to develop a legal judicial cooperation area between its Member States. The only third parties to the 1968 Brussels Convention are certain overseas territories of EU Member States (such as Aruba). Moreover, to extend the regime of the 1968 Brussel Convention to Iceland, Norway and Switzerland they concluded the 1988 Lugano Convention (later superseded by the 2007 Lugano Convention). Although as an international treaty the 1968 Brussels Convention is formally not affected by article 50 TFEU which provides that European law ceases to apply to a State which has left the Union, its revival in relation to the UK would be contrary to the very characteristics of the Convention and the contracting parties’ intentions.
Also, pursuant to article 62 of the 1969 Vienna Convention on the Law of Treaties, which constitutes “ordinary law” on the interpretation of the treaties, Contracting States could invoke a fundamental change in circumstances to withdraw from a treaty if the fundamental change of circumstances constituted an essential basis of the parties’ consent to be bound. As the accession to the 1968 Brussels Convention was mandatory for States joining the European Economic Community, one could say Brexit meets those conditions, and as such the 1968 Brussels Convention is disapplied.
The 1934 Convention between the United Kingdom and Belgium
Prior to the 1968 Brussels Convention, bilateral conventions on the reciprocal recognition and enforcement of judgements were concluded between the Member States. In particular, several treaties for the recognition of judgement in civil and commercial matters have been concluded between the UK and (future) Member States of the European Union (Austria, Belgium, France, Germany, Italy and The Netherlands) and EFTA (Norway). The 1968 Brussels Convention and the 2007 Lugano Convention, as well as the Brussels I and Brussels Ibis Regulation, have “superseded” these bilateral conventions, except as regards the matters to which they are not applicable.
The 1934 Convention between the United Kingdom and Belgium guarantees the mutual recognition and enforcement of judgements in civil and commercial matters unless it is refused on of one of the following grounds:
- the jurisdiction of the original court to hear the case is not recognised under the rules of private international law observed by the Belgian court;
- the judgement was given in default and the judgement debtor did not appear in the proceedings and satisfied the Belgian court that he/she did not appear in the proceeding and satisfies the Belgian court that he/she did not had actual knowledge of the proceedings in reasonable sufficient times to act upon it;
- the judgement is contrary to Belgian public policy;
- the judgement is in respect of a cause of action which had already formed the subject of another judgement that is rendered prior to the judgement which recognitions is requested and recognised under Belgian law as final and final and conclusive;
- the judgement has, in the opinion of the Belgian court, been obtained by fraud;
- in the opinion of the Belgian court the judgement was given against a person, defendant in the procedure, who under the rules of public international law was entitled to immunity from the jurisdiction of the original court, and did not submit to the jurisdiction of the UK (original) court; or is sought to be enforced to a person who is entitled under the public international law to immunity from the Belgian court;
- the judgement debtor “satisfies” the Belgian court that the proceedings by way of appeal, opposition or setting aside have or will be instituted against the original judgement in the UK.
For the judgment to be enforced in Belgium, an application for the grant of an exequatur, accompanied by a certified copy of the judgement issued by the original court including particulars as regards the proceedings and the causes of action in respect of which it was given, should be made in Belgium in accordance with the procedure of the Tribunal of First Instance of the district where the execution is sought.
If such an application is made, an exequatur shall be granted unless “the judgment debtor satisfies the applied court (a) that the judgement debt has been wholly satisfied, or (b) that the right to enforce the judgment debt is not vested in the person by whom the application is made”.
The conditions imposed by the 1934 Convention between the United Kingdom and Belgium for the recognition and enforcement of an English courts judgement in Belgium are different and not more favourable than the provisions resulting from the Belgian PIL which applies in the absence of an applicable convention (see question 3.2.4).
The 1934 Convention between the United Kingdom and Belgium provides that it will remain in force until the expiry of a period of six months after the day on which one of the two States has notified its intention to terminate the Convention (Article 10). Neither Belgium nor the UK has ever notified its intention to terminate the 1934 Convention.
In the absence of any applicable international or bilateral treaty or convention, what are the rules applicable in Belgium to the recognition and enforcement of English courts’ judgements?
Each Member State has its own approach concerning the recognition of such judgement. In Belgium, English judgements will be recognised and enforced unless the court considers that one of grounds for refusal listed exhaustively in Article 25 of the PIL Code is met.
The PIL Code contemplates the situation of a decision given by a court situated in a state which has no Convention with Belgium regarding jurisdiction clauses. The procedure is very similar to the procedure organized by the 2005 Hague Convention, referred to in question 3.1.
The PIL Code provides that a final and enforceable judgement rendered by an English court shall be recognised and can be enforced in Belgium, following the procedure detailed in Article 22 et seq. of the PIL Code. The Court of First Instance will be competent to decide on the recognition and enforceability of judgements in civil and commercial matters rendered by an English court. First, the foreign decision must be legalised in the country of origin and in Belgium according to Article 30 of the PIL Code. When seized, a copy of the decision must be provided to the Court of First Instance which meets the conditions necessary for its authenticity according to English law. It must be accompanied by a document which establishes that, according to English law, the decision is enforceable and was served. In the case of a default judgement, the seizing party must demonstrate, by providing the original or a certified copy, that the document instituting the proceedings or an equivalent document was served on the defaulting party in accordance with English law.
The foreign judgement will not be reviewed on its merits by the Belgian judge. Article 25 of the PIL Code lists in an exhaustive manner the grounds on which recognition or enforceability may be refused. A foreign decision will not be recognised and enforced if:
- the consequences of the decision would be manifestly contrary to Belgian public policy;
- the rights of defence were not respected;
- if in relation to matters for which parties cannot freely dispose of their rights, the decision has been sought with the sole purpose of escaping from the application of the laws applicable in accordance with Belgian private international law;
- the judgment is not final pursuant to the laws of such state (or does not meet the requirements of authenticity pursuant to the applicable laws);
- the decision is in conflict with either a decision rendered in Belgium or a decision previously rendered in another state and such decision can be recognised in Belgium;
- the claim was introduced abroad after a claim, which is still pending and relating to the same matter and between the same parties, was introduced before Belgian courts;
- the Belgian courts have exclusive jurisdiction in relation to the claim;
- the competence of such court was based solely on the presence of the defendant or assets in such state without any further direct connection with the litigation in such state; or
- some specific grounds including if the decision is in conflict with the rules on the recognition and enforcement of court judgements in relation to insolvency proceedings or corporate standing.
The recognition and the declaration of enforceability of the English judgment is requested through an ex parte application. The Court usually renders its order within the month following the filing of the request. The order is not immediately enforceable, but it enables the applicant to levy conservatory measures. Any interested party, and in particular the party against which enforcement is sought, can bring an opposition against the order before the same Court. Absent any opposition within the month it is rendered, the order becomes enforceable. The decision of the Court of First Instance on the opposition against the order can be appealed within one month of its service. Eventually a limited appeal before the Belgian Supreme court is possible against a judgement of the Court of appeal. Because of the significant judicial backlog in Belgium, in particular in Brussels, the obtention of a decision by the Court of First Instance may take up to 12 months to 18 months and the proceedings in appeal may take several years.
Finally, it must be stressed that this procedure is less cumbersome than what is in place in some other Member States.
Arbitration clauses in financial contracts
Is it recommended to favour arbitration in financial contracts executed post Brexit?
Brexit could give indeed a new impetus to arbitration. The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the 1958 New York Convention) will not be impacted by Brexit. The 1958 New York Convention has been ratified by more than 150 States, including the UK and Belgium. Its main purpose is to guarantee the recognition and the enforceability of an award delivered in one of the other Contracting States, provided that the award is not subject to one of the (limited) refusal grounds listed in Article 5 of the 1958 New York Convention.
The refusal grounds include public policy. Within the EU, it is generally accepted that provisions regarding fundamental EU principles such as the 4 fundamental freedoms or competition law are part of the so-called ‘European public policy’. Through the withdrawal of the UK from the EU, the substance of English public policy may change over time.
Noteworthy as well is that the European Court of Justice (the ECJ) expanded, in its West Tankers case of 10 February 2009, the scope of application of the Brussels Ibis Regulation with regard to anti-suit injunctions ordered as a result of a breach of a jurisdiction clause by extending the prohibition to those resulting from the breach of an arbitration clause. Such interpretation prevented the UK courts from issuing anti-suit injunctions in support of English seated arbitration. As from Brexit, the British courts will again be able to issue anti-suit injunctions should an arbitration clause not have been respected.
In the light of these developments, and taking into account that in the UK, costs and expenses for arbitration or public litigation may be comparable, arbitration may regain some popularity as a result of Brexit.