M1 Legal lawyer Adriana Stoyanova has written a blog post on Brexit and what it could mean for the mediation community, including the potential impact on cross-border disputes between the UK and EU member states. You can read the extract below, or view the full article here:
Brexit gives the mediation community an excellent opportunity to reinvent itself
Brexit is most likely to affect disputes where one party is based in the UK and the other is based in an EU member state. The outcome of negotiations between the UK Government and the EU is therefore an important factor in how these disputes play out, alongside the specific circumstances of each case and where proceedings are issued.
The UK did not leave the EU on 29 March 2019, which was the appointed exit day. The UK Parliament did not accept the withdrawal agreement and also did not accept leaving on a “no deal” basis. A no-deal outcome would mean the UK severing ties with the EU with immediate effect, with no transition period and no guarantees on citizens’ rights of residence.
On 14 March 2019, the UK Parliament voted to extend Article 50 (the formal mechanism for leaving the EU). This was formally approved by European leaders. On 21 March 2019, they agreed to extend the UK’s departure date to 22 May 2019, provided the House of Commons approved the withdrawal agreement by 29 March 2019 at the latest. On 29 March 2019, the House of Commons did not approve the withdrawal agreement for a third time. This left the UK with a couple of options: to leave the EU on “no deal” terms on 12 April 2019 (in which case the UK would have been expected to indicate a way forward before that date), or to ask for a further extension (with admissible reasons). Following the second option, European leaders agreed on 11 April to extend the deadline until 31 October.
Although it was still unclear at that point if and when Brexit would take place, and whether there would be a transition period, clients negotiating contracts with UK-based companies would most likely be well advised to agree on an EU-based (rather than British) jurisdiction. This would allow them to benefit from EU laws on the recognition and enforcement of judgments in civil and commercial matters, as well as judicial assistance for document service and the taking of evidence. The harmonised EU regulations in these areas may no longer apply to UK jurisdictions after Brexit. As a result, an English jurisdiction clause could lead to increased time and cost, and potentially to parallel proceedings and contradictory judgments.
In light of these and other uncertainties, alternative dispute resolution clauses may be highly advisable as an alternative to a clause choosing a specific national law and jurisdiction.
Arbitration is likely to be less affected by Brexit, at least from a legal perspective. The legal framework supporting arbitration should remain unchanged, and the separate enforcement mechanisms available for arbitration (contained in the New York Convention) may offer greater certainty and advantage compared with litigation.
In any event, the practical steps parties to cross-border contracts should consider include thinking carefully about dispute and enforcement risks, and adopting a “conditional” dispute resolution clause that allows flexibility as the UK’s position becomes clearer. This means considering mediation and arbitration as alternatives.
While enforceability of English court judgments across EU member states appears to pose a threat to the UK’s position as a leading European centre for litigation post-Brexit, mediation and arbitration are being viewed more positively.
The framework that supports enforcement of court judgments across the EU is part of EU law, which the UK may no longer be subject to after Brexit. Specialist knowledge may therefore be needed to navigate the complexities of enforcing English judgments in EU member states and vice versa. By contrast, the enforceability of arbitral awards across EU member states should remain unchanged and may offer a clearer, simpler route. Mediation is another option, often valued as a flexible, private, neutral and fast way to resolve international disputes. For that reason, arbitration will most probably remain unaffected by Brexit’s outcome. However, the use of mediation may increase.
One reason is that the growing scale and complexity of international disputes, alongside Brexit-related uncertainty, may increase reliance on experts. Parties may prefer to appoint a mediator with expertise in a particular sector or type of dispute rather than rely solely on traditional litigation.
As mediation is also typically cheaper and faster, parties looking to preserve relationships and settle disputes may be more inclined to choose this process.
Many companies entering cross-border contracts may prefer a private, fast and lower-cost process such as mediation, rather than lengthy public litigation with uncertainty around enforcement of the final judgment. The voluntary, flexible and fully confidential nature of mediation can be a significant advantage for companies seeking resolution.
This applies not only to large international organisations concerned about public image, but also to smaller organisations for whom protracted litigation could lead to bankruptcy. Mediation can be constructive and may create opportunities to improve the business relationship between the parties.
At present, rules for cross-border mediation and the recognition and enforcement of cross-border mediated settlement agreements are governed by Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters, which came into force in 2011, as well as the Rome I and Brussels I Regulations.
The UK Government published the Cross-Border Mediation (EU Directive) (EU Exit) Regulations 2018 to ensure domestic legislation would continue to apply to EU cross-border mediations that started before Brexit. The new regulations mean that, after Brexit takes effect, all future cross-border mediations will be subject to these rules. However, any EU mediations that start before Brexit will still be governed by the Mediation Directive.
After Brexit, the reciprocity rules on which the EU Mediation Directive is based will no longer apply. This means common rules—such as those relating to limitation periods and confidentiality—may not apply to certain mediations. However, confidentiality is a fundamental principle in both common law and established practice, and this is expected to continue, particularly in mediation, for strong policy reasons linked to encouraging mediation and settlement.
On limitation and extension of certain time-bar periods during cross-border mediation, in practice, where a party is facing limitation risk, the parties are likely to sign a standstill agreement if they have agreed to mediate and expect the process to take time. Alternatively, they may issue protective court or arbitration proceedings, which can effectively be put on hold if there is a desire to mediate.
The key mediation areas that may be affected after Brexit appear to be:
- The parties’ agreement to engage in mediation: this may be set out in a mediation clause in a commercial contract or in a separate agreement between the parties.
- The agreement between the mediator and the parties (often referred to as a mediation agreement), which regulates the rights and obligations of the signatories in relation to the mediation process.
- The mediated settlement agreement between the parties, which records the terms of settlement.
However, because mediation is voluntary and the parties choose this method to resolve their dispute, they are actively involved in shaping the outcome. It is therefore expected they would reach mutual agreement on these issues, including consent to mediate, the mediation agreement and the settlement agreement.
In summary, Brexit gives mediation an opportunity to reinvent itself for the following reasons:
- Mediation is much faster than litigation.
- Mediation is cost-effective and is likely to be far cheaper than litigation, given uncertainty around recognition and enforcement of judgments in civil and commercial matters and judicial assistance in document service and taking evidence.
- Mediation can offer protection against legal costs (in the UK) where a valid offer to mediate is made.
- Mediation is confidential and can help parties protect their public image.
- Mediation can help balance power, with parties often feeling more comfortable in cross-border disputes.
- Mediation can help preserve business relationships, particularly where parties do not want to end ongoing commercial arrangements.
- Mediation can support negotiated payment plans that help maintain healthy cash flow.
While court proceedings are formalised and claim-oriented, mediation offers a more flexible approach, involving an intermediary who facilitates communication between the parties. It can take account of wider aspects of a conflict, regardless of strict legal relevance. Voluntariness and confidentiality can help parties feel more comfortable and, at the same time, take responsibility for resolving their dispute.
