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CIArb Features

The Brexit Scenario: When life gives you lemons, turn to arbitration?

26 May 2017 Features
By Christina Lienen

It is only a few more days before we know for certain whether Brexit will become a reality or a soon to be forgotten term, similar to the once powerful ‘Grexit’.

Given the unprecedented possibility of a complete change of essential aspects of the UK’s legal system, it is worthwhile contemplating what the possible implications for international commercial arbitration may be.

The EU referendum, set for 23 June 2016, has created a strong split between two camps with very different arguments leading to the same conclusion: We will all be doomed. Arbitration has, rather expectedly, not been the focus of the current heated political debates, which focus mostly on immigration, sovereignty and trade. One may be inclined to think that, if anything, arbitration will thrive due to the uncertainty Brexit would create.

After all, quite differently from legal disputes resolved by the courts or public authorities, arbitration is a homogenous process which is rather separate from domestic legal orders, a ‘law unto itself’; but is it really?

Despite the guiding principles of autonomy and consent, arbitration is regularly linked to UK law through the choice of London as the seat of arbitration and/or the no less popular choice of English substantive law governing arbitration disputes. S

ubstantively, this might not make much of a difference as English contract law for example has, disregarding consumer exceptions, evolved largely independently from EU influences. Also, as regards awards enforcement, it is fairly safe to say that there will be no substantial changes.

The enforcement benefit of the New York Convention 1958, to which the UK is a party since 1975, will remain unchanged vis-à-vis other EU Member States as they are all signatories to the Convention.

However, there are three main issues worth flagging.

The first one is the close connection between London’s position as a reputable centre for international commercial arbitration and its status as an internationally acclaimed place of business.

Whilst it is nearly impossible to put a figure on the prospective ramifications Brexit would have on trade and commerce, it suffices to point to the warning by international organisations regarding economic uncertainty and investment hesitation.

The International Monetary Fund, for instance, said that Brexit could ‘precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output’ with the Bank of England voicing similar concerns. Long-term economic uncertainty in London could potentially undermine the city’s desirability as a seat of arbitration in the next decade.

The second concern links to the interwoven relationship between domestic law other than contract law and EU law which has been growing over a period of forty years. Unravelling the two is inevitably going to be a slow, complex and expensive process.

Whilst it might be comparatively simple to disregard or void EU Regulations, it would be a much bigger constitutional and political challenge to determine how to proceed with the thousands of EU Directives that have entered into force through domestic legislation. Again, uncertainty as to the legally binding force of these laws may limit the desirability of English law.

Finally, connected to this, the UK would no longer be subject to being overruled by the European Court of Justice, which would give it more leeway to develop the law in different ways. For example, this could lead to the reversal of controversial decisions such as the one in Gazprom (C-536/13), where the CJEU held that an anti-suit injunction awarded by an EU seated arbitral tribunal is not incompatible with the Brussels Regulation.

It is unclear whether English courts would remain loyal to judgments such as this one or whether they would reverse or amend them.

In conclusion, Brexit is most likely not going to ultimately undermine London’s eminence in the dispute resolution and arbitration world.

However, equally, its potential ramifications are not to be taken too lightly due to the potential complex changes ahead. Some London law firms advise businesses to consider inserting a Brexit clause into their arbitration agreements.

In light of the definitive uncertainties the future holds, this seems like a sensible compromise should businesses want to avoid facing the unknown.