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Policy News

Brexit Briefing

Thursday 19 January 2017

The Prime Minister’s Plan for Britain speech set out the Government’s 12 negotiating objectives for leaving the European Union (EU). They include leaving the EU’s single market and pursuing the negotiation of a Free Trade Agreement (a Brexit FTA) with the European Union. Theresa May also set out an objective of negotiating new trade agreements with other countries, which through the Common Commercial Policy and the Common External Tariff currently conflicts with full Customs Union membership.

CIArb had a neutral position on leaving the EU reflecting the broad range of views within membership. In the aftermath of the vote to leave the EU, the Institute prepared a Brexit Toolkit to support businesses throughout this period of change. As a global professional body, it continues to monitor the situation and represent the concerns of UK based members and those who practice alternative dispute resolution (ADR) in international centres such as London. CIArb has four primary areas of concern:

  1. The international commercial dispute resolution framework
  2. Trends in trade in services in the alternative dispute resolution (ADR) sector
  3. Professional regulations and mutual recognition
  4. International investment protection regimes.

1          The international commercial dispute resolution framework

With regards to international dispute resolution, the international framework and guidelines that underpin mechanisms such as arbitration will be in place throughout the period of negotiations and beyond. For example, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), underpins international arbitration by ensuring that the courts of contracting states give effect to arbitration agreements and enforce arbitration awards made in other contracting states.

With over 150 countries signed up to the UN Convention, it also applies to markets across the globe. Firms will have to be mindful of including provisions on the seat of the arbitration and law governing the contract within their arbitration clauses.  With respect to the latter, formerly where the contract has been silent on the governing law, the question of which law governs the contractual and non-contractual obligations has been determined by EU law (the Rome I and II Regulations), but it is unclear what the position will be post-Brexit. 

Trends in trade in services will need to be considered in the forthcoming negotiation.

2          Trends in trade in services in the alternative dispute resolution (ADR) sector

The UK is a global centre for international commercial dispute resolution. ADR is often confidential and therefore it is hard to quantify exact figures. TheCityUK states that there are approximately 24,000 civil and commercial ADR cases per annum in England and Wales. In arbitration estimates can be reached by looking at the volume of appointments but it suffices to say at the high-value end the sector is in a healthy state. The legal services market contribution to the UK economy is valued at £22.6bn (1.6% of UK GDP). Whilst the reputation of the court system -and the fact that 40% of all governing law in all global corporate arbitrations is English law- support its competitiveness, this position should not be taken for granted.

In the mediation arena, for higher value commercial claims, (where experienced mediators can command fees of several thousand pounds) the total value of cases mediated each year (by the amount in dispute) is in the region of £9 billion and rising. There are about 14,000 commercial mediation cases a year.

3          Professional regulations and mutual recognition

As with many sectors, there are far reaching debates about regulation in arbitration and ADR at a global level. These range from mutual recognition to codes of conduct. It is therefore important that the UK continues to be proactive in these debates as well as alongside the Brexit negotiation process. Indeed, Brexit could offer an opportunity to really dig into these debates and emerge as a third force to support other jurisdictions and encourage innovation in global regulatory debates.

4          Investment protection regimes

With regards to investment arbitration and any investment protection regime adopted as part of a Brexit FTA, there is a need to consider the developments resulting from the negotiation process of recent agreements involving the EU including the Comprehensive Economic and Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP­).

Investor-to-state dispute settlement (ISDS) allows investors to bring claims arising out of the mistreatment of their investment (whether through direct or indirect expropriation) by the State where the investment is taking place before arbitral tribunals. The debate about the inclusion of ISDS in both CETA and TTIP proved a significant drag on negotiations, to the extent that the TTIP negotiations have an uncertain future against the backdrop of an incoming US administration.

The changing nature of the global investment protection environment is therefore a critical consideration for a Brexit FTA and future trade agreements. The UK will need to consider whether it continues with ISDS as usual or becomes involved with the EU's multilateral investment court system debate.

Key features of EU proposals include a roster of publicly appointed judges in place of arbitrators and an appellate mechanism. Whilst transparency is to be welcomed, CIArb remains concerned about the autonomy, accountability and sustainability of these proposals.

Summary

  • CIArb continues to engage the UK Government and interested international parties on the high-level options being formulated. Brexit gives the UK the opportunity to capitalise on its position as a global leader in international dispute resolution and to act as a valuable voice in ongoing debates on commercial disputes and investment protection.
  • CIArb believes ISDS is a tried and tested system of checks and balances; improvements could be made to the existing system rather than reinventing the wheel.
  • With regards to commercial dispute resolution, there could be a long term impact but in the meantime the UN framework that underpins international commercial arbitration remains in place and the contract law of England and Wales is respected. Scotland is increasingly popular and Edinburgh will host the prestigious International Council for Commercial Arbitration Congress in 2020.
  • As a global professional body, CIArb is keen to encourage mutual recognition agreements to support the development of robust international standards.
If you would like further information or to become involved in CIArb’s work to inform policymakers about private dispute resolution, please email Chris Wilford, Head of Policy, Public Affairs and Research at cwilford@ciarb.org.