The UK's exit from the EU, which is expected to take place in less than 15 months, is now beginning to have tangible impacts on companies' affairs.
Historically, the UK and London in particular have functioned as a legal hub for commercial disputes, including within the maritime sector, but is now increasingly being dropped as the preferred jurisdiction contracted by parties in the event of a dispute, according to partner and head of the shipping department at Danish law firm Gorrissen Federspiel, Peter Appel, speaking to ShippingWatch.
This is an uncertainty that carriers cannot live with
For many years, maritime contracts would almost automatically incorporate UK jurisdiction. However, due to the uncertainty expected to emerge with Brexit and the fact that UK judgments will no longer be recognized in other EU countries, the law firm is now discouraging its clients from settling disputes in the United Kingdom.
Risk of parallel cases
"The overarching rule of law when it comes to agreements on jurisdiction is that the case can only be settled by a court in the agreed-upon place," says Appel, adding:
"The EU court holds that you cannot initiate a case in a member state when you have agreed on jurisdiction in another member state. This avoids parallel cases, which is obviously preferable for avoiding contradictory decisions."
According to Appel, contracts are already emerging which forgo London as preferred jurisdiction due to the uncertainty, which exists around Brexit, and potential changes which could occur once UK is no longer an EU member. Some parties are opting for a different EU country, while others are incorporating arbitration over courts into their contracts instead.
"This is an uncertainty that carriers cannot live with. The risk would be that the other party is not bound by the jurisdiction agreement and can thus bring the case to court in another country, and that the judgment from a UK court cannot be executed," he says.
Brexit diminishing London's status
Altogether, the uncertainty could push the development already seen within other maritime services. The first financial companies based in London are opening branches in other EU countries to ensure that EU regulations continue to apply to them. Just one month ago, maritime insurance company Britannia P&I opened an office in Luxembourg as a result of Brexit. This was the second maritime insurance company within few weeks to seek an alternative office to its London headquarters.
London's position as a maritime legal hub has evolved over centuries and means that decisions from the House of Lords, now the Supreme Court of the United Kingdom, have had a significant impact on legal development, not just in other EU countries but also in other major maritime nations.
At the end of November 2017, the EU Commission issued an advice on the potential legal impacts of Brexit, which include the risk that future judgments will not be recognized between the UK and other EU countries.
New Nordic arbitration tribunal
Recently, the Nordic countries announced they would be opening a collective maritime arbitration tribunal in Oslo in order to challenge London's dominance in the area and close the gap expected to be created by Brexit.
Speaking of the decision, head of commercial law at Danish Shipping, Henriette Ingvardsen, said:
"This is good timing for the Nordic arbitration tribunal, as it is uncertain whether UK judgments will continue to be enforced in an effective way after Brexit. We will therefore work on ensuring that the possibility of Nordic arbitration will make its way into standard contracts, as the processes within Nordic arbitration are not as dense as in other countries."
The ultimate legal model agreed upon by the UK and the EU will prove critical. Norway, for example, currently has an agreement that EU decisions apply in Norway and vice versa. However, this requires that Norway acknowledges the EU court as its highest court, and it is doubtful that the UK will be favorable to a similar deal.
Current indicators suggest the UK will depart the EU on March 30, 2019.
English Edit: Lena Rutkowski