Brexit and cross-border mediation after Brexit: article by M1 Legal lawyer Adriana Stoyanova

M1 Legal lawyer Adriana Stoyanova has written a blog post on Brexit and what it could mean for the mediation community, particularly for cross-border disputes. You can read the article below, or via the original link:

https://www.huntadr.com/single-post/2019/05/08/Guest-Blog-Malaga-Special-Brexit-gives-the-mediation-community-an-excellent-opportunity-to-reinvent-itself

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 an important factor in how those disputes play out, alongside the circumstances of the dispute 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 did not agree to leave on a “no deal” basis. “No deal” would have meant 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 approved by European leaders; on 21 March 2019 they agreed to extend the UK’s departure date to 22 May 2019, provided the withdrawal agreement was approved by the House of Commons by 29 March 2019. On 29 March 2019 the House of Commons did not approve the withdrawal agreement for a third time. This left the UK with a number of options. One was 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 by that date. Another was to seek a further extension, in which case the UK would have been expected to give admissible reasons. Following that second option, European leaders agreed on 11 April to extend the deadline to 31 October.

Although it was still unclear at that time what would happen, and whether there would be a transition period, clients negotiating contracts with UK-based companies were likely to be well advised to agree an EU-based jurisdiction rather than an English one. This would allow them to benefit from EU laws on the recognition and enforcement of judgments in civil and commercial matters, and on judicial assistance for service of documents and taking evidence. The harmonised EU regulations covering these areas were likely to stop applying to UK jurisdictions after Brexit, and choosing the English courts could therefore result in greater time and cost, including the risk of parallel proceedings and contradictory judgments.

Given these and other uncertainties arising from Brexit, alternative dispute resolution clauses may be a highly recommendable alternative to relying solely on a choice of applicable national law and jurisdiction.

Arbitration appears likely to be less affected by Brexit, at least from a legal perspective. The framework supporting arbitration remains unchanged, and the separate enforcement mechanisms available for arbitration (through the New York Convention) may offer greater certainty in comparison with litigation.

In any case, parties involved in cross-border contracts should think carefully about potential dispute and enforcement issues and consider using a “conditional” dispute resolution clause that keeps a degree of flexibility as the UK’s position becomes clearer. This is where mediation and arbitration may be useful alternatives.

While the enforceability of English court judgments across EU member states looks like a potential threat to the UK’s position as a leading European centre for litigation post-Brexit, mediation and arbitration are often viewed more positively.

The framework supporting the enforcement of court judgments across the EU forms part of EU law, which the UK may no longer be subject to following 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 will remain unchanged, offering an arguably clearer and simpler process. Mediation is another option, often valued as a flexible, private, neutral and quick way to resolve international disputes. For these reasons, arbitration is likely to remain largely unaffected by Brexit, while the use of mediation may increase.

One reason is that the growing size and complexity of international disputes, alongside Brexit-related uncertainty, may increase the value of experts. Parties may prefer to appoint a mediator with experience in a particular sector or type of dispute rather than rely solely on traditional litigation.

Mediation may also be attractive because it is generally cheaper and quicker. Parties who want to preserve their relationship and settle a dispute may be more likely to choose this approach.

Many companies entering into cross-border contracts may prefer a private, faster and cheaper process such as mediation over lengthy public litigation, particularly where the enforceability of a final judgment is uncertain. The voluntary, flexible and confidential nature of mediation can be an advantage for organisations seeking a workable resolution.

This is not only relevant to large international companies concerned about their public image, but also to smaller organisations, for whom a long-running litigation process could lead to bankruptcy. Mediation can be constructive and may help preserve, and even improve, the business relationship between the parties.

At present, rules on 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 (in force from 2011), alongside 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, future cross-border mediations will be subject to those rules, while EU mediations that started 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, including those relating to limitation periods and confidentiality, may not apply to certain mediations. However, in both common law and established practice, confidentiality is a fundamental principle and is expected to remain so, particularly in mediation, because there are strong policy reasons to encourage mediation and settlement.

On limitation and the extension of time-bar periods during a cross-border mediation, in practice a party facing a limitation issue is likely either to sign a standstill agreement (if the parties have agreed to mediate and expect the process to take time) or to issue protective court or arbitration proceedings, which can effectively be placed on hold if the parties still wish to mediate.

The key areas of mediation that may be affected after Brexit include:

• The parties’ agreement to mediate: this may be set out in a mediation clause in a commercial contract, or agreed in a separate document.
• The mediation agreement: the agreement between the mediator and the parties, regulating rights and obligations during the mediation process.
• The mediated settlement agreement: the document recording the terms agreed to settle the dispute.

However, as mediation is voluntary, and parties choose it as a way to resolve their dispute, they are typically actively involved in shaping the outcome. It is therefore expected that they will be able to reach agreement on practical issues, including consent to mediate, the mediation agreement and the settlement terms.

In summary, Brexit gives mediation an opportunity to reinvent itself for several clear reasons:

1. Mediation is faster than standard litigation.
2. Mediation is cost-effective. It is generally cheaper than litigation, particularly given uncertainty around the recognition and enforcement of judgments in civil and commercial matters, and judicial assistance for service of documents and taking evidence.
3. Mediation can help manage legal costs (in the UK) where a valid offer to mediate is made.
4. Mediation is confidential, helping parties protect their reputation.
5. Mediation can rebalance power, which may help parties feel more comfortable in cross-border disputes.
6. Mediation can preserve relationships, which matters where parties want to continue doing business together.
7. Mediation can support practical outcomes, including negotiating payment plans to help businesses protect cash flow.

While court proceedings are formal and claim-focused, mediation offers a more flexible process through a neutral intermediary who facilitates communication. It allows parties to address the full range of issues behind a dispute, including matters that may not be legally determinative. Voluntariness and confidentiality can help parties engage openly and take responsibility for resolving the dispute.

By Adriana Stoyanova, M1 Legal.