Several EU initiatives have harmonised the cross-border litigation rules applicable across the European Union. But what will happen to these rules post-Brexit? And how will the UK adapt its own rules to meet a post-Brexit Britain?
Currently, enacted EU law provides that the choice between parties to litigate in the English courts is valid and effective (Article 25 recast Judgments Regulations). The ability to extend this choice to non-contractual relationships between parties also helps to promote a ‘one stop shop’ for all parties’ litigation needs to be heard by the English courts.
However, this freedom for parties’ to litigation to choose the English courts is currently heavily restricted in relation to consumer, insurance and employment contracts. In respect of such contracts, any judgment obtained in the court of another member state must be upheld even if this is in direct breach of an English jurisdiction clause, specifying that the English courts were to be used. Therefore, initially it appears beneficial post-Brexit for no arrangement to be made of these restrictions, as these restrictions would not necessarily apply if the UK reverted entirely to its pre-EU common law position.
Alternative positions may be considered, below.
Given the certainty of Article 25 (above), an agreement could be reached with EU Member States to continue to apply these recast Judgments Regulations to relations between the UK and member states.
However, in the alternative an agreement between the UK and EU Member States could also be sought to extend the Lugano Convention (which is applicable to Norway, Switzerland and Iceland as well as EU Member States). The Convention is similar to the Judgments Regulation, save for the court having discretion and first refusal as to whether to accept jurisdiction where neither party is domiciled in the contracting state (i.e. in the UK). Further, if parties opt not to issue litigation in the English courts, the English court cannot intervene or retrain these proceedings and cannot question any jurisdictional clause, deeming it to be ‘null and void’. This would provide parties to litigation with wider autonomy in the event of a dispute, especially when not located in close proximity of the UK.
Further still, in anticipation of Brexit, the UK could ratify the Hague Choice of Court Convention 2005 whereby the English courts must accept jurisdiction in cases where there is an English ‘exclusive jurisdiction clause’ (unless under Article 5 of the 2005 Convention, that clause is in fact null and void under its law). Under the 2005 Convention, courts of other contracting Members States must also give effect to an English exclusive jurisdiction clause and decline their own jurisdiction under Article 6. Beneficially therefore, English court judgments will be enforceable in all Members States.
Again the above alternatives do not apply to consumer or employment contracts and further consideration may be required in respect of these contracts as well as non-exclusive jurisdiction clauses.
Although the legal basis may be different, there are strong grounds to anticipate that the English courts will also robustly uphold non-exclusive and asymmetric jurisdiction clauses. However, there is more doubt as to whether the courts of Members States will uphold English jurisdiction clauses in the absence of an applicable international instrument post-Brexit. This remains to be seen.
The Rome I Regulation currently upholds the parties’ choice of English law to govern their contractual relationship throughout the European Union. However (as above) it also restricts consumer, employment and insurance contracts involvement.
Even if no Brexit agreement is reached to continue to apply Rome I Regulation, arguably the UK could continue to apply it by enacting it into domestic law. This is because the Rome I Regulation is not reciprocal by EU Member States. Thereafter other Member States will continue to apply the Regulation and give effect to an English choice of law clause, regardless of where parties are domiciled. In this event, the pre-Brexit position will effectively remain unchanged.
If however the above named Rome I Regulations, the recast Judgments Regulations and/or any other EU instrument currently in place will not apply post-Brexit, English common law rules will revive to determine contractual governing laws and choice of jurisdiction clauses. Common law too permit the parties to choose their governing law (Vita Food Products Inc v Unus Shipping Co), and in fact is far less restrictive as there are no specific restrictions in respect of consumer, employment and insurance contracts at common law.
However, there is real doubt that a clause in respect of non-contractual obligations between parties will be effective in the English courts. For example, in respect of torts, common law (s.11 Private International Law (Misc Provisions) Act 1995, Pt III) would revive and does not allow parties to choose their governing law. Very occasionally a choice of governing law may be displaced if it is substantially more appropriate for determining the issues arising in the litigation, but a direct choice of English law is not generally permissible under the 1995 Act – which may pose a problem post-Brexit.
Whilst it is impossible to know exactly what might happen to this area of law after Brexit, there is strong optimism that that exclusive jurisdiction clauses and contractual agreements in favour of the English courts are likely to continue to be effective in England.
The position in respect of non-exclusive and asymmetric jurisdiction clauses is a little less clear however, and together with the position on non-contractual relationships, is yet to be seen!
By Annabelle Pantling
Solicior in the Litigation & Commercial Department
Several EU initiatives have harmonised the cross-border litigation rules applicable across the European Union. But what will happen to these rules post-Brexit? And how will the UK adapt its own rules to meet a post-Brexit Britain?
By Annabelle Pantling.
GlaxoSmithKline, the multinational pharmaceutical giant, reported a 10% drop in its first quarter sales in 2014, according to the International Business Times (30 April 2014).
Their sales in China were badly affected after the Chinese Ministry of Public Security, alleged that GSK paid over £307million to Chinese doctors in bribes, through 700 agencies.
The Chinese investigation continues despite several arrests of GSK executives, some of whom have apparently admitted to bribery and tax offences.
Other international investigations have followed concerning similar allegations in Poland and Iraq, apparently breaching both the FCPA and the Bribery Act 2010.
Avon has settled with a Deferred Prosecution Agreement (DPA) as a result of FCPA violations in connection with Chinese bribery allegations.
The terms of the DPA, which has yet to be signed off, state that Avon will pay $68million to the DoJ and $67million to the SEC. The DPA will be of 3 years duration; there will be a compliance monitor in place for 18 months and then Avon will self-monitor for the remaining 18 months.
The SFO has opened an investigation into alleged Ukrainian corruption and money laundering, and has frozen $23million in assets held in the UK.
This follows a European-wide investigation which has seen assets frozen in Europe, allegedly belonging to 22 people suspected of misappropriating Ukrainian state assets.
The SFO has been under increasing pressure from the OECD to elevate its anti-corruption drive, amid criticisms that it has done little since the Bribery Act has come into force.
It has also sent officers to Paris to question senior executives of Alstom as part of their 5 year investigation into the company.
Hewlett Packard has agreed to pay $108million to the SEC in order to settle FCPA violations concerning allegations of bribery in Russia, Mexico and Poland.
The Americans have extended FCPA investigations in order to scrutinise recruitment practices following the ‘Chinese Princelings’ scandal. They are focusing on oil, gas and telecoms industries.
Mobile chipmaker, Qualcomm, has admitted that it may be subject to a FCPA investigation concerning ‘special hiring considerations’ given to those associated with state-owned companies and agencies in China.
Our specialist bribery/corruption and financial compliance lawyers will publish regular bulletins on topical issues in this field.
If you are facing an investigation (whether criminal or regulatory) or have a compliance issue, contact us on 020 7387 2032 or complete our online enquiry form here.
The Financial Times (22 April 2014) reports that Bill Browder and the Magnitsky Campaign are working with the Norwegian Human Rights Group ‘The Norwegian Helsinki Committee’, and intend to present evidence to senior Norwegian prosecutors and request a criminal investigation into Oleg Silchenko and two prison guards for allegedly mistreating the lawyer, the late Sergei Magnitsky.
Mr Magnitsky was Bill Browder’s lawyer in Moscow and had uncovered a huge tax fraud perpetrated against Hermitage Capital and, seemingly, the Russian Government. He was killed in prison.
Mr Silchenko has repeatedly denied any involvement in these criminal allegations.
Norway is one of the few countries in the world whose legislation will allow a criminal investigation/prosecution into Human Rights abuses, even if committed outside Norway.
This begs the question of those of us in the UK, why on earth does the British government ignore the Magnitsky Campaign and ignore the fact that millions of pounds from that tax fraud have been laundered through this country (largely through the prime London property market)?
Instead, this country which apparently prides itself on its work on Human Rights abuses allows others to examine this appalling tragic death of a man who left behind a young family.
We should be ashamed.
A new European Directive that will bring in a European Investigation Order (EIO) took a step forward last week after the European Parliamentary Civil Liberties Committee endorsed a deal on the proposals, struck between the European Parliament and Council.
“This instrument will allow effective prosecution of crime, in particular, cross-border crime, for instance related to terrorism, murder, drug trafficking, and corruption. It will also guarantee respect for human rights and fundamental freedoms,” said the Parliament’s rapporteur, Nuno Melo.
The EIO aims to make it easier for judicial authorities to request investigative measures and thereby obtain evidence in another EU country. For example, French judicial authorities tracking suspected criminals who have gone to Germany, could ask their German counterparts to carry out a house search or to interview witnesses there.
While this is already possible, investigators currently have to rely on a patchwork of rules, some more than 50 years old, which in many cases lead to unjustified delays and additional burdens. The hope is that the EIO will also reduce paperwork, by introducing a single standard form for requesting help to carry out all kinds of investigative measures and obtain evidence.
Under the new rules, an EIO request could be refused only on specific grounds, for instance, if it could harm essential national security interests or if the measure requested was not authorised by the law of the Member State concerned.
However, an EIO request could also be refused if it was thought to be incompatible with a Member State’s fundamental rights obligations.
The proposals look set to be approved early next year, after which Member States will have three years to transpose it into their national laws.
If you require specialist criminal defence advice please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.
This blog post is intended as a news item only – no connection between Lewis Nedas and the parties concerned is intended or implied.
There appears to be US judicial and cross-political-party ‘pushback’ against Deferred Prosecution Agreements made between the various US justice agencies and large-scale corporate offenders.
The Americans essentially invented both Non- and Deferred Prosecution Agreements in the late 90s as a convenient way in which to deal with the perceived difficulties of prosecuting large-scale corporate crime.
The view held on both sides of the Atlantic is that the large corporates are too big to prosecute, and the collateral fallout of any successful prosecutions would be enormous on a variety of levels, e.g. loss of banking licences. The track record of the US authorities, and indeed the UK authorities, as far as the prosecution of large-scale white collar and corporate crime goes, has been very poor, however that is simply because they have been underfunded by their respective governments for many years. There has not been the consistent will on behalf of government or the prosecution authorities to deal with these issues.
The last few years have shown the extent of corporate criminal offending: industrial money laundering, sanction busting, bribery and corruption, and FATCA offences, to name but a few, in unimaginable sums of money, all committed by multinational corporates, who are household names, across a variety of industries. It was, however, the banks’ criminal offending which has captured the attention of a furious public both in the US and the UK.
There has been increasingly vocal cross-party criticism from US Congress and the Senate Banking Committee to the effect that the corporates are perceived as ‘getting away with corporate crime’, whereas individual fraudsters convicted of large-scale white collar fraud, face massive sentences, far longer than handed down in this country.
Perhaps stung by criticism both in the US and abroad, two US judges, in particular Judge Rakoff, when dealing with the Deferred Prosecution Agreement between Citigroup and the US Securities and Exchange Commission, remarked that there had been much publicised criticism of judges rubber-stamping these DPAs. More recently, as reported in The Guardian (23 May 2013), Judge John Gleeson has invoked the ire of the US justice department by apparently rejecting the deal made between the DOJ and HSBC (rumoured to be in the sum of $1.96 billion) in connection with allegations of industrial-scale money laundering.
Recent thinly veiled remarks by the US Attorney General have hinted at a much tougher policy to be adopted by the relevant prosecuting authorities. Certainly Sir John Peace, Chairman of Stanchart, found this out to his cost when he made certain remarks about the DPA signed by Standard Chartered Bank in 2012. Top executives at the bank were quickly summonsed by the DOJ and the remarks were retracted under the threat of prosecution.
DPAs are to be a feature of the criminal justice system here, courtesy of the Crime and Courts Act 2013, which received Royal Assent on 25 April 2013. Both the CPS and the SFO will have the power to enter into such agreements with corporate offenders when dealing with money laundering, fraud, bribery and corruption. Both organisations are currently working on a code for prosecutors in relation to DPAs.
Many City law firms and US ‘white shoe’ firms that have set up offices here, are busy recruiting lawyers from the FCA and the SFO in anticipation of a tsunami of corporate self-reporting and DPAs. They had better be warned: our system for dealing with these DPAs is not going to be as soft a touch as in the US, which has been criticised for its inconsistency, lack of transparency, and a rather partisan approach by the US authorities.
Our Judiciary universally loathe these agreements; six or so of the toughest, specialist fraud Judges throughout the country have been chosen to deal with them and they promise a rigorous, robust scrutiny of DPAs. They also are determined to bring much needed transparency and consistency to the punishments (i.e. the size of the fines and related requirements).
Currently, the Sentencing Council for England and Wales, under the Chairmanship of LJ Leveson, is preparing to consult upon the approach to DPAs. The Council will have to ensure that the approach taken does not lead to ‘jurisdiction shopping’, whereby these large multinational corporate offenders ‘shop around’ for the legal jurisdiction which proves to be the softest touch.
The author was, until March 2013, a member of the Sentencing Council for England and Wales, and has advised on the Council’s forthcoming consultation on DPAs, bribery and corruption, money laundering, and fraud.
News broke on 28 November 2012 that Richard O’Dwyer, who was in the process of appealing his Extradition to the US on copyright charges (which carried a maximum custodial sentence of ten years), has signed a Deferred Prosecution Agreement with the US authorities. He will travel to the US, pay an as yet undisclosed sum, and avoid a term of imprisonment.
This would appear to be another blow against the US and UK extradition agreement; one wonders whether we will see more of these DPA agreements for those facing extradition who can afford to pay.