In this briefing we outline the principal considerations for corporate finance documentation with a UK connection in the post-Brexit world.
Jurisdiction Clauses and Enforcement of Judgments
Arguably the most significant change (for documentary purposes) is that the United Kingdom (“UK”) no longer benefits from the mutual recognition of choice of court agreements (or “jurisdiction clauses”) and judgments which exists between EU Member States on foot of the Brussels Recast Regulation.1 Of course, this does not necessarily mean that UK jurisdiction clauses and judgments will not be recognised (in fact Irish common law is relatively accommodating in this regard) but the EU law mechanisms that make such recognition and enforcement a smooth process will no longer be available.
To ameliorate its position, the UK has acceded to the international “Hague Convention” on Choice of Court Agreements2, which the EU is also a party to. The scope of jurisdiction clauses (and related judgments) recognised by the Hague Convention is, however, more limited than under the Brussels Recast Regulation. Most significantly in a corporate financing context, it is likely (though still a matter of debate) that the typical “asymmetric” jurisdiction clause used will not benefit from the Hague Convention, as it is limited to “exclusive” jurisdiction clauses. Consequently, finance parties will need to consider on a case-by-case basis, whether the benefit of recognition under the Hague Convention would outweigh the benefit of the usual asymmetric jurisdiction clause.3
The UK has also applied to join the “Lugano Convention”,4 which would expand the circumstances in which UK jurisdiction clauses and judgments are recognised within the EU (though still not providing all the benefits of the Brussels Recast Regulation). The EU’s decision as to whether to accept that application is expected by the end of April 2021.
Choice of Law
A choice of UK law will continue to be recognised on the basis of the universal application principles set out in the Rome I Regulation5 (relevant to contractual obligations) and Rome II Regulation6 (relevant to non-contractual obligations).
Article 55 Bail-In Provisions
The Bank Resolution and Recovery Directive7 (“BRRD”) contains wide-ranging recovery and resolution powers for European Economic Area (“EEA”) regulators to facilitate the rescue of a failing EEA financial institution. These powers will be effective in respect of any liabilities under a document governed by the law of an EEA country regardless of the terms of that document.
Article 55 requires EEA financial institutions to include a contractual “Bail-In Clause” in almost every finance document to which they are a party where the document is governed by the law of a non-EEA country (such as UK law). Consequently, financing transactions governed by UK law and involving EEA financial institutions will generally require the insertion of a Bail-In Clause.
While not a documentation-specific point, it is important that UK lenders consider their regulatory position following Brexit. This may impact on transaction structuring, especially as a matter of Irish law, if the proposed borrower is a natural person, or the terms contemplate a UK lender taking deposits in Ireland or the transfer of an SME loan.
Financial services regulatory issues and the relevant aspects of the EU-UK Trade and Cooperation Agreement are considered more fully in our separate briefing on that topic (here).
While Brexit undoubtedly adds complexity, corporate financing transactions with a UK element (whether that be the use of English law / jurisdiction clauses; or the involvement of UK parties) are certainly still viable in the Irish market. The Irish legal system has long been accommodating of non-EEA-law financing transactions (as evidenced by the significant amount of US-law financing work that involves Ireland) and will consequently readily adapt to the UK’s third country status.
- Council Regulation (EC) No 1215/2012 of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.
- Convention of 30 June 2005 on Choice of Court Agreements.
- The benefit of an asymmetric jurisdiction clause is that it allows the financier to sue the obligor parties in any jurisdiction; this is particularly relevant where secured assets are located overseas.
- The convention on jurisdiction and the enforcement of judgments in civil and commercial matters signed in Lugano on 30 October 2007.
- Council Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations, as amended by Corrigendum to Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations.
- Council Regulation (EC) No. 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations.
- EU Directive 2014/59.