Wednesday, March 29, 2017
Brexit, Ireland and Commercial Contracts – Hedging the Risk.
As published in Silicon Valley Global, March 2017: Written by Ann Henry, a Partner and Commercial Litigator (specializing in Data and Intellectual Property) with Philip Lee in Dublin. She is ranked as a ‘leading individual’ in Ireland for Dispute Resolution, Legal 500 2016.
Arguably Britain hasn’t experienced a constitutional change of the magnitude of Brexit since England became a republic (albeit short lived) with the creation of the Commonwealth of England in 1649.
On 23 June, 2016 the British voted for Brexit, seeking greater liberty for its parliament to tackle social issues like immigration. Britain will trigger Article 50 (the exit mechanism) of the Treaty of the European Union by 31 March, 2017 putting the UK on course to leave the EU by 31 March, 2019. There will be a period of political uncertainty until at least 31 March, 2019. Importantly, no one knows what post Brexit Britain will look like as a business environment or the terms on which British businesses will have access to the European Union and its 500 million consumers.
Understandably, businesses in Britain perceive Brexit as heralding a period of uncertainty and they are taking steps accordingly. For certain sectors of Ireland’s economy, ‘Brexit’ has been rebranded ‘Britflux’ with significant moves to Ireland expected from UK companies in the pharma, technology (particularly fintech) and financial services sectors. On the day this article was written (23 February, 2017) three stories from the Irish Times exemplify the Britflux phenomenon. The Irish Times reported how the British pharmaceutical Almac Group decided within two weeks of the Brexit vote to build a manufacturing base in Ireland as its clients wanted to understand the pharmaceutical’s longer term plan to ensure it maintained access to the European Union’s Single Market. On the same day the newspaper carried two telling headlines:
By 2019, Ireland will be the only English speaking, Eurozone member and common law jurisdiction in the European Union and significantly, the Irish are committed Europhiles. Understandably, businesses in Britain are considering moving some of their operations to Ireland to ensure they maintain access to the Single Market.
It is becoming increasingly clear that one consideration in moving operations to Ireland is the Irish legal system. To US and UK businesses, the Irish legal system, based on common law, is familiar unlike the legal systems of continental Europe which are based on civil law. In addition, the Courts in Ireland are based on the familiar adversarial system rather than the inquisitorial system which operates in parts of continental Europe.
For that reason and in light of Brexit uncertainty, many multinational companies which previously used ‘English law’ and the ‘English Courts’ as the governing law and exclusive jurisdiction clauses respectively in their commercial contracts, are considering amending them to ‘Irish law’ and the ‘Irish Courts’. Many companies recognize that central to business certainty and business success is the recognition and enforcement of the commercial contracts that underpin their business. Whether it is enforcing their intellectual property rights, their contractual rights, suing for breach of warranty or indemnity or alleging a breach of EU competition law, most companies want to ensure that whatever commercial litigation they undertake will prove effective and cost efficient. Importantly, companies want to ensure that whatever Court Order they obtain will be recognized and enforced across/within Europe if it proves necessary.
Many companies are considering Ireland as the venue of choice for commercial disputes going forward. No company wants to become embroiled in litigation unnecessarily, but in an increasingly globalized business environment, most sophisticated companies accept that commercial litigation forms parts of business strategy. If a dispute commences you want to be in the jurisdiction of your choice and not your opponents. Being in a jurisdiction of the European Union brings with it legislation on the recognition of judgments concerning debts and orders of EU courts as well as rules against ‘forum shopping’ in commercial disputes. All of these are important tools in complex commercial litigation cases irrespective of whether the companies involved are financial, data or technology companies.
Ireland’s Commercial Court was established in 2004. Its purpose is to ensure that complex and urgent commercial disputes are case managed by a Judge from the outset so that they can reach a full hearing as efficiently as possible. The Judge assigned to a case will give directions as to the date by which the steps in the case (exchange of pleadings, discovery, witness statements, meeting of experts and trial duration) are to take place, and there are consequences for parties who do not adhere to those directions. The Commercial Court has had such an effect on the speed and efficiency with which commercial disputes are dealt with in Ireland that the case management system pioneered in the Commercial Court (and now also in use in competition law cases) is now due to be rolled out across the High Court to Chancery and non-jury cases in Ireland. The Courts are also trialling the use of a technology known as the e-Court system whereby all papers required for the hearing of the case are made available to the parties and the Judge on a tablet. This removes the costs of copious amounts of photocopying and booklet preparation for clients and thus, can reduce the overall costs of the litigation. Likewise, new pre-trial procedure rules have been introduced which are aimed at expediting the hearing of complex commercial disputes. In Ireland, costs are normally awarded to the successful party in a dispute which is also an important factor for many companies who want to ensure they will get damages and legal costs once they win their case in Court.
Britain is the fifth biggest economy in the world and that is not going to change. How Britain fits into the ever increasing globalized economy post Brexit is uncertain as are the international trade agreements and alliances it will form post 2019. For international businesses, particularly US based companies, and for UK businesses hedging the risk of Brexit, Ireland is a convenient and familiar jurisdiction in which to base an EMEA hub which gives them access to the European Union. For those companies that are considering creating a hub in Dublin it makes sense to consider amending the governing law and jurisdiction clauses in their commercial contracts to Ireland for the same reason – legal certainly is a critical part of business certainty. When a critical commercial dispute breaks out you need to ‘be in it to win it’ from a strategy perspective. Having to consider the impact of Brexit on the UK Courts in the midst of all of that is a risk factor that – like all others – needs to be hedged.