Over the years London has established itself as the bastion of European finance setting the standards for financial contracts often governed by the laws of England and subjected to the jurisdiction of the courts of England. As a consequence of the withdrawal of the UK from the EU, known as Brexit, which is effective as of 1 January 2021, the UK is no more an EU Member State but a third country. While everything hinted that there would be a hard Brexit, the EU and the UK unexpectedly reached an agreement on 24 December 2020, just a week before the end of the transition period. From now on, the “Trade and Cooperation Agreement” (the TCA) is the Treaty that will govern the relationship between the EU and the UK. Unfortunately, the TCA remains silent on judicial cooperation in civil and commercial matters.
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In principle, yes. The impact of Brexit on the choice of law rules will be limited.
Article 3(1) of the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the Rome I Regulation) allows contracting parties to freely choose the law that will govern their contractual relationship, whether the law in question is the law of a Member State or not. Because of the universal application of Rome I Regulation, Belgian courts shall thus continue to recognise the parties’ choice of English law to contracts, notwithstanding that England has become a third state.
Only when the application of English law would be in breach of overriding mandatory provisions of Belgian law or be incompatible with the public policy of Belgium, will English law be set aside.
Rome I Regulation provides indeed for the application of overriding mandatory provisions (Article 9) and rules of public policy (Article 21) of the forum, irrespective of the choice of law made by the parties.
Overriding mandatory provisions are those mandatory provisions which are regarded as crucial by a country for protecting its essential interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract. Not all Belgian mandatory provisions are overriding mandatory provisions. One must seek the real intent of the legislator in this respect. Pursuant to Article 9 of Rome I Regulation and notwithstanding the choice of English law made by the parties, a Belgian court shall apply Belgian overriding mandatory provisions and may give effect to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, insofar as those overriding mandatory provisions render the performance of such contract unlawful.
A Belgian court may also refuse to apply English law if such application is manifestly incompatible with the public policy of Belgium. However, there are very few applications of public policy in financial matters.
That said, while Brexit may have no immediate legal impact on the choice for English law, it can be expected that the prevalence of English law as standard for intra-European transactions may erode over time, especially to the extent that English law may gradually deviate and depart from EU widely applied legal principles and standards.
There is no legal impediment as such, and it can be expected that market practitioners will continue to apply English law to many of their financial agreements, especially where the financial agreement has an international dimension or where the market heavily relies on widely used master agreements and templates originated under English law, such as the ISDA Master Agreement and the loan templates provided and developed by the Loan Market Association. As was already the case before Brexit, it is only where all elements (other than the foreign law chosen by the parties) relevant to the situation at the time of the choice are located in a country other than the country whose law has been chosen, that the mandatory provisions of that other country would apply, irrespective of the law chosen by the parties. This in pursuance of Article 3(3) of Rome I Regulation.
However, for agreements in respect of which the choice of English law was made on or after 1 January 2021, the application of mandatory EU law, as implemented in the Member State of the forum, shall no longer be prejudiced by the parties' choice of English law if all elements relevant to the situation at the time of the choice of law are located in one or more EU Member States. This in pursuance of article 3(4) of Rome I Regulation.