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BREXIT and Business Debt Collection and Recovery

On March 29, 2017, Prime Minister Theresa May invoked Article 50 (Treaty of Lisbon) to begin the UK's formal process of exiting the European Union. To date, the UK will be the first EU country to secede from the European Union. Under the treaty, any country may leave the European Union, but the exit negotiation process may take up to two years. Once Article 50 is invoked, the process can only be terminated by the unanimous consent of all member states.

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Although the 27 EU member states will likely assent to the European Commission's right to negotiate the terms of the UK exit, it is very likely that actual negotiations won't begin until May or June 2017. According to the BBC, both the EU Commission (headed by lead negotiator Michel Barnier) and Theresa May's government will likely clash over the terms of exit. While May and members of her Tory party argue for separate trade and withdrawal negotiations, the EU is less enthusiastic about such an option. Michel Barnier has already warned that the UK will be hit with a £50 billion "exit bill" as soon as Article 50 is invoked and that EU negotiators will stall any trade deal agreement until Britain pays up. Some EU political experts are hinting that a trade deal of any sort won't be imminent until 2020.

Until all negotiations are completed, the EU laws that govern debt collection will hold firm in the UK. This includes all the rules associated with the European Enforcement Order (EEO) and the European Payment Order (EPO). For all intents and purposes, the laws governing dispute resolution and international debt collection are encapsulated in the Brussels Regulation, the Lugano Convention, and all bilateral agreements.

The EEO and EPO are still used for uncontested civil and commercial claims, but due to changes to debt recovery law in 2015, late payments can be recovered through court rulings enforced as local judgments in England and Wales, Scotland, and Northern Ireland. Additionally, unless contested, an EPO is valid and enforceable in all EU member states without further need to seek "declarations of enforceability." The Recast Brussels Regulations continues to protect debt collectors' cross-border claims for money through the EPO procedure.

The new Recast Brussels Regulation No. 1215/2012 was adopted in December 2012 and applied as law in January 2015. It applies to all EU member states and includes the recovery of non-monetary assets such as cultural objects that have been unlawfully removed from the territory of a member state. Under the new Brussels regulations (similar to Brussels I), the defendant must be sued in the state of his domicile. Some of the most important changes in the Recast Brussels Regulations are:

  • The nullification of exequatur, which previously required UK creditors to obtain "declarations of enforceability" from member state courts of the debtor's domicile. Exequatur was often a costly and time-consuming process. The abolition of exequatur streamlines the process of enforcing judgments in member states, and unless debtors mount legal challenges, the certificate certifying the court judgment retains its validity.

 

  • The strengthening of jurisdiction agreements (Article 25 of the Recast Brussels Regulation) discourages Italian torpedo litigation efforts by debtor’s intent upon delaying court judgments. Previous to the Brussels rewrite, debtors could mount legal challenges in courts of their own choosing, unilaterally overturning the terms of service contracts. The new Brussels rules protects jurisdiction agreements in a contract; these agreements are now considered binding regardless of the status of the underlying contract.

 

  • The legality of jurisdiction clauses, regardless of where any of the parties are domiciled. Essentially, a specified UK court in a jurisdiction clause will be the court of litigation, even if neither party resides in the EU (Article 25: Prorogation of Jurisdiction). It is important to note that UK courts continue to honour the asymmetric jurisdiction clause that it insists comes under the protection of the Recast Brussels I Regulations. The asymmetric jurisdiction clause has traditionally required borrowers to bring proceedings in a specified jurisdiction while allowing lenders to bring proceedings in any jurisdiction of their choice. At present, France has rejected the validity of the asymmetric clause.

 

  • The Lugano Convention enforces judgments between the EU and what is termed as the Lugano States of Norway, Iceland, and Switzerland; the Convention applies the Brussels regulations to jurisdiction issues in civil and commercial matters between the EU and Lugano States. To date, the Lugano Convention has been incorporated into UK law.

 

The above rules and regulations on debt recovery are poised to hold firm in the UK until BREXIT is fully realised. Yet, nowhere is BREXIT more relevant to UK citizens than in the matter of equitable compensation for travel delays. At present, EU 261 affords UK travellers compensation for flight delays if they are departing from an EU airport on any airline or arriving at an EU airport on an EU flight. The present dispute resolution process will almost certainly be affected after BREXIT if Parliament chooses not to absorb all present EU laws, UK travelers leaving from non-EU airports or traveling on non-EU carriers may not be eligible for compensation for flight delays.

Currently, there is every indication that Prime Minister Theresa May supports the Great Repeal Bill, which will absorb the 1972 European Communities Act into British law. However, the Prime Minister, citing the Henry VIII clause in the Great Repeal Bill, also affirms the right of parliamentary members to discard any transposed EU law that is deemed inapplicable to UK citizens. Detractors of the Henry VIII clause argue that this unprecedented ministerial power will lead to an erosion of consumer and creditor rights. Meanwhile, others argue that the prime minister is poised to be the voice of consumer rights and that she will retain all previous EU protections for creditors as well as consumers.

So, as BREXIT looms on the horizon, it is the hope of many that debt recovery procedures and consumer protections previously enforced under EU law will receive continued protection under UK law.

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