The UK’s departure from the EU means that the Recast Brussels Regulation and the Lugano Convention no longer apply to civil and commercial cases commenced on or after 1 January 2021. These EU instruments ensured co-operation and streamlined processes in relation to jurisdiction and the enforcement of judgments in the EU. In order to fill this gap, the UK applied to re-join the Lugano Convention as an independent country in April 2020.
As a brief reminder, the Lugano Convention governs issues of jurisdiction and enforcement of judgments in civil and commercial matters between the EU member states and the European Free Trade Association countries other than Liechtenstein (namely Iceland, Switzerland and Norway).
Consent to the UK’s individual membership must be agreed by all existing members to the Lugano Convention. So far, informal consent has been given by Iceland, Switzerland and Norway. The UK was hopeful that the EU would also consent. The rules of the Convention require the members to endeavour to respond to the request within a year but so far no final decision has been made. Indeed, recent reports have indicated that the EU Commission will oppose the UK's accession to the Lugano Convention. At a meeting with EU diplomats on 12 April 2021, the EU indicated it may oppose on the grounds that the UK is not a member of the European Economic Area nor the European Free Trade Association, and that allowing its accession would set a precedent for third countries to demand membership. Further talks are due to take place in the coming weeks.
Therefore, the UK is currently in a state of limbo. Prospective claimants may be holding out for a positive decision from the EU before commencing proceedings in England or Wales, but with the recent negative expressions from the EU Commission, a ‘yes’ to UK accession is certainly not a foregone conclusion. If consent is refused, no doubt there will be much speculation as to the reasons why. This then begs the question - what are the implications for jurisdiction and enforcement if the UK is not granted accession? In order to answer that question, we should consider the laws and conventions that will apply.
The Hague Convention
The 2005 Hague Convention on Choice of Court Agreements (‘the Hague Convention’) has been in force in the UK since 1 October 2015, when the EU acceded to it, and as of 1 January 2021 when the UK became a member in its own right. While accession to the Hague Convention does go some way to restoring a Lugano-style relationship between the EU and UK, there are some key differences which make its application on enforcement and jurisdiction far narrower:
- The Hague Convention applies only to exclusive jurisdiction clauses. Therefore, clauses such as asymmetric clauses often found in financial contracts (which enable one party to bring proceedings in any jurisdiction of their choice whereas the other party will be subject to an exclusive jurisdiction clause) would not be covered.
- The Hague Convention does not provide recognition and enforcement of interim measures of protection (e.g. freezing orders and injunctions). It also does not apply to consumer and employment disputes.
- There is also a lack of clarity as to how exclusive jurisdiction clauses agreed between 1 October 2015 and 1 January 2021 will be treated by the EU courts because of the uncertainty over when the UK became a member to the Hague Convention. The UK contends that it has been a member since the Hague Convention came into force on 1 October 2015 by way of its membership through the EU, whereas the EU’s position is that the UK did not become a member until its post-Brexit accession on 1 January 2021. To overcome this uncertainty, parties could consider re-stating jurisdiction clauses in contracts dated pre 1 January 2021 to ensure the application of the Hague Convention through the UK’s membership in its own right.
Domestic laws in European countries
If the Hague Convention does not apply, parties should consider the domestic laws of the relevant EU country, and will have to obtain local law advice to confirm:
- the enforceability of English court judgments in EU member states; and
- whether any amendments to existing contracts, and in particular jurisdiction clauses, might be required.
The Recast Brussels Regulation will continue to apply as between EU countries, whereas the UK will now be treated as a non-EU country, meaning the Regulation may have an impact on the ability to enforce certain jurisdiction clauses. As to enforcement, unless a party can rely on the Hague Convention, enforcement will likely be more complicated and costly but not impossible. Local law advice will need to be sought from the relevant EU country, and it would be advisable to obtain this information as early as possible to avoid wasting costs if enforcement is going to prove lengthy and difficult.
Is it all bad news?
There are of course some positives to be taken from the UK’s current position in this area, and therefore the position UK will be in should the EU refuse the application to join the Lugano Convention.
Judgments of the English courts are still enforceable in the EU under the rules applicable to the enforcement of judgements in the individual member state concerned; such judgments will merely be treated in the same way as those originating from the courts of countries such as the US, Canada and Australia. Enforcement is likely to need a little more thought than previously required, but it is still achievable although it may be more costly.
If the UK is not able to benefit from ascension to the Lugano Convention, it also doesn’t have to abide by the obligations associated with it. This could make the English courts a more attractive jurisdiction in certain cases, particularly combined with the certainty of law and quality of judges that the English courts provide. Under the Recast Brussels Regulation interim measures such as anti-suit injunctions were very limited but these will now be more available under English Law.
Looking to the future
There is a new Hague Convention on the Recognition and Enforcement of Foreign Judgments 2019 which, while concluded in 2019, is still not yet in force (and for context, the Hague Convention 2005 took 10 years to come into force, so we may be waiting a little while longer). However, the 2019 Convention could be a very helpful solution. Its aim is to facilitate cross-border recognition and enforcement of judgments from the courts of the contracting states and is intended to apply to a broad range of claims, including employment and consumer contracts (which the Hague Convention does not cover). The EU has indicated it may ratify this convention in 2021 or 2022 but the UK has yet to state its position, so this is certainly something to keep an eye on.
Of course, if the EU changes course and agrees to the UK acceding to the Lugano Convention this discussion could be mostly academic. If not, parties in the UK will have a bit more work to do in this area and may find themselves searching for alternative methods of dispute resolution, such as arbitration. Watch this space.
For more on dispute resolution and Brexit you may view here.
Lugano, picturesque Swiss town on the Italian border. A Convention signed there is the latest battlefield in the increasingly bitter offensive between the UK and the EU. The UK wants to join; the Commission says no. So what’s this all about and does it matter?