UK application to accede to Lugano convention in its own right – to maintain the UK's status as a centre for international dispute resolutions – EU position
Since our last article on cross-border enforcement of foreign judgments, accessible here, in which we examined how Brexit will affect cross border disputes, little progress has been made in the Brexit negotiations regarding enforcement and recognition of judgments post-Brexit and few steps have been taken to secure the position of mutual recognition and enforcement of UK and EU judgments post-Brexit. In the intervening year, movement in this area has been slow and the ever-looming threat of a no-deal Brexit remains on the horizon. The purpose of this update is to look at some of the developments in this area and consider what the practical implications of these developments will be, and what steps clients should be taking to insulate themselves against potential difficulties in the future.
The Lugano Convention
The Lugano Convention facilitates the mutual recognition and enforcement of judgments between EFTA and EU states in civil and commercial matters. The UK’s involvement in Lugano will cease at the end of the transition period unless the UK accedes in its own right. (The procedure for cross border enforcement pursuant to the Lugano Convention is not as stream-lined as the regime which pertains for EU member states under Brussel Recast, which renders recognition and enforcement of civil and commercial judgments automatic as between EU member states. However, it is nevertheless much more straight forward than the procedure which pertains under the common law, which effectively involves a new court action and only allows for the enforcement of money judgments.)
On 8 April 2020, the UK submitted its application to accede, at the end of the Brexit transition period, to the 2007 Lugano Convention on jurisdiction and the recognition and enforcement of judgments. However, acceding to the Convention requires the consent of all of the current contracting members to the Convention.
Whilst Switzerland, Iceland and Norway have indicated they would support the UK’s bid to become a contracting party to the Lugano Convention in its own right, in a meeting between EU member state officials on 17 April 2020, the European Commission suggested to the Council of Europe that the quick resolution of this matter would not be in the EU’s interest. All current signatories are part of the EU’s single market or substantially participate in it, but the UK has said it intends to leave the single market once the transition period comes to an end and have repeatedly emphasised that they will not be seeking an extension. As of the date of publication, this remains the position.
If the UK’s application to accede to Lugano is unsuccessful, the position regarding the cross-border enforcement of English judgments will depend, in part, on whether the 2005 Hague Convention on Choice of Court Agreements applies (assuming the UK accedes to that Convention from the end of the transition period – which it can do without the consent of the EU or any other contracting party).
The Hague Convention
The Hague Convention is much more limited in scope than the Lugano Convention. For it to apply, there must be an agreement in place between the parties to the dispute containing an exclusive UK jurisdiction clause which was entered into after the accession date. Furthermore, only judgments on the merits are covered. It is not therefore possible to seek enforcement of interim rulings. In addition, certain types of claims, such as contracts for carriage and certain intellectual property claims, are excluded. Finally, a question arises as to the position of English jurisdiction clauses entered into before the end of the withdrawal period, which is currently set to expire on 31 December 2020.
Around 75% of the London’s Commercial Court’s caseload is international (relating to property or events outside the UK). Understandably, the UK government is keen to preserve that position after the end of the transition period. However, issues in relation to both the Lugano and the Hague Conventions arise which may make the London Commercial Court less attractive as a centre for international dispute resolution post-Brexit.
What happens if neither Lugano nor Hague apply?
Where neither Convention applies, enforcement of UK judgments across the EU will be dependent on common law rules of private international law. This means that recognition and enforcement in Ireland will only be possible where the judgment is final and conclusive and involves a fixed monetary amount. Enforcement of UK judgments in other EU jurisdictions will similarly depend on their domestic rules on the enforcement of foreign judgments, and this may differ between jurisdictions.
What are the practical implications for clients and what steps need to be taken?
In summary, if the UK is unsuccessful in its application to accede to Lugano, the position regarding the cross-border enforcement of English judgments in EU and EFTA countries will become more uncertain, more time consuming and more costly.
Consider choosing Ireland for cross-border disputes: Certainty is a necessity in commercial transactions. Ireland, as the largest English-speaking, common law jurisdiction remaining in the EU, will offer an attractive alternative jurisdiction in which to litigate international commercial disputes post-Brexit. For example, the International Swaps and Derivatives Association, Inc. (more commonly referred to as “ISDA”) has already added an Irish (and a French) law version to its 2002 ISDA Master Agreement. Prior to that, ISDA's documentation offered participants in cross-border derivatives markets a choice of only two governing laws, English law or New York law. Post-Brexit, the availability of the Irish law ISDA Master Agreement will enable parties to continue to transact derivatives under the laws of an EU member state that is a common law jurisdiction and to benefit from the automatic recognition and enforcement of judgments between EU member states.
We await further updates from the UK and the EU which will hopefully clarify where all parties will stand after 31 December 2020. However, given that the parties are still so far apart on core issues such as trade, financial regulation and fisheries, it could be that the issue of enforcement of judgments will be one that will be left to be addressed by the Common law Rules of private international law and, in limited cases, the 2005 Hague Convention.
If you have any queries in relation to this post please reach out to Julie Murphy-O’Connor or your usual Matheson contact.