Brexit News, Member News

“Brexit, What’s Next?” Series | The UK and the Lugano Convention in the post-Brexit world

With the help of our members, this thought-leadership series focuses on explaining what businesses should expect from the new reality of Brexit – in essence, with “Brexit, What’s Next?”. Today, we present Colin Monaghan, Partner, and Louise Mitchell, Knowledge Lawyer, at MASON HAYES & CURRAN and based in Dublin, Ireland; along with Tunde Oyewole, Of Counsel, and Sarah Lajugie, Associate at ORRICK and based in Paris, France. They will address: “The UK and the Lugano Convention in the post-Brexit world”. |


Since the end of the Brexit transition period on 1 January 2021, the UK is outside of the Brussels and Lugano regimes which govern and provide streamlined procedures for jurisdiction and enforcement of judgments in civil and commercial matters in the European Union (EU) and certain European Free Trade Association (EFTA) countries.

The EU-UK Trade and Cooperation Agreement concluded on Christmas Eve 2020 is silent on civil justice matters and we are essentially experiencing a “Hard Brexit” in this regard. Absent a deal that continues or reproduces the EU Recast Brussels Regulation, it seems that the most straightforward way of replicating the pre-Brexit Brussels regime would be for the UK to re-join (in its own right) the Lugano Convention which provides a broadly similar regime on jurisdiction and the enforcement of judgments between the EU Member States and certain EFTA countries (Iceland, Norway, and Switzerland).

The UK applied to join the Lugano Convention in April 2020 and had hoped to be admitted by now since the Convention itself provides that contracting parties shall endeavour to consent within one year. However, the UK’s application is still pending, and gaining consent from all contracting parties is proving more difficult than initially envisaged.

In this article we examine the current status of the UK’s application as well as the consequences of a decision to admit or deny the UK entry.

Current status of the UK’s application to accede to Lugano

Unanimous support required

The UK’s accession to the Lugano Convention requires unanimous support from all the contracting parties to the Convention, the EU, Denmark (in its own right), Norway, Iceland, and Switzerland. The three non-EU Lugano signatories (Iceland, Norway, and Switzerland) have already consented to the UK’s accession request.

The European Commission opposes UK’s application to join

In April this year, several news outlets reported that the European Commission expressed opposition to UK membership at a closed-door meeting. On 4 May 2021 the European Commission formally communicated to the European Parliament and the Council of the European Union that it opposes the UK’s application.

The Commission placed an emphasis on the UK’s status as a third country without a special link to the internal market noting that the UK is not a part of the European Economic Area (EEA) or the EFTA. Further, the Commission found that the appropriate framework for judicial cooperation between the EU and third countries is provided by the multilateral Hague Conventions, namely the 2005 Hague Convention on Choice of Court Agreements and the 2019 Hague Convention on Enforcement of judgments (which is not yet ratified by the EU or the UK).

“In view of the above, the Commission takes the view that the European Union should not give its consent to the accession of the United Kingdom to the 2007 Lugano Convention. For the European Union, the Lugano Convention is a flanking measure of the internal market and relates to the EU-EFTA/EEA context. In relation to all other third countries the consistent policy of the European Union is to promote cooperation within the framework of the multilateral Hague Conventions. The United Kingdom is a third country without a special link to the internal market. Therefore, there is no reason for the European Union to depart from its general approach in relation to the United Kingdom. Consequently, the Hague Conventions should provide the framework for future cooperation between the European Union and the United Kingdom in the field of civil judicial cooperation.”

UK reaction to European Commission Communication

The Commission’s communication has been met with disappointment by the legal profession in the UK and the UK’s Lord Chancellor and Justice Secretary Robert Buckland QC recently told a London International Disputes Week event that there was “no legal basis” for the Commission’s position arguing that the Convention is open to third parties with no requirement for single market membership.

Next step – Council of the EU

The Commission’s recommendation is not binding and the final decision on the UK and Lugano rests with the Council of the European Union. This is where the EU member states have their say, taking into account the views of the 27 national governments, which will likely consider the views of the legal profession. Unanimity of EU member states (in the vote at EU level) is not required as the issue will be decided by a qualified majority (i.e., 55% majority, or 15 out of the 27 Member States, representing at least 65% of the EU population).

It is not possible to say at this stage which way the Council is likely to go but the Commission’s recommendation is certainly a blow to the UK. Although many commentators expected a decision this summer, there is no definite date set and it is possible that the decision will be kicked into the long grass while other Brexit-related negotiations take precedence.

What way are individual states leaning?

Some EU member states are reported as being in favour of the UK’s accession – for example, the Netherlands, Spain, Portugal, and Belgium. However, the Commission’s recommendation may change this stance. Germany is reportedly undecided on the issue and their decision could play a key role in the UK re-joining Lugano.

Ireland has reportedly indicated its approval to the UK’s bid to join Lugano and this is not a surprise given Ireland’s deep ties to the UK market. Ireland has always campaigned for as soft a Brexit as possible and the Irish position on civil justice matters is no exception. Despite Ireland’s reported support of the UK’s application, a decision to reject the UK’s bid may produce a silver lining for the Irish legal industry as Ireland may become a more attractive destination of choice for international litigation. Irish lawyers have a strong case for promoting Dublin as a suitable alternative to London for international dispute resolution in circumstances where the Irish legal system largely mirrors the English system and Ireland is now the only English speaking common law jurisdiction in the EU or the EFTA.

As of the time of writing of this article, France has arguably gone the farthest in adopting the Commission’s opposition to the UK’s accession to Lugano. France’s Minister of Justice has openly declared his support for a “Hard Brexit” with regard to the issue: “when one leaves the Union, one must draw the consequences. We are a member of the Union, and we wish to benefit from it.”[1] France’s opposition is not inconsistent with its greater ambition to establish Paris as a leading forum for international business disputes. This initiative dates back years but took on a new intensity following the UK’s decision to withdraw from the European Union, which happened to roughly coincide with the establishment of a new international chamber of the Paris Court of Appeal in 2018. Paris is also a major forum for international arbitration and hosts the headquarters of the International Chamber of Commerce, the world’s leading arbitration institution. Unsurprisingly, numerous stakeholders have joined the effort to raise the city’s profile as “an international capital of law”.[2]

What happens should the UK’s application be admitted?

If the UK were to receive formal consent from the EU and other contracting parties, then the UK would accede to the Lugano Convention within three months.

What happens should the UK’s application to join Lugano be refused?

If the Council of the European Union rejects the UK application, questions of civil jurisdiction and enforcement will be decided according to the position in place since 1 January 2021, that is, according to the 2005 Hague Convention on Choice of Court Agreements where it applies and the domestic laws of each country where it does not apply.

The Hague Convention 2005 is much narrower than the Brussels or Lugano regimes and only applies where there is an exclusive jurisdiction clause in a contract and where the convention was in force prior to the agreement. There is some uncertainty over whether the Convention came into force in the UK on 31 January 2021 (EU position) or 1 October 2015 (UK position). In addition, it does not apply to interim measures of protection such as injunctions nor does it apply to intellectual property, consumer or employment disputes. EFTA countries have not signed up to the 2005 Hague Convention so it will not assist when enforcing UK judgments or issuing UK proceedings against defendants in Norway, Switzerland, or Iceland.

Where the 2005 Hague Convention does not apply, rules on jurisdiction and enforcement fall back on the domestic laws of each state. For example, in Ireland the common law rules of private international law apply, while in France the French Code of Civil Procedure governs the issue.

The narrow scope of the 2005 Hague Convention and the fall back to the domestic laws of each individual country may make issuing UK proceedings and enforcing UK judgments in EU/EFTA countries more difficult and costly and it could result in legal uncertainty. The UK government in its Explanatory Memorandum on the international agreement dealing with the UK’s accession to the Lugano Convention stated that there would be “a lack of legal certainty and higher costs for those involved in cross-border civil and commercial disputes, and an increased complexity and cost of proceedings to both litigants and the courts” in the absence of the Lugano Convention.

A rejection of the UK’s application may lead to a gradual erosion of London’s position as a preferred forum for international commercial disputes. English law and English courts are amongst the most popular choices for lawyers and the business community but the standing of the English Courts could be affected if the UK is unable to join Lugano, and companies may choose to litigate elsewhere.

Future developments

2019 Hague Convention on Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

The position regarding the recognition and enforcement of judgments of UK courts throughout the EU may change again if the UK and the EU were both to sign and ratify the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. No state has yet ratified, and neither the UK nor the EU has yet signed the convention but the European Commission has indicated that it plans to propose EU conclusion on it in the near future. It is expected that the ratification process will take several years. Thus, while this may be helpful in the future, it offers no solution for UK-EU jurisdiction and enforcement issues in the short term.

Bilateral agreements

The UK and Norway have had a bilateral agreement on civil jurisdiction and enforcement in place since November 2020, pending a decision on the Lugano Convention. As both Switzerland and Iceland support the UK’s application, they too might enter a bilateral agreement with the UK in the event that the UK is unable to accede to Lugano. The UK may also seek to enter bilateral arrangements with individual member states. However, it is possible that the EU will not condone member states acting unilaterally on these issues. Although better than nothing, navigating individual bilateral treaties will be cumbersome and complicated and a poor replacement for Lugano, which provides a streamlined one-stop-shop for jurisdiction and enforcement in EU/EFTA states.

What does this mean for the business community?

Before agreeing to submit disputes to English jurisdiction and law, it is important that parties weigh up the potential difficulties thrown up by Brexit on matters of jurisdiction and enforcement of judgments. For the moment, and until any decision is made on the Lugano Convention, the less certain position under the Hague Convention 2005 and individual states’ domestic rules applies.

However, the UK’s predicament offers Member States – such as France and Ireland – an opportunity to attract more litigants to their EU-friendly domestic legal systems and thereby improve their standing as leading centres for international business disputes.

Authors:

  • Colin Monaghan, Partner, MASON HAYES & CURRAN
  • Louise Mitchell, Knowledge Lawyer, MASON HAYES & CURRAN
  • Tunde Oyewole, Of Counsel, ORRICK
  • Sarah Lajugie, Associate, ORRICK

Compliments of Mason Hayes & Curran, and Orrick, Herrington & Sutcliffe – both are member of the EACCNY.

[1] Statement from the French Ministry of Justice, Mr. Éric Dupond-Moretti, at a French Parliamentary Commission on 11 February 2021: “[…] the European Union has the considerable advantage that decisions rendered in one of its Member States are enforceable throughout the European Union. This is no longer the case for decisions rendered by British Courts, and if France is opposed to the United Kingdom’s accession to the Lugano Convention, it is because, when one leaves the Union, one must draw the consequences. We are a member of the Union, and we wish to benefit from it.”
[2] By way of example, the French Embassy in the US recently co-hosted an interactive webinar to present Paris as “a leading destination for international litigation and introduce its major players”. The event featured American and French legal professionals discussing “the large scope of legal opportunities offered by the French capital” with a view to establishing Paris as “an international capital of law” in light of the “advantages of French law and jurisdiction in commercial contracts”. See https://www.eventbrite.fr/e/paris-international-capital-of-law-registration-158150042033.