Brexit: UK assesses implications after failing to accede to Lugano Convention

Lucy Trevelyan Monday 8 November 2021

In late June, the European Commission formally blocked the UK’s accession to the Lugano Convention via a communication to the Swiss Federal Council, in its role as Depositary of the Convention.

The Lugano Convention would have offered a similar framework to the Brussels Regulation (recast), which ceased to apply in the UK post-Brexit. Both ensure that parties’ contractual choice of jurisdiction is enforced and that judgments from member states’ courts are enforceable across the EU.

Commercial parties engaging in UK-EU litigation will now have to navigate the requirements of different national regimes on jurisdictional and cross-border enforcement issues. The 2005 Hague Convention on Choice of Court Agreements offers some protection to exclusive jurisdiction clauses, though not to any other kind of jurisdiction clauses.

Whether the Hague Convention applies to contracts entered into before 1 January 2021, when the UK rejoined independently of the EU, is also uncertain.

The European Commission’s statement that it was ‘not in a position’ to give its consent to the UK’s accession was disappointing, says Elizabeth Williams, a partner at Simmons & Simmons in London. ‘The door is not yet shut on Lugano, although it seems that any chances of accession in the short term are slim to say the least.’

Practical problems caused by the UK’s rejection from the Lugano Convention will be added time and expense, and increased scope for error, says Lucinda Orr, Chair of the IBA Young Litigators Forum and a partner at Enyo Law in London. ‘It will very much be a piecemeal approach. Given that jurisdictional and cross-border enforcement issues in UK-EU litigation [are] now going to be much more complex – lawyers will be busier.’

Previously, if a defendant preferred to defend a claim in the UK, but was sued in an EU or Lugano state, it was reasonably certain the foreign court could be convinced to decline jurisdiction in favour of the UK, says Leigh Crestohl, a partner at Zaiwalla & Co in London.

‘Now, in the absence of any international obligations on foreign courts to decline jurisdiction in favour of the UK, UK parties litigating on the continent will be subject to the domestic private international law rules of the foreign court, as applied to any other third country’, he explains.

‘The delay and additional legal costs occasioned by satellite disputes over jurisdiction will be a significant risk to which parties in the remaining EU member states are now exposed when sued in England or, for that matter, suing a defendant in England that may have a compelling argument in favour of another forum’, adds Crestohl.

There could be upsides of being able to enforce jurisdiction clauses via anti-suit injunctions, however, says Orr. Such injunctions are orders from courts or tribunals which prevent a party from commencing, or continuing, proceedings in a jurisdiction or forum other than the forum agreed in the contract.

‘The return of the anti-suit does offer some potential advantages to English litigants – eg, ensuring a contract setting out exclusive jurisdiction of English courts cannot be circumvented or undermined, and preventing abusive and vexatious proceedings from being issued in a foreign court, as well as enabling a pre-emptive strategic move of preventing enforcement of an overseas judgment’, says Orr.

Additionally, says Crestohl, although it does raise the spectre of potentially costly satellite litigation, international parties looking to litigate in the English court may find it easier to do so than under the previous rigid and formulaic Brussels Regulation (recast). ‘Many may find that to be an advantage which outweighs the risk or costs of a subsequent dispute over jurisdiction.’

UK parties litigating on the continent will be subject to the domestic private international law rules of the foreign court, as applied to any other third country

Leigh Crestohl
Partner, Zaiwalla & Co

In regards to the enforcement of judgments, someone holding a UK judgment who now wishes to enforce it in a foreign state will have to comply with the rules of that foreign state which apply to any third country. These rules will differ from state to state.

‘Where the holder of a foreign judgment seeks to enforce it in the UK, the procedure can be challenging,’ explains Crestohl. ‘The UK has bilateral agreements with a small number of common law states which ease the process of enforcing judgment internationally, however this does not include any of the members of the Recast Brussels regime.’

To enforce a foreign judgment in the UK at common law, a party will have to issue a fresh claim in the UK to sue on the judgment, but only judgments for a final and definite sum of money may be enforced in this way. This is not available for a judgment for a sum to be assessed, nor for non-monetary remedies such as an injunction.

The foreign judgment must also have been made ‘on the merits’, which excludes judgment given in default where a defendant has not engaged with the foreign court, says Crestohl. ‘It may be possible for the judgment creditor to obtain summary judgment once it has issued its UK claim, but there will always be more opportunities for a judgment debtor to raise issues and create delays.’

Faced with this array of potential litigation minefields, an alternative for the UK is to opt for international arbitration as a means of resolving international commercial disputes, given that arbitration is not affected by any EU rules.

‘This is a particularly attractive option for parties who wish to choose English law, probably the most respected and popular commercial law globally, to govern their international disputes’, says Crestohl.

‘Arbitration allows them to have that law applied without having to be concerned about matters of jurisdiction in a private international law sense’, he adds. ‘Arbitration awards are also readily enforceable around the world, since virtually all significant trading nations have signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.’

In future, the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, concluded in 2019, would establish an international framework for the recognition and enforcement of judgments. However, says Orr, the ratification process will take several years – so while this could assist in the future, it does not assist parties now.

Image: European Commission Headquarters building
symbiot / Shutterstock.com

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