In a potentially major setback to judicial cooperation across Europe, the European Commission has issued a statement that the UK should not be allowed to join the 2007 Lugano Convention (the “Convention”). In their non-binding recommendation, the European Commission held the European Council should block the accession of the UK to the Convention, an agreement outlining which country’s courts may hear cross-border disputes and which decisions are enforceable. This is notwithstanding the fact that the European Free Trade Association states (the “EFTA States”), who are parties to the Convention, had already consented to the UK’s accession. Without the Convention’s framework, there will be a reliance on the national laws of each individual country to decide on matters of jurisdiction and enforceability. While the final decision on membership rests with the European Council, support from the European Commission would have been significant.
Within the European Union there are a series of multilateral treaties that govern jurisdiction and recognition and enforcement of judgments in civil and commercial matters. The purpose of which is to simplify these complex matters.
For EU Member States, the Brussels Recast Regulation ensures parties’ contractual choice of jurisdiction is enforced and that judgments from the courts of Member States are recognizable and enforceable across the EU. Meanwhile, the Convention regulates the position between the EU, Denmark and three of the four members of the EFTA States (Switzerland, Norway and Iceland). It was based on the forerunner of the Brussels Recast Regulation (the 2001 Brussels Regulation), but broadly reflects its terms.
The severance of the UK’s relationship with the EU through Brexit means that the EU jurisdiction and enforcement regime, and the Convention, ceased to apply to new claims in the UK on 1 January 2021. As the EU-UK Trade and Cooperation Agreement contained nothing to replace this civil justice framework, representing a European-based defendant in the courts of England and Wales becomes more troublesome, more time consuming and (potentially) more expensive.
The UK applied to join the Convention on 8 April 2020, and its application was rebuffed by the European Commission on 4 May 2021.
If the European Council follows the European Commission’s recommendation, other mechanisms do exist that will allow UK court judgments to continue to be enforceable throughout the EU and EFTA. Chiefly, cross-border enforcement will have to rely on the 2005 Hague Convention on Choice of Court Agreements (the “Hague Convention”). However, there are some limitations to the Hague Convention, particularly in relation to non-exclusive jurisdiction clauses.
In brief, the Hague Convention demands that the courts of contracting states give effect to exclusive jurisdiction clauses in favour of the courts of other contracting states and that judgments handed down in line with such clauses must be recognised and enforced. This is narrower in scope than the Brussels Recast Regulation and the Convention, but it assists in ensuring jurisdiction clauses are followed and enables the enforcement of judgments within contracting states.
It is important to highlight that the Hague Convention does not provide for reciprocal recognition and enforcement of interim measures, such as worldwide freezing orders or injunctions. These would need to be enforced individually throughout each relevant EU member state, and UK and EU member state courts will have recourse to their own domestic laws and conflict of law rules to determine questions of jurisdiction and enforceability of judgments. Commercial parties therefore may need to seek local law advice to confirm: (i) the enforceability of English court judgments in EU member states and vice-versa; and (ii) whether any amendments to existing contracts might be required.
Looking Further Ahead
Touted as the New York Convention for judgments adopted by the United Nations in 1958, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters is in the offing and is designed to provide a single global framework for the free circulation and enforcement of judgments on such matters across jurisdictions. However, the ratification process is likely to take a considerable amount of time. For instance, the Hague Convention took some ten years to come into force. Notwithstanding, the UK would be well advised to be at the front of the queue to sign up to the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters to ensure it maintains its status as a global hub for cross-border litigation.
We recommend businesses consider:
- where your claims (or claims against you) are likely to arise — as discussed, cross-border UK-EU litigation is likely to become more complicated as different local regimes are involved, so parties should plan accordingly;
- reviewing whether your standard boilerplate jurisdiction clause remains suitable for future contracts involving counterparties based in the EU, particularly if these contain non-exclusive or asymmetric jurisdiction clauses; and
- amending major contracts to include an exclusive jurisdiction clause, as this will engage the Hague Convention.
This is a complex and developing area of cooperation between the UK and the EU, and we will continue monitoring and reporting on any progress, with the Council’s decision expected in the coming weeks.