Lugano Convention

On 4 May 2021, the UK legal sector suffered a major setback; the EU Commission officially recommended that European Union (EU) Member States should not give consent for the UK to re-join the Lugano Convention.

The Commission were of the view that as the UK voluntary chose to opt out of the European Economic Area and the European Free Trade Association, (EFTA) then it follows that the UK should not be granted special privileges. This of course is significant because membership of the Lugano Convention would enable more judgments to be swiftly recognised and enforced across borders. This article considers the implications for enforcement of judgments in UK-EU litigation, and what your business can do to protect its position.

Lugano Convention and UK’s Accession

The Lugano Convention is a treaty between the EU and three out of the four members of the EFTA (Switzerland, Norway, and Iceland). It allows parties to litigation to have judgments recognised and enforced in cross-border civil and commercial disputes and ensures that judgments taken in such disputes can be enforced across borders. This means that commercial parties who have given the English courts exclusive jurisdiction over their disputes can expect their choice of Court to be upheld by English and EU Courts, and the resulting English Court judgments should be enforceable across the EU. Through this mechanism, the Convention provides legal certainty to businesses that operate across borders.

Since leaving the EU however, the UK ceased to be a member of the Lugano Convention, but they applied to accede the Lugano Convention its own right in April 2020. Such accession requires the unanimous agreement of all the other contracting parties to the Convention. Whilst Iceland, Switzerland and Norway have given their formal consent, the EU has recommended that Member States to say no to the UK’s accession. Although the EU Commission’s recommendation was not binding and the final decision rests with the 27 EU Member States, it remains to be seen whether enough EU Member States will share the Commission’s view that the UK does not have a ‘special link’ to the internal market to deny the UK accession to the Lugano Convention.

If the Council does not follow the Commission’s views and the UK is accepted into Lugano, it would be welcome news.  Jurisdictional issues would be more easily resolved, and judgments would be recognised and enforced across UK and EU/EFT borders more swiftly and cost effectively.

Other Options?  

If the UK does not become a party to the Lugano Convention, it may be possible to rely on the 2005 Hague Convention on Choice of Court Agreements. This Convention offers some protection, in particular the exclusive jurisdiction clauses, by requiring that contracting states respect such clauses, and enforce judgments resulting from them. This is narrower in scope than the Lugano Convention, but does go some way to ensuring jurisdiction clauses are followed and enabling the enforcement of judgments within contracting states.

It is not however, a ‘one stop shop’ solution, as it is generally understood not to apply to asymmetrical clauses, where one party is limited to bringing proceedings in one Court, but the other is not. The Convention also raises questions and uncertainty as to its application to contracts entered into before 1 January 2021, when the UK re-joined independently of the EU. The UK has passed the Civil Jurisdiction and Judgments Regulations 2018, which provides that the UK will apply the 2005 Hauge Convention to any exclusive jurisdiction clauses concluded in that period, to close any gap. However, it is unclear if other countries will do the same.

In the event that neither the Lugano Convention nor the Hague Convention is applicable to a dispute encompassed by a UK choice of Court provision or a related judgment, the applicable domestic laws of any jurisdiction in which enforcement is sought would need to be considered on a case-by-case basis. Each National court would apply their own common law rules to determine the enforceability of that provision and whether to recognise and enforce any related judgments.

Despite the above offering some assistance, both with jurisdiction and enforcement issues, it is however, a piecemeal approach, which may in due course prove unsatisfactory. Therefore, the UK Government are actively considering few other international instruments that might be of assistance, such as the 2019 Singapore Mediation Convention and the 2019 Hauge Convention on the Recognition and Enforcement of Foreign Judgments in civil or commercial matters. These instruments would establish an international framework for the recognition and enforcement of Judgments, but we anticipate that the ratification process will take considerable time.

What can you do to mitigate the effects?

There are a number of steps that businesses should consider, including reviewing and amending standard jurisdiction clauses to ensure they are considering which jurisdiction claims are most likely to arise:

  1. Review whether your dispute resolution clauses are still suitable for contracts involving counterparties based in the EU, particularly if it includes a non-exclusive or asymmetric jurisdiction clause.
  2. Consider amending Master Agreements to include an exclusive jurisdiction clause.
  3. Consider alternatives or variations that could be made, for instance you may wish to consider arbitration or alternative preferred jurisdictions.

Written by - Baber Yasin, Paralegal

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