Post-Brexit Cross-Border Disputes – No to Lugano Convention. Is Your Choice of Courts Clause Fit for the Future?
Update (July 2021) – Final No from Brussels
As expected, Switzerland, as depository of the Lugano Convention 2007, notified the Parties to the Convention of the EU’s refusal to give its consent to the UK’s accession to Lugano earlier this month. The notification is available on the website of the Swiss Department of Foreign Affairs in several languages. It states the EU is not ‘in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention’.
This is the final word in the consideration of the UK’s after-Brexit application to accede to the Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
See the most recent article by Elisabeth Tretthahn-Wolski and Anna Förstel-Cherng in Manz’s Österreichische Juristenzeitung “Nein zu Lugano - Zu den Auswirkungen des harten Brexits auf Cross-Border-Streitigkeiten“ (in German) and our blog post below for what’s next in EU-UK dispute resolution.
Since 1 January 2021, EU regulations simplifying cross-border litigation no longer apply in relation to the UK. To date, the EU and UK have not agreed on any framework replacing these EU legislations.
Thus, the UK sought to join the Lugano Convention in April 2020. Lugano would have offered a similar – although not as modern and practical – framework to the Brussels (Recast) Regulation. Brussels (Recast) ensures that parties’ contractual choice of jurisdiction is enforced and judgments from the courts of member states are recognised and enforceable across the EU. A joinder of the UK to the Lugano Convention would have mitigated the consequences of the “hard Brexit” in the areas of jurisdiction and enforcement in civil and commercial matters.
However, acceding to Lugano required unanimous consent by all parties, including the EU. While EFTA member states supported the UK’s application, recent communication by the EU Commission makes it more and more unlikely that the EU will accept accession. The Commission’s recommendation is not final, since any decision has to be made by the European Council (and thus indirectly, the EU Member States). Nonetheless, the Commission’s recommendation makes it less likely that Lugano will play a significant post-Brexit role. We understand this is subject to further review over the coming weeks.
2. What Does This Mean For Cross-Border Disputes?
The question now becomes how jurisdictional and cross-border enforcement issues will be determined in disputes with a UK connection. Unfortunately, parties will have to navigate the requirements of different national and international regimes. This not only means the revival of out-of-date exequatur proceedings when enforcing a foreign decision, it also creates a confusing, non-uniform regime for international jurisdiction and cross-border enforcement of decisions which is less sophisticated than the previous system. Nonetheless, some international conventions could mitigate the situation:
- Choice of Court Agreements
The 2005 Hague Convention on Choice of Court Agreements offers some protection to exclusive jurisdiction clauses, although not to other kind of jurisdiction clauses, in particular non-exclusive clauses (increasingly, legal literature suggests that asymmetric clauses, where one party is limited to bringing proceedings in one court, but the other is not, are to be considered as non-exclusive choice of law clauses). There is also some uncertainty about whether the 2005 Hague Convention applies to contracts entered into before 1 January 2021, when the UK re-joined the convention independently of the EU.
- Recognition and Enforcement of Judgments
Generally, the 2005 Hague Convention provides that judgments handed down in line with an exclusive jurisdiction clause in favour of the courts of other contracting states must be recognised and enforced. This is narrower in scope than Brussels (Recast) and the Lugano Convention, but at least ensures that jurisdiction clauses are followed, and judgments can be enforced within the contracting states.
In the future, there might be another international convention to assist the recognition and enforcement of foreign judgements: The Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters concluded in 2019. This would establish an international framework for the recognition and enforcement of judgments in civil and commercial matters. However, we anticipate that the ratification process will take several years. Thus, while this may be helpful in the future, parties facing litigation in the short term do not benefit therefrom.
As of now, the 1961 Convention between the UK and Austria will apply to the extent that the 2005 Hague Convention is not applicable. This convention, however, only grants recognition and enforcement of judgments of “superior courts” as defined in its Article 1 para 2. Furthermore, only judgments for payment of money are enforceable (other judgments are given extensive binding effect (Article V)).
3. It Is Time To Review Dispute Resolution Clauses
Choice of court clauses should reflect these developments in order to ensure the enforceability of a judgment under a modern regime.
If your business has a UK connection, it may be advisable to review whether standard clauses are still suitable for future contracts and/or whether amending any existing contracts might be beneficial.
Get in touch with us for any questions you may have regarding post-Brexit litigation matters.
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