The current rules for determining which EU member state court has jurisdiction to deal with any given civil or commercial dispute are contained in the Recast Brussels Regulation (the "Recast Regulation")21, which has direct effect throughout the EU22.
The starting point for those rules is that persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state, subject to the following exceptions:
- where the parties (including non-EU parties) have agreed that the courts of another member state should have jurisdiction, that choice will be respected;
- where the parties have agreed that their dispute should be subject to arbitration, that choice will be respected and the rules in the 1958 New York Convention will apply instead; and
- where the dispute involves certain "reserved" subject matters (e.g. rights in rem in immovable property, certain matters relating to companies and cases involving employment, consumer or insurance contracts), the courts of certain member states are given exclusive jurisdiction to deal with it.
The Recast Regulation therefore in most circumstances gives primacy to the parties' choice of forum.
In support of this, the general rule in the Recast Regulation is that when multiple member state courts are seised in respect of a dispute, all courts other than the court first seised must stay their proceedings while the court first seised determines whether or not it has jurisdiction to hear the dispute. There is, however, an exception to this where one of the member state courts has been seised pursuant to an exclusive jurisdiction clause. In those circumstances, it is for that court, not the court first seised, to take the initial step of determining whether or not it has jurisdiction, and all other courts must stay their proceedings in the meantime. The reasoning behind this is to prevent parties from initiating so-called 'Italian torpedo' actions (i.e. initiating proceedings in a reputedly "slow" jurisdiction in breach of an exclusive jurisdiction clause as a delaying tactic, on the basis that it will take that court some time to determine whether or not it has jurisdiction, during which time the hands of the court which should be dealing with the dispute are tied).
The Withdrawal Agreement provides that the rules in the Recast Regulation for determining which member state court has jurisdiction to deal with a civil or commercial dispute will continue to apply on a reciprocal basis in both the UK and the EU with respect to any proceedings instituted before the end of the Transition Period23.
As a result, the status quo will be maintained in respect of any proceedings commenced on or prior to 31 December 2020.
Absent any agreement to the contrary, the Recast Regulation will, immediately upon expiry of the Transition Period, cease to have effect in the UK24. From that point onwards, there will be no comprehensive reciprocal regime in place between the UK and the EU for determining which member state court should take jurisdiction over any given civil or commercial dispute.
The UK government has indicated that it will not, post-Transition Period, unilaterally incorporate the provisions of the Recast Regulation into domestic law (save for the limited grandfathering provisions described above in respect of proceedings instituted before the end of the Transition Period, and certain other limited provisions in respect of consumer and employment disputes), on the basis that they require reciprocity to operate25.
The 2005 Hague Convention
In order partially to fill the gap left by the Recast Regulation, the UK government has therefore indicated that the UK will, as soon as practicable following the conclusion of the Transition Period, re-join in its own right the 2005 Hague Convention26. The UK is currently a party to the 2005 Hague Convention by virtue of the Transition Period, but will upon its expiry cease to be so.
The 2005 Hague Convention, like the Recast Regulation, covers disputes with a civil or commercial subject matter, but is much more limited in scope. In very broad terms, it requires the courts of contracting states to give effect to exclusive jurisdiction clauses in favour of the courts of other contracting states. The current parties to it are the UK (by virtue of the Transition Period), the EU, Mexico, Singapore and Montenegro, but it does not apply intra-EU, or as between the EU and the UK, on the basis that the Recast Regulation takes precedence. Once the Transition Period has ended, and the UK has re-joined the 2005 Hague Convention in own right, it will however apply between the UK and the EU, as well as between the UK and Mexico, Singapore and Montenegro (and any other future parties).
The 2005 Hague Convention will therefore, to an extent, fill the gap left by the Recast Regulation. It should, however, be noted that it is likely only to apply where both:
(i) an exclusive jurisdiction clause has been concluded in favour of a contracting state (i.e. although the point has never been tested, sole option clauses, which seek to give one party a choice as to where to litigate but to confine the other to the courts of one jurisdiction, and non-exclusive jurisdiction clauses, which seek to ensure that the parties have a choice as to where to litigate but cannot validly object if proceedings are first commenced in the courts on which non-exclusive jurisdiction has been conferred, are likely to fall outside its scope27); and
(ii) that exclusive jurisdiction clause was concluded after the convention entered into force for the contracting state upon which jurisdiction has been conferred.
The regime in the 2005 Hague Convention on parallel proceedings (i.e. for determining which court shall proceed to determine jurisdiction in the first instance in the event that multiple courts are seised) is both less detailed, and less tried and tested, than that contained in the Recast Regulation. While it would ultimately result in the court upon which jurisdiction has been conferred proceeding to hear the claim, it is therefore potentially more open to abuse by a party willing to commence parallel proceedings as a delaying tactic.
Finally, there remains a question mark as to the status of exclusive English jurisdiction clauses concluded while the UK was a member of the 2005 Hague Convention by virtue of its membership of the EU (or by virtue of the Transition Period), given that there will be a (theoretical at least) "break" between that period of membership and the UK re-joining the convention as a standalone state in its own right. The UK government has implemented domestic legislation to the effect that any exclusive jurisdiction clauses which would have been caught by the 2005 Hague Convention while the UK was a party to it by virtue of its membership of the EU, or by virtue of the subsequent transitional arrangements, will be continue to be treated as such, despite the break in the UK's membership28. However, that legislation is of limited comfort as it will not catch exclusive jurisdiction clauses concluded during that period which would at the time have been caught by the Recast Regulation instead. It is also not something that EU states will necessarily be prepared to replicate. In short, therefore, there can be no guarantee as to how exclusive jurisdiction clauses concluded before the UK re-joins the 2005 Hague Convention in its own right will be treated.
The Lugano Convention
On 8 April 2020, the UK government made a formal application to accede to the 2007 Lugano Convention from the end of the Transition Period. The UK is currently a party to the Lugano Convention by virtue of the Transition Period, but will upon its expiry cease to be so. The current parties to the Lugano Convention are the EU (and, during the Transition Period, the UK), Iceland, Norway and Switzerland, but it does not apply intra-EU, or as between the UK and the EU, on the basis that the Recast Regulation takes precedence. If the UK were to re-join the Lugano Convention in its own right, it would then apply as between the UK and the EU, as well as between the UK and Iceland, Norway and Switzerland. Unlike the 2005 Hague Convention, however, the UK would need the agreement of all the existing signatories before it could re-join it. Iceland, Norway and Switzerland have all indicated that they would be content for it to do so, but there have been some recent indications that the EU may withhold its consent in order to use it as a bargaining chip in the wider negotiations over the parties' future relationship.
If and when the UK does re-join the Lugano Convention, its provisions are very similar to those of the Recast Regulation. In particular, it gives precedence to the parties' choice of forum to resolve their dispute in the same way that the Recast Regulation does. There is, however, one key difference, in that the Lugano Convention provides, in the event of parallel proceedings, that it is the court first seised which must take the initial step of determining whether it has jurisdiction while all other proceedings are stayed: it does not allow courts seised of claims on the basis of exclusive jurisdiction clauses to take this initial step in the way that the Recast Regulation does. It is, as a result, less effective in preventing the use of 'Italian torpedo' style claims as a delaying tactic.
A new agreement
The UK government has also indicated that it would in the long term like to explore the possibility of a new, comprehensive agreement with the EU on civil judicial co-operation, obviating the need to rely on either the 2005 Hague Convention or the Lugano Convention. There is, however, no indication as yet as to what such an agreement would contain, the likely timeframe for it or, most importantly, whether the EU would even be amenable to it. The Political Declaration makes no mention of civil judicial co-operation, and it does not appear to be a priority in the negotiations which are currently underway29.
To the extent that the 2005 Hague Convention, the Lugano Convention or any bespoke new agreement do not apply to any given civil or commercial dispute, the English courts will need to revert to their own common law rules for determining jurisdiction, which currently apply in cross border cases concerning the rest of the world. Those rules will usually result in the English courts taking jurisdiction over a dispute where the parties to it have agreed that they should do so. The courts of EU member states will also need to apply their own domestic rules in this area.
The major risks in this area post-Transition Period are that:
- in the event that the UK does not re-join the Lugano Convention in its own right, at least some types of English jurisdiction clause will cease to be respected throughout the EU in the way that they are now, and there will no longer be a comprehensive EU-wide bar on parallel proceedings being commenced in EU states in breach of such clauses; and
- even if the UK does re-join the Lugano Convention its own right, while English jurisdiction clauses will then be respected throughout the EU (and in Norway, Iceland and Switzerland), there will still be scope for parties prepared to deploy aggressive tactics to cause delays by pre-emptively initiating 'Italian torpedo'-style claims. This may, in some circumstances, lead to a "race to court" (e.g. a lender enforcing a debt claim may wish to strike quickly in London before the borrower issues proceedings in Italy).
That said, if and when the Recast Regulation and Lugano Convention fall away in this jurisdiction, so will the restrictions they contain on the issuing by national courts of anti-suit injunctions. This would mean that the English courts could once again issue injunctions prohibiting proceedings being brought in other jurisdictions, while proceedings are live in this jurisdiction. The success of these injunctions relies upon the counterparty having some form of presence in the UK, such that it is in its interests not to act in defiance of an English court order.
Either way, in light of the above, parties must continue to pay very close attention to the dispute resolution mechanism that they include in any new contracts. For a summary of the potential options, see the section below entitled "Dispute Resolution Mechanisms in Contracts: the Options".