International businesses like English law and feel comfortable using London as a venue to resolve their disputes, particularly those with significant monetary, reputation or precedent value. Brexit will not affect the benefits of using English law or, in the round, the attraction of an English forum, be that the English courts or a London-seated arbitral tribunal. That said, the shape of the rules on UK-EU civil judicial cooperation, including as regards which court gets jurisdiction to hear a cross-border dispute, and the recognition and enforcement of court judgments – which are important to the resolution of international business disputes – will be influenced by the outcome of the current UK-EU negotiations for a post-Brexit deal. We take stock of the current position, including in light of the EU's recent indication that it may not permit the UK to join the Lugano Convention in a way that is decoupled from wider negotiations.
Jurisdiction and Judgments: where are we now?
Following a high-level meeting between representatives of the UK and EU on 15 June 2020, the EU has noted the decision of the UK Government not to seek (or otherwise agree), under the terms of the Withdrawal Agreement, to extend the post-Brexit transition period past 31 December 2020. At the same time, the two sides have agreed to intensify next month's (July) round of talks, with the goal of concluding and ratifying a deal setting out the terms of their future relationship before the transition period ends. During the current transition period, the UK is largely treated as if it remains an EU Member State, and continues to benefit from access to EU regimes regarding jurisdiction and the recognition and enforcement of judgments both within the EU (under the Recast Brussels Regulation) and between the EU and some of its close neighbours (under the Lugano Convention).
Depending on its exact shape, Brexit may lead to some divergence between the UK and the r.EU in what is currently a closely aligned approach to civil judicial cooperation, befitting common membership of a single market. We outline below the position on jurisdiction, and on recognition and enforcement of court judgments. To the extent that any divergence has a practical impact, there are possible work-arounds.
One side of the coin is which court gets jurisdiction to hear a cross-border dispute. The current rules on this as between the UK and the EU – the Recast Brussels Regulation – give primacy to the parties' choice of jurisdiction. They also resolve parallel court proceedings in favour of the court that is seised of the dispute pursuant to an exclusive jurisdiction clause. After the transition period, and absent an equivalent deal, the UK will drop out of these rules. However, because the rules depend on reciprocity, they cannot – unlike the choice of law regime – simply be replicated into UK law. Subject to what may be agreed between the UK and the r.EU, this means that some jurisdiction clauses will cease automatically to be respected in the way they currently are. At worst, this will mean that the recognition of jurisdiction clauses by English and r.EU courts will become a matter of domestic law, falling to be approached in the same way as, for example, a jurisdiction clause in favour of the courts of New York. This will increase the risk of parallel proceedings – in the r.EU – in breach of English exclusive jurisdiction clauses and, therefore, aggressive torpedo-style delay tactics.
The Hague and Lugano Conventions: a partial solution?
These risks can be mitigated. There are partial solutions based on the UK acceding in its own right to the 2005 Hague Convention on Choice of Court Agreements or (with the consent of other signatories) the Lugano Convention. These would provide varying degrees of benefit, particularly in the case of the Lugano Convention, but would not be as good as the current regime: more detail on both is set out below. This makes it important for the deepest possible civil judicial cooperation to be put in place in a future UK-r.EU deal, which one would think would be of mutual advantage to both sides.
Alternatively, English courts may be able to dust off tools in their armoury that have fallen into relative disuse in recent years, notably the anti-suit injunction which, after the CJEU decisions in Erich Gasser and Turner v Grovit, they were no longer able to grant in respect of proceedings in other EU Member States (although the effectiveness of such relief depends on whether the respondent has assets in the UK or is otherwise susceptible to enforcement action). It may also be important to ensure that in potential litigation one considers taking proactive steps to get a foot in the desired court and therefore "seise" it of the dispute for the purpose of rules on jurisdiction.
The other side of the coin is the recognition and enforcement of court judgments. The Recast Brussels Regulation currently provides a one-stop-shop regime allowing for the automatic recognition and enforcement of substantive court judgments in front of the court(s) of the enforcement jurisdiction(s). As a result, English court judgments are currently quickly and easily recognised and enforced throughout the EU. Again, to the extent these rules fall away, and absent an equivalent deal after the transition period, the process will be less streamlined and quick, having to engage with different local law regimes, and making the judgment less portable. It might be more akin to dealing with a New York court judgment. Of course, this would cut both ways, applying equally to English judgments enforced in the r.EU and r.EU judgments enforced in the UK.
There are work-arounds to mitigate the effects of any lack of alignment.
If getting a judgment that is quickly and easily enforceable in the r.EU is a particularly important consideration (and it may not be, for example, for lenders with recourse to security), one may decide to go with dispute resolution mechanisms other than an exclusive English jurisdiction clause (by which proceedings can only be brought in the English courts). The purpose of this is to leave open the possibility of obtaining a judgment in a different forum if it subsequently transpires, once the transition period is over, that an English court judgment is going to be more difficult to enforce than is presently the case. Options include:
- a non-exclusive English jurisdiction clause (by which there is effectively a choice about where to litigate but no valid objection can be brought if proceedings are first commenced in the English court)
- a "sole option" jurisdiction clause (by which one party effectively has a choice as to where to litigate but the other is confined to the courts of one jurisdiction)
- arbitration, or
- choosing another acceptable EU court.
Choosing the right solution in any particular situation would require thought.
Arbitration – a viable alternative?
It is worth emphasising that these civil judicial cooperation issues are specific to court litigation. Brexit does not affect the recognition and enforcement of arbitral awards under the New York Convention and, therefore, the continued attraction of London-seated arbitrations.
Absent a deal that continues or replicates the Recast Brussels Regulation, acceding to the Lugano Convention is perhaps the most straightforward way of replicating most of the benefits of that regulation, as it contains a similar regime covering jurisdiction and the enforcement of judgments in civil and commercial matters between the EU Member States and Denmark (which has opted out of the general EU regime in relation to justice but is a party to this convention), Iceland, Norway and Switzerland.
The Lugano Convention does, like the Recast Brussels Regulation, give primacy to the parties' choice of jurisdiction. However, its main downside is that it fails to replicate a provision in the Recast Brussels Regulation to the effect that, where a court is seised pursuant to an exclusive jurisdiction clause, it is for that court (even if it is not the court first seised in time) to take the initial step of determining whether or not it has jurisdiction, with all other courts seised being obliged to stay their proceedings in the meantime. Instead, under the Lugano Convention, it is always the court first seised which must take the initial step of determining whether it has jurisdiction, while all other proceedings are stayed (including those of any court seised pursuant to an exclusive jurisdiction clause). That leaves the path open for parties to initiate what are known as "Italian torpedo" proceedings in a way that would not be possible under the Recast Brussels Regulation (i.e. to race to initiate proceedings in a slow jurisdiction in breach of an exclusive jurisdiction clause as a delaying tactic, on the basis that it will take that court a long 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).
Consent for UK accession to Lugano
On 8 April 2020, the UK deposited a request to join the Lugano Convention in its own right, for which Iceland, Norway and Switzerland have expressed their support. However, acceding to the Lugano Convention requires the unanimous consent of all signatories. The EU and Denmark have withheld their support for the UK's proposed accession to the Convention and it has recently been reported that the EU may not permit the UK to join the Lugano Convention in a way that is decoupled from wider negotiations. Even if EU consent is given, the accession process may take up to a year, which now exceeds the time remaining until the expiry of the transition period on 31 December 2020.
For its part, the UK Government is readying the UK to accede to the Convention and has introduced a Bill (the Private International Law (Implementation of Agreements) Bill 2019-21) which, if enacted, will give it the power to implement international agreements, including the Lugano Convention, by statutory instrument.
Whether or not the UK is allowed to accede to the Lugano Convention, it has expressed its intent, upon expiry of the transition period, to re-join in its own right the 2005 Hague Convention on Choice of Court Agreements (to which it was a party pre-Brexit by virtue of its membership of the EU, and remains a party at present by virtue of the transition period). That Convention would then apply post-transition as between the UK and the r.EU (as well as, currently, Mexico, Montenegro and Singapore).
The 2005 Hague Convention
In broad terms, the 2005 Hague Convention requires that the courts of contracting states give effect to exclusive jurisdiction clauses in favour of the courts of other contracting states. Courts of contracting states must also recognise and enforce judgments handed down pursuant to such clauses (in each case, provided that the clause was concluded at a time when the 2005 Hague Convention was in force in both relevant states). The 2005 Hague Convention is therefore narrower in scope than both the Recast Brussels Regulation and the Lugano Convention, which do not limit themselves to the effects of exclusive jurisdiction clauses, but it does to some degree harmonise allocation of jurisdiction and enforcement of judgments as between contracting states.
In order to ensure that the UK is a party to the 2005 Hague Convention in its own right at the point at which the transition period ends, it will need to deposit instruments of ratification to it. This is a straightforward, unilateral process, which does not require the consent of the other contracting parties, and the UK government has already repeatedly expressed its intention to do so.
The 2019 Hague Convention
It is worth mentioning that in 2019 the text of a new international convention concerning allocation of jurisdiction and the recognition and enforcement of judgments, the 2019 Hague Convention, was finalised. The 2019 Hague Convention is much broader in scope than the 2005 Hague Convention, and is not limited to judgments arising from exclusive jurisdiction clauses. It may, in the long term, harmonise the position in these areas not just between the UK and the EU, but between contracting states more broadly. At this stage, however, widespread ratification of the 2019 Convention is still a long way off.
The Hague Conventions – a partial solution?
In summary, therefore, the 2005 Hague Convention may provide a partial replacement for the Recast Brussels Regulation, but potentially only on a forward-looking basis for exclusive English jurisdiction clauses concluded after it has come into force for the UK as a standalone state (the status of exclusive English jurisdiction clauses concluded while it was in force for the UK by virtue of its EU membership, or during the transition period, is presently somewhat unclear, at least as regards their treatment by r.EU states). Although promising, the 2019 Hague Convention at best will only be available to litigants in several years' time – and therefore does not offer a solution in the short-term.
We will know more in the coming weeks and months about the direction of the current Brexit negotiations. If they do not result in a continuation or replication of the Recast Brussels Regulation, or in the UK's accession to the Lugano Convention in its own right, to the extent that any divergence between the UK and the r.EU in relation to jurisdiction and recognition and enforcement of judgments has any practical impact, there are various possible work-arounds.
Please speak either to us, your usual contact at Travers Smith, or a member of the Dispute Resolution team, for more information.