Contrary to the hopes of the UK government's negotiation team, the Christmas Eve trade deal agreed between the UK and EU was largely silent on civil justice issues. In the absence of a deal between the UK and EU on these matters, it had been hoped that the UK's accession to the Lugano Convention would be approved by the EU. However, it has been reported that the European Commission intends to block the UK's accession. This article considers the implications for jurisdiction clauses and enforcement of judgments in UK-EU litigation, and what your business can do to protect its position.

Background

The UK applied to join the Lugano Convention in April 2020. The Lugano Convention would have offered a substantially similar framework to the Brussels (Recast) Regulation, which ceased to apply in the UK on 1 January 2021. Brussels (Recast) ensures parties' contractual choice of jurisdiction is enforced and that judgments from the courts of member states are recognisable and enforceable across the EU. Lugano, therefore, would be an attractive post-Brexit alternative.

However, acceding to the Lugano Convention requires unanimous consent from all parties, including the EU. States party to the Convention are required to endeavour to give their consent at the latest within one year of the application (by 14 April 2021). EFTA member states have all supported the UK's application. However, at the time of writing, it has been reported that the European Commission has indicated that it is opposed to the UK's ascension. That view is not final, any decision to invite the UK to join the Lugano Convention would need to be taken by a qualified majority of the European Council. We understand the subject will be subject to further review over the coming weeks.

What happens now?

The question now becomes how jurisdictional and cross-border enforcement issues will be determined in UK-EU litigation - commercial parties will have to navigate the requirements of different national regimes.

The 2005 Hague Convention on Choice of Court Agreements does offer some protection to exclusive jurisdiction clauses, though not to any other kind of jurisdiction clause (eg non-exclusive or asymmetric, where one party is limited to bringing proceedings in one court, but the other is not). There is also some uncertainty about whether the Hague Convention applies to contracts entered into before 1 January 2021, when the UK rejoined independently of the EU.

Generally, 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.  Judgments handed down in line with such clauses must be recognised and enforced. This is narrower in scope than Brussels (Recast) and the Lugano Convention, but does go some way to ensuring jurisdiction clauses are followed and enabling the enforcement of judgments within contracting states.

Looking ahead there is a another international instrument that might be of assistance. The 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters is in the pipeline and would establish an international framework for the recognition and enforcement of judgments. However, we anticipate that the ratification process will take some time - by way of example, the 2005 Hague Convention took ten years to come into force. As such, while this may assist in future, it does not assist parties facing litigation in the short to medium-term.

Next steps

You may wish to consider the following:

1. Consider where your claims, or claims against your business, are likely to arise. The UK-EU litigation process is likely to become more complicated as different local regimes are engaged, so parties will need to plan accordingly.

2. Review whether your standard boilerplate dispute resolution clause is still suitable for future contracts involving counterparties based in the EU, particularly if it includes a non-exclusive or asymmetric jurisdiction clause.  Start considering alternatives and or variations that could be made - for example, you may wish to consider arbitration, mediation or alternative preferred jurisdictions, as well as options for cross-border service.

3. A full repapering is unlikely to be achievable, but consider amending any major contracts to include an exclusive jurisdiction clause (especially those that are business-critical or carry particular litigation risk). This will engage the 2005 Hague Convention. In the derivatives market, ISDA has published a bilateral amendment agreement allowing the insertion of an exclusive jurisdiction clause into pre-existing Master Agreements for this purpose.

4. Get in touch with us. We work closely with our colleagues across Europe who have expertise in local proceedings to ensure we deliver clear and aligned advice on post-Brexit civil justice matters.