Blog - 11/05/2021
Litigation & Dispute Resolution
So no go Lugano. Where does this leave us?
The UK sought to join the Lugano Convention on civil justice co-operation with the EU and EFTA countries to come into effect as the UK left the EU at the beginning of the year. The EU through the EU Council has a veto and whilst it’s not the final word, the application has suffered a setback as the EU Commission has recommended rejection of the UK’s application to accede to the Lugano Convention.
Members of the EU enjoy civil justice co-operation through the spectrum of the Brussels Regulation. The principles lying behind the Brussels Regulation are an important element of the Single Market; the ability to determine where a dispute in cross border trade and claims in tort, such as personal injury, should be heard and the recognition of the judgment for purpose of the enforcement of it throughout the EU. Sitting alongside the Brussels Regulation is the EU/EFTA instrument that achieves the same ends in the EU/EFTA countries (other than Denmark and Liechtenstein) i.e. 26 of the EU countries, Iceland, Norway and Switzerland; the Lugano Convention. Brussels and Lugano deal with jurisdiction and enforcement and should be differentiated from the determination of applicable law, which in the EU is regulated by two separate regulations (Rome I and II). The Rome Regulations have been enacted separately in the UK, post Brexit, so still apply.
The Lugano Convention dates from 2007 and was intended to replicate the provisions of the 2001 Brussels Regulation for civil justice co-operation between EU and EFTA. Since then The Brussels Regulation has been updated into what is commonly called Brussels Regulation (recast). The changes were intended to modernise the Regulation and particularly deal with issues that had arisen with the old form. The result is that Lugano is dated but there have been proposals to bring it into line with the new Brussels Regulation.
Before coming to the effect of the Commission’s rejection of the UK application to join Lugano it is worth remembering two points:
- Brussels and Lugano expressly exclude arbitration (although there remain some technical issues with Lugano on the subject). The jurisdiction issues on arbitration are either contractual or determined by the relevant domestic court. Enforcement of arbitration awards is dealt with by the New York Convention to which most trading nations are signatories.
- The Hague Conference on Private International Law with 114 member governments (including all the EU) seeks to ease issues of jurisdiction and enforcement internationally by agreement. Such an agreement is reflected in the Hague Convention on Choice of Court Agreements and in the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. These apply however only to those countries that agree to accede.
Absent Lugano, the position on jurisdiction and enforcement with EU/EFTA countries is that the UK is treated as any other third country to the EU/EFTA thus:
- For EFTA countries the UK can enter into bilateral arrangements. There has been some question whether old arrangements had an automatic renaissance if never formally ended after the UK became a member of the EU; probably not. Last November, however, UK and Norway agreed to give new life to the old 1961 bilateral arrangements, which has continued application. Absent any such agreement the rules on jurisdiction and enforcement fall back on domestic arrangements in the relevant state. In Switzerland, for instance, this is covered in the domestic statute on private international law.
- For EU nations a bilateral treaty is not possible because such treaties fall within the competence of Brussels and not the individual member states. Absent an EU wide solution the rules on jurisdiction and enforcement fall back on domestic arrangements in each state.
- In both EU and EFTA countries one needs to be very careful to comply with local rules before litigating e.g. some countries have strict rules on translation and service requirements. You will need local advice on the issues.
- The Hague Conventions mentioned above continue to apply. Thus if the parties to a contract provide for the exclusive jurisdiction of the courts of a particular country that jurisdiction will be recognised in the courts of Hague member states which have acceded to Hague Convention on Choice of Court Agreements. The same principles apply under the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters; the problem there is that very few countries have signed up to this Convention. Whilst the UK has acceded to the Convention (as has the EU) there is one issue that has yet to be resolved under the Hague Convention and that is the date of its applicability between the UK and EU.
- The courts of England & Wales will consider jurisdiction under the rules applicable to all non EU/EFTA countries. These are mainly determined at common law, i.e. through a series of rules made by the courts over many years usually in the application of rules relating to service of process out of the jurisdiction. It will be interesting to see how the law develops in this area but the indications are that the domestic courts will be expansive in accepting jurisdiction over disputes. The same applies to enforcement of judgments but this is usually achieved under a summary procedure subject to applicable conditions.
The problem is the replacement of the certainties of Brussels and Lugano with the uncertainties of domestic provision and the vagaries of the domestic courts, we repeat the need to take local advice. Just recently we have seen a Swiss court refusing to enforce a UK judgement and a German court seeking security for costs from a UK party. The EU Commission’s view on the UK’s accession to Lugano looks to reflect the somewhat hostile political atmosphere. Hopefully when matters calm down accession may be possible but in the meantime both those in dispute and those planning for it in contract drafting need to consider:
- Taking local advice on jurisdiction and enforcement in countries that may be relevant to the dispute and enforcement before starting proceedings.
- Providing for the courts of a country to have exclusive jurisdiction in the dispute resolution clause in a contract, making sure it’s an exclusive jurisdiction clause otherwise the Hague Convention has no application.
- Providing for dispute resolution by arbitration. Arbitration clauses need to be carefully drafted to avoid potential jurisdiction disputes that often arise from careless drafting.
Edwin Coe has particular expertise in all these areas and can assist. If you have any queries please feel free to contact David Greene or any member of our Class Action and Finance Litigation team.
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