Leaving Lugano: Is this the last chapter in the Brexit saga on jurisdiction and judgments? Oui ou Non? – JD Supra

The uneasy rumblings in the media recently on whether the UK would be welcomed back by the European Union (EU) into the Lugano Convention family were confirmed on 4 May 2021, when the European Commission issued its 'Communication from the Commission to the European Parliament and the Council'[1] with its assessment on the application of the UK to accede to the 2007 Lugano Convention on the jurisdiction and recognition and enforcement of judgments (Lugano Convention). It recommended that the EU should not give its consent to UK accession. This communication has been met with disappointment by the legal profession[2] and characterised by the media as a political decision, rather than one based on common sense. However, there is room for hope this is not quite the last chapter in the saga of the EU/UK relationship in the area of choice of court agreements, jurisdiction and judgments.

What reasons does the Commission give for its stance?

The Commission's four-page communication sets out its analysis as to (i) the nature of the Lugano Convention, and (ii) the international framework for cooperation with third countries. Here are the key points from the Commission's conclusions.

What does this mean for finance transactions in practice?

The key issue to remember is that the Hague Convention applies to exclusive jurisdiction clauses where parties choose the court of one jurisdiction to determine the outcome of a dispute.

There are still some differing views on whether an asymmetric jurisdiction clause, typical in finance documentation (usually restricting the borrower to one court while giving the lender more scope to determine in which court to commence proceedings), can be classed as an 'exclusive' jurisdiction clause. However, this issue is not a new one and certainly existed prior to the end of the Brexit implementation period on 31 December 2020. Discussions on the recognition of such clauses are slowly playing out in the courts in a handful of cases under the Recast Brussels Regulation.[3] (For a reminder see our blog post "'Trade' and 'Cooperation' Buzzwords for life beyond Brexit", 11 January 2021 on Talking Trade Finance).

As always, parties should carry on analysing the dispute resolution options available to them, which may include the courts, arbitration or mediation. For now, we should assume the Hague Convention is the applicable international treaty for its contracting states, including the UK and the EU member states, and parties should consider carefully whether a one-way (asymmetric) or two-way exclusive jurisdiction clause is appropriate on a case-by-case basis.

We will be keeping an eye on the outcome of EU member states' vote to see if the EU will formally consent to the application of the UK to accede to the Lugano Convention. Let us hope that the politicians can see past politics to the businesses and individuals who may need to rely on smooth judicial cooperation. Whether the UK successfully accedes to the Lugano Convention or not, we will be looking out as the UK expands into further free trade agreements or bilateral agreements on jurisdiction and judgments, which will also be key for international trade and dispute resolution.

What does the Commission's recommendation mean for the UK?

It is helpful to consider the Commission's recommendation in context alongside the current position under the Hague Convention.

So, the Hague Convention remains the treaty to regulate judicial cooperation between the UK and any EU member state, and the EU and each of the other contracting parties and any which come on board. It gives protection to choice of court agreements in civil and commercial matters, and any judgment would be recognised and enforceable in another contracting state.

What has to happen now at the EU level for the UK to join the Lugano Convention?

While the Commission's Communication is a formal recommendation to the European Parliament and Council, it is only one part of the process in acquiring the EU's consent. Unlike the Hague Convention, unanimous consent of all contracting parties to the Lugano Convention is needed for a new state to accede. So, formal consent of the EU is required. Of the other contacting parties, Switzerland and Iceland both formally consented in February and March respectively this year, and Norway intends to support the application.

The final decision will be taken by the Council, which will form the decision of the EU. This is where the EU member states have their say, taking into account the views of the 27 national governments, which should hopefully consider the views of the legal profession. Media reports suggest that many EU member states are in favour of the UKs application, with only one or two larger member states sharing the view of the Commission, however, nothing is set in stone until there is a vote at Council level. Unanimity of EU member states (in the vote at EU level) is not required as the issue is one that needs a qualified majority. So, as yet the final position still lies in the hands of the EU member states.[6] If there is formal consent from the EU and other contracting parties, then the UK would accede to the Lugano Convention within three months.

Clearly, if this does not happen then we carry on as we are, with English law as a recognised and practical system of law for international and domestic financial transactions, using the Hague Convention to recognise choice of law agreements and recognition and enforcement of judgments between the EU member states and the UK. Trade and international finance transactions stretch further afield than the EU and EFTA, so in analysing dispute resolution options for each case, we will be looking not just at the Hague Convention but also for the development of any new UK bilateral treaties on jurisdiction and judgments.

[1] Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=COM:2021:222:FIN&qid=1620139046110&from=EN

[2] "Disappointment as EU commission rebuffs UK accession to Lugano Convention" I. Stephanie Boyce, President of The Law Society of England and Wales, 5 May 2021.

[3] Regulation (EU) 1215/2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).

[4] HCCH status table 6 May 2021 Convention of 30 June 2005 on Choice of Court Agreements.

[5] HCCH status table 6 May 2021 Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters.

[6] Art 218 Treaty on the Functioning of the European Union.

Continued here:

Leaving Lugano: Is this the last chapter in the Brexit saga on jurisdiction and judgments? Oui ou Non? - JD Supra