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Brexit fog and UK court judgments

  • Legal Development 16 July 2020 16 July 2020
  • UK & Europe

  • Brexit

Where parties to existing disputes are concerned about enforcing UK judgments in EU member states, they should commence proceedings before the Brexit transition period ends - and we now know that will happen on 31 December 2020. But what if that is impractical, and what about disputes that arise in the future? We explain the options for the UK and EU, and what parties should do while the uncertainty continues.

Brexit fog and UK court judgments

We have now passed the point of no return where the transition/implementation period in the Brexit withdrawal agreement cannot be extended beyond 2020  -  at least not without amending the withdrawal agreement itself, which is not likely to happen.[1]   The choice of English law to govern contracts will continue to be respected in the EU after 2020, come what may, but we still do not know where we are heading with English jurisdiction agreements and judgments.[2]  Will they continue to be respected and enforced in the European Union (EU) after 31 December?  Brexit fog still clouds this important issue. 

It is true that the status quo will continue where proceedings are commenced before the end of the year, and the resulting English judgments will be enforceable in the EU regardless of when they are given.[3]  So we are much better off than if there were no withdrawal agreement, i.e. a true 'no deal'.  It is also true that the UK will re-join the Hague Convention on Choice of Court Agreements 2005 (Hague) as an independent contracting state, gaining the protection of new global rules on conflict of laws.[4]  However, Hague will only support new jurisdiction agreements and judgments arising from them, and it has other limitations too: the jurisdiction agreement must be exclusive[5], for example, and the dispute must not concern an excluded matter such as employment contracts or tenancies of immovable property.[6]  So many disputes could fall between the cracks. 

To avoid this outcome, the UK government has long sought a bespoke post-Brexit agreement with the EU replicating the comprehensive provisions of the Brussels Regulation Recast[7] (the Regulation).  In theory this should benefit both parties, but that is not how the EU sees things and it has never shown much enthusiasm for the idea.  A more realistic option, perhaps, is the UK re-joining the Lugano Convention 2007 (Lugano) as an independent contracting state when the transition period ends on 31 December 2020.  Lugano currently extends EU jurisdiction and enforcement principles to three European Free Trade Association (EFTA) states, but does not actually require its members to be a member of EFTA or any other European organisation.  Japan could join Lugano if it wanted to, and so could Papua New Guinea.  All that is needed is for the existing Lugano parties to agree to their accession. 

In April this year, the UK government made a formal request to re-join Lugano, and the three EFTA members (Iceland, Norway and Switzerland[8]) have indicated their agreement.  However, the EU has not yet given its consent, and neither has Denmark, which is also a contracting party.  Even if they end up doing that, perhaps as part of a grand bargain involving trade, security and other larger issues, potential litigants should be aware of Lugano's limitations.  These are not as serious as those of Hague, but they are real nonetheless. 

Lugano  -  pros and cons

To start with, the positives.  Lugano replicates an earlier version of the Regulation that served the EU well up until 2015 after replacing the earlier Brussels Convention 1968.  So unlike Hague, it contains a full set of European jurisdiction and enforcement rules covering most civil and commercial matters and taking in contractual, tortious and other non-contractual claims.  It also covers protective measures as well as final judgments, and jurisdiction agreements of all kinds, in addition to disputes were no such agreement has been entered into.  However, Lugano is limited in two key respects. 

First, it does not support jurisdiction agreements unless at least one of the parties is domiciled in a Lugano state.[9]  It is not sufficient for the chosen courts to be located in a Lugano state, although that is a requirement too.[10]  This means that the English jurisdiction agreements in many international contracts are outside the scope of Lugano, whether the UK re-joins it or not.

Second, Lugano allows parties to employ an abusive procedural tactic known as the 'Italian torpedo'.  This is an attempt to prevent the chosen court from trying a case, at least in the short term, by commencing proceedings in another Lugano state first  -  preferably one where the wheels of justice turn slowly and/or jurisdiction questions are not dealt with as a preliminary issue.  The tactic works because Lugano (like the Regulation) prevents parallel litigation by requiring all other courts to stay proceedings while the 'court first seised' decides whether or not it has jurisdiction.[11]  However, the Regulation makes an exception here for courts chosen in exclusive jurisdiction agreements, which are allowed to proceed with a case in any event, subject to limited exceptions.[12]  Lugano makes no such exception and proceedings in the chosen court are often delayed for many months as a result. 

A further problem with Lugano is that it takes at least three months to join.  After obtaining the agreement of all existing parties, the country wishing to join must deposit its 'instrument of accession' and wait that time before Lugano comes into force.[13]  This means in practice that the UK should obtain the EU's and Denmark's consent to its joining, and then take the necessary procedural steps, by 1 October 2020.  If it is late in doing that, there will be period of days, weeks or even months when the UK will be temporarily outside the European jurisdiction and enforcement regime, and during that time parties to certain disputes may be advised to wait before commencing litigation or enforcement proceedings.[14]

The default position

What happens, though, if the EU and Denmark refuse to let the UK re-join Lugano at any stage?  As mentioned already, this is not a problem where proceedings are commenced in the UK before the transition period ends or are commenced after that and are covered by Hague.  But what should claimants do in other cases? 

The simple answer is that they should proceed as they do where any non-European country is involved.  Where jurisdiction is concerned, that involves obtaining an anti-suit injunction, in appropriate cases, to restrain opponents from litigating abroad.  The effectiveness of this measure depends of course on whether an opponent has assets or a presence within the jurisdiction: if it does not, the injunction will have no practical effect.  But in principle this is a powerful weapon that the English courts are ready to use on a claimant's behalf and which is highly effective in many circumstances. 

Where enforcement is concerned, the situation is different.  Here it is often sufficient to rely on the national law of the country where enforcement is sought.  The procedure may be cumbersome and there might be traps for the unwary, but in most jurisdictions it is possible to enforce a foreign judgment without relying on a Regulation, Convention or other international instrument, provided there is an element of reciprocity, i.e. each country is generally willing to enforce the other's judgments. In this way US judgments are enforceable in England, for example, without the need for any formal arrangements, simply on the basis of the common law. 

In addition, there are historic bi-lateral arrangements between the UK and the major jurisdictions of the EU which could be relied on in this context.[15]  Opinion is divided as to whether they are still in force or not, since they have been dormant for many years.  However, they might prove useful in practice a judgment falls within their scope and EU courts are willing to apply them. 

What should parties do now?

The main priority for parties with an emerging dispute on their hands is to commence proceedings promptly if they are concerned about parallel proceedings in the EU or EFTA or anticipate enforcing an English judgment there.  If they commence English proceedings before the end of the Brexit transition period, they will be protected by European jurisdiction and enforcement rules indefinitely, irrespective of when judgment is given.  Pre-action steps may be omitted if necessary.[16]

For those who are drafting contracts, the position in the short-term is the same as it has been since the British people voted for Brexit.  They should consider choosing arbitration, since it is not directly affected by Brexit.  Arbitral awards can be enforced across borders relatively easily under the New York Convention 1958, which is not a creature of the EU. 

As the end of the Brexit transition approaches, it should become clear whether the UK will be re-joining Lugano and, if so, when it will come into force for the UK.  If the EU and Denmark withhold their consent altogether, lawyers drafting contracts should continue to choose arbitration where appropriate, or litigation where they can rely on Hague.  As noted already, the UK is entitled to re-join Hague without the EU's consent, but Hague is limited in scope and, like Lugano, will not necessarily come into force for the UK as soon as the transition period is over.[17] 

There is another problem too: the Regulation overrides Hague in jurisdiction (though not enforcement) matters unless at least one party is resident in a country that is subject to Hague but not to the Regulation.[18]  (Countries in this category are currently Mexico, Montenegro, Singapore and, when it re-joins Hague after the transition period, the UK.)  Where no party is resident in such a country, a court in the EU might agree try a dispute, whether or not it is subject to an exclusive English jurisdiction agreement.  However, whether this is likely to happen in practice will depend on a number of factors, including whether proceedings are already underway in England, and if so, how far they have advanced.[19] (This is a reason for commencing proceedings promptly in England, even after the transition period ends.)  An anti-suit injunction, or a threat of one, may anyway be sufficient to stop this problem arising. 

Needless to say, all these issues are limited to Europe and the EU and EFTA in particular.  Even when they arise, they do not make English jurisdiction agreements and judgments less forceful there than they are in the world generally.  They only mean that certain rules that English lawyers are used to relying on will no longer be applicable, and other, less certain rules and procedures will have to be relied on instead.  In any event, with the transition period due to end now on 31 December 2020, the fog of Brexit uncertainty will surely clear soon, and at that point choices will at least be easier to make.[20]

Written by Richard Power and Giles Hutt.

 

[2] Rome I Regulation (EC 593/2008) Art 2 and Rome II Regulation (EC 864/2007) Art 3 both articulate the principle of 'universal application'.  This ensures among other things that parties are free to choose any country's laws to govern their contracts, whether or not that country is an EU Member State. 

[3] Withdrawal Agreement of October 2019, Art 67.

[4] The UK will be free to do this without the consent of the EU or any specific country.

[5] An asymmetric/one-sided jurisdiction agreement is not generally 'exclusive' for these purposes  -  Arts 3 and 6.  Contracting states may choose to extend Hague's scope to non-exclusive jurisdiction agreements, as far as they are concerned (Art 22), but none has chosen to do so to date.

[6] Arts 1 and 2.

[7] EU 1215/2012.  Like all EU Regulations, the Brussels Regulation Recast will cease to apply to the UK when the Brexit transition period ends. 

[8] The fourth member of EFTA, Liechtenstein, is not party to Lugano.

[9] Art 23(1)

[10]  The Regulation similarly supports jurisdiction agreements only where they identify the courts of one or more EU Member States.   However, the domicile of the parties is irrelevant (Art 25(1)).

[11] Art 27

[12]  Article 31(2).  The exceptions are those that apply to all jurisdiction agreements and concern, for example, disputes about rights in rem in immovable property (Art 24(1)) .

[13]  Article 73(2).

[14] Article 63(1).

[15] Countries covered include, France, Germany and Italy  -  see Part 74 of the Civil Procedure Rules and the related White Book commentary. 

[17] Arts 27 and 31

[18] Art 26(6).  Note that Hague may also be overruled by Lugano on occasion, but the rules on this are more complex  -  see Art 26(3).

[19] Whether a court in the EU accepts jurisdiction over a dispute under EU rules depends on numerous provisions in the Regulation.  However, Arts 33 and 34 and Recitals 23 and 24 deal with this issue in particular  -  a rare example of the EU rules allowing a court some flexibility in deciding whether to try a case or not.

[20] In the longer term a new Convention, generally known as the Hague Judgments Convention 2019, is expected to come into force and largely replicate, at the global level, the wide-ranging rules of the Regulation and Lugano  -  see our earlier article: A new safety net for English law judgments after Brexit.  However, it is at present uncertain whether and when this will happen. 

End

Associates:

Giles Hutt

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