On 4 May 2021 the European Commission recommended that the UKâ€™s accession to the Lugano Convention should be blocked by the EU. Whilst the final decision on the UKâ€™s accession to the Lugano Convention rests with a qualified majority the European Council, it is anticipated that this recommendation is likely to influence the awaited final decision.
What is the Lugano Convention?
The Lugano Convention 2007 (the Convention) is an international treaty between the EU member states and the EFTA states (except Lichtenstein) on international jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
The purpose of the Lugano Convention is to give legal certainty as to which courts in those countries have jurisdiction to hear disputes. It also allows for countries to enforce foreign judgments of other countries within the Convention.
This facilitation of international legal action is of particular importance to those businesses operating across borders as it allows them to issue proceedings in their home country in the knowledge that a ruling against the defendant would be enforceable in the defendant companyâ€™s home country where their business operates. For example, if a claimant company based in France obtained a judgment against a defendant company in Switzerland, then the Convention would allow for that judgment to be enforced in Switzerland as though it was a judgment of their court.
This framework is similar to that of the Brussels (Recast) Regulations however the benefit of this for the UK ceased on 1 January 2021.
The effect of Brexit
Since the UKâ€™s exit from their EU membership on 31 January 2020, the UK no longer has the same rights as were previously afforded by the main EU instruments regarding cross-border jurisdiction and enforcement in civil and commercial cases commenced in the UK from 1 January 2021.
The UK continues to have rights under the Hague Convention 2005 on Choice of Court Agreements after re-joining on 1 January 2021, although this is limited to exclusive jurisdiction clauses and it is unclear whether it only applies to those agreements commenced before 1 January 2021. Those proceedings which fall outside the scope of the Hague Convention will mean the UK and EU courts revert to their own domestic laws to decide which court will have jurisdiction over a legal issue and whether a judgement will be recognised and therefore enforceable.
UK based companies would therefore currently need to instruct legal representation in foreign jurisdictions to litigate their cross-border disputes or to determine whether their UK court judgments are enforceable.
In the UKâ€™s position as a nation independent from the EU, the European Economic Area and the EFTA, an application would need to be made to re-join the Convention to avoid this current complicated and expensive process of instructing counsel in foreign jurisdictions.
The UK made such application to the Convention on 8 April 2020, and all EFTA states have indicated their support of the application. However, in order for the application to be accepted, it requires the consent of all parties to the Convention â€“ including the EU.
Rejection by the EU
The application was rejected by the EU Commission (the Commission) on 4 May 2021 and, whilst this amounts only to a recommendation as opposed to a final decision, the influence of the Commission is expected to be endorsed by the European Parliament and the European Council which will be a final and binding decision.
Some of the main reasons provided by the Commission for their recommendation included that the Convention is appropriate for judicial cooperation with third countries if they sign up to participation in the Single Market, and if they sign up to close regulatory alignment with the EU â€“ both of which the UK does not satisfy.
The Commission therefore concluded:
â€œThe United Kingdom is a third country without a special link to the internal market. Therefore, there is no reason for the European Union to depart from its general approach in relation to the United Kingdom. Consequently, the Hague Conventions should provide the framework for future cooperation between the European Union and the United Kingdom in the field of civil judicial cooperation.â€
It appears that the EU are opposed to allowing the UK to benefit from agreements afforded to them as part of their EU membership which they chose to withdraw from. Since Brexit, the UK and EU have continued in their negotiations surrounding multiple issues, including fishing rights and COVID-19 vaccination supplies. It may therefore be possible that future negotiations could result in a beneficial decision for the UK despite this current setback from the EU Commission.
Until then, the recommendation of the European Commission was a reiteration of the EUâ€™s position to third countries, now including the UK, which is to rely on the Hague Convention on Choice of Court Agreements.
Further, it was recommended that Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters 2019 (Hague Judgments Convention) should be concluded by the EU. Although, neither the EU, nor any of the EFTA states, nor the UK has signed to bring it into force, and given that it took 10 years to conclude the Hague Convention 2005, this is unlikely to be a suitable short-term solution for businesses with ongoing cross-border disputes.
What happens now?
The final decision will be taken by the European Council, which will form the decision of the EU.
This decision will consider the views of the 27 EU member statesâ€™ national governments by way of a vote. The vote by does not need to be unanimous, it requires only a qualified majority.
If the majority is achieved and therefore consent is given by the EU (and other contracting parties such as the EFTA states), then the UK would accede to the Convention within three months.
If the final binding decision taken is not successful for the UK, then the Hague Convention 2005 should continue to be observed to recognise Choice of Court Agreements and recognition and enforcement of judgments between the UK and the EU