Brexit Blow: Setback for the UK in its Efforts to Join the Lugano Convention.

The European Commission (“Commission”) representing the European Union (“EU”) has presented the Swiss Federal Council in its capacity as the Depository of the 2007 Lugano Convention (“Convention”) with a Note Verbale regarding the United Kingdom’s application to accede to the Convention, submitted on 8 April, 2020.

Accession to the Convention would only be possible if the United Kingdom (“UK”) were to secure the approval of all existing Convention members, being the EU, Iceland, Denmark, Norway and Switzerland. Iceland and Switzerland have already given their formal approval, with Norway also indicating it is in favour of UK membership.

In a setback for the UK’s accession hopes, the Commission’s Note Verbale concludes as follows: “The European Commission, representing the European Union, would like to notify to you that the European Union is not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention.”

The Commission’s position, as laid out in this communication, will largely come as no surprise – on 4 May, 2021 the Commission had already communicated to the European Parliament and the Council its view, that the EU should not give consent to the UK’s application. The decision whether or not to approve the UK’s application to accede to the Convention rests with the Council, although it is unclear when such a decision is expected to be taken.

Significant setback for the UK?

Given that Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of Judgements in Civil and Commercial matters (the “Brussels Recast”) no longer applies to the UK, accession to the Convention would be the UK’s preferred option in alleviating some of the doubts surrounding dispute resolution clauses post-Brexit.

If the UK remains unable to accede to the Convention, contracting parties may be required to re-assess their preference for a English choice of court clause, and consider any potential roadblocks in enforcing a UK judgement in a Convention jurisdiction.

Relying on an exclusive English choice of court clause remains a reliable option under the 2005 Hague Convention on Choice of Court Agreements (the “Hague Convention”) which the UK is a member of in its own right as from 1 January, 2021. Admittedly, the Hague Convention has its limitations, principally owing to the fact that it applies solely in the case of exclusive jurisdiction clauses (non-exclusive or asymmetric clauses falling outside the Convention’s scope). Furthermore, there is some tension between the EU and the UK regarding the precise timing of application, with the EU signalling that only exclusive choice of court agreements entered into after the UK acceded as a member in its own right (i.e. from 1st January 2021) rather than from the date of the EU’s accession, that is 1st October, 2015, are covered. A position which the UK strongly contests.

What next?

Looking ahead, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgements in Civil or Commercial Matters (the “2019 Hague Convention”), which has been billed by some as a “gamechanger” for cross-border dispute resolutions, should operate as a sister convention to the Hague Convention. However, the ratification process for the 2019 Hague Convention is likely to take several years and therefore does not afford any immediate assistance.

International arbitration as an alternative avenue for dispute resolution will continue to prosper, since the framework for the international recognition and enforcement of arbitral awards under the 1958 New York Convention remains entirely unaffected by Brexit.

The recognition and enforcement of UK Judgements remains possible outside of the Brussels Recast framework, in accordance with domestic private international rules. However, recognition in this manner is not automatic and is highly dependent on satisfying the particular domestic PIL requirements of any given jurisdiction.

Conclusion

Life outside the Convention should not necessarily require a wholesale revisiting of existing contractual arrangements. Whether parties should reconsider their English choice of court clause is a decision which needs to be looked at holistically (and not merely through the prism of an enforcement scenario), weighing up all the pros and cons, not least bearing in mind the costs and expenses which such an exercise will incur. There may well be a shift towards exclusive English choice of court clauses in lieu of non-exclusive or asymmetric clauses, however, the primacy of English choice of court clauses is not likely to threatened. Parties who have traditionally opted to litigate before the English courts have, in most cases, done so for reasons entirely independent of the UK’s previous status as a EU’s Member State.

Whether the Commission’s decision to block the UK’s accession to the Convention rests on sound legal reasoning or is more of a political payback directed at a former Member State, the EU-UK cross-border dispute resolution landscape is more uncertain these days. Consequently, obtaining the right advice with respect to the planning, drafting and negotiation of dispute resolution clauses cannot be overemphasized.