Brexit and Lugano – where are we now?

While the UK's exit from the EU feels like a distant memory for some, many businesses with cross-border contracts are still unclear how to resolve potential disputes given the UK's continued ostracism from the Lugano Convention.

 
At that time it was hoped that a solution would be achieved by the UK being admitted in its own right to the Lugano Convention.

Although not absolutely identical to the Recast Brussels Regulation, the Lugano Convention contains a similar set of rules, but its membership also extends to a number of non-EU member states including Iceland, Norway and Switzerland. 

The UK was a member of the Lugano Convention courtesy of its membership of the EU. Upon the end of the transition period, it ceased to be a member.

The UK applied to re-join the convention in April 2020 as an individual member, but its accession requires the consent of all other signatories, including the EU.

While Switzerland, Iceland and Norway agreed to the UK's accession, the EU has not consented. Nor is there any sign that it will do so in the near future.

Indeed, in May 2021, the European Commission published a communication to the European Parliament and EU Council of Ministers stating that the EU should not permit the UK's accession to the convention.

The Commission's view is not absolutely determinative, as ultimately, decisions on international treaties need to be taken by the Council of Ministers with the approval of the European Parliament.  

However, on 28 June 2021 the EU informed the convention Depository that "it was not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention," a statement that, while short of being an outright refusal, kicked the issue firmly down the road.

Since then, there has been little further news. It has been reported that although some EU member states are content for the UK to accede to Lugano, France is resolutely opposed. Unhelpfully although not necessarily relatedly, British-French relations have been strained in the past two years by Covid-19 restrictions, freight channel crossings and fishing rights, among other issues.

France is also gearing up for a presidential election, which may affect its approach to UK relations.
On 1 January 2022, France took over the presidency of the Council of Ministers for a six-month stint. This will most likely keep the issue off the Council's agenda for the first half of 2022, if nothing else.

More broadly, beyond Anglo-French rancour, matters are not helped by the complexities of the UK's relationship with the EU since the end of the transition period. 

Meanwhile, the UK government's priorities are not clear. At a fringe event at the UK's Conservative Party Conference in October 2021, justice minister Lord Wolfson told the audience that the government was continuing its lobbying for the UK to join the convention but that it was "not a disaster" if the UK were not admitted.  

And with the change at the head of the Ministry of Justice, following the appointment of Dominic Raab as Lord Chancellor, the department's direction of travel on this issue is apparently yet to be officially determined.

A briefing paper from the European Parliamentary Research Service published in late 2021 summarises the present static position, concluding:

"Given the European Commission's decision to block UK accession to the Lugano Convention, the legal regime of EU-UK judicial cooperation in civil matters will be governed, for the time being, by the national law of the EU Member States, on the one hand, and that of the UK, on the other." 

While some lawyers disagree with the author's suggestion that the Commission has the constitutional power to block the UK's accession to the convention, its opposition is clearly a serious obstacle. 

For businesses still desperate for clarity, as things stand, companies conducting cross-border business with EU and EFTA member states are well-advised to plan on the basis that the UK will not be admitted to the Lugano Convention and should consider adjusting their contractual arrangements as necessary.
  
As Lord Wolfson remarked, not joining the Lugano Convention will not be a disaster, but it will complicate cross-border disputes and recovery, with the result that lower-value claims will become uneconomic to pursue.

Issues that businesses will need to consider carefully when drafting future contracts include preferences on where to issue claims; whether jurisdiction clauses are liable to challenge; whether arbitration might be a better option for dispute resolution; and where enforcement of any judgments might take place.

While the day-to-day conduct of international business is staggering on, many general counsels are worried about walking into disputes they may find themselves effectively powerless to resolve.

As we have previously written, parties involved in cross-border litigation will need detailed advice and guidance.
 Issues that businesses will need to consider carefully in drafting future contracts include:

• Preferences on where to issue claims

• Whether jurisdiction clauses are liable to challenge

• Whether arbitration might be a better option for dispute resolution

• Where enforcement of any judgments might take place.

For manufacturers and suppliers affected by this issue, please see: The impact of Brexit on cross-border disputes – key considerations for Manufacturers and Suppliers | Fieldfisher.

For broader discussion of enforcing judgments, please see: Post-Brexit issues with enforcement of English judgments in EU Member States | Fieldfisher.

For more information about any of the issues in this article, please contact the author of this article, Julia Dodds, or any other member of Fieldfisher's Dispute Resolution Brexit team: Donna Goldsworthy, Nicola Sewell, Nathan Capone or Rebecca Smith.