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Impact of Brexit on Cross-Border Litigation

Julia Dodds
07/12/2020
What are the options for cross-border litgation post-Brexit? The UK Government planned to accede to the Lugano Convention 2007, which states which national courts have jurisdiction in cross-border civil and commercial disputes and ensure that judgements taken in such disputes can be enforced across borders. However, its now too late for the UK to join the Lugano Convention by 1 January 2021. So what are the UK's options and what do businesses need to consider regarding cross-border litigation?
With less than a month to go until the end of the Brexit transition period, it seems increasingly likely that the EU rule book that helps provide certainty on cross-border litigation in Europe could be tossed on the Brexit bonfire.  This will, in the government's own words "result in a lack of legal certainty and higher costs for those involved in cross-border civil and commercial disputes, and an increased complexity and cost of proceedings to both litigants and the courts."

Current situation

At the moment, what is known as the Brussels Recast Regulation governs many issues in cross-border disputes such as where a party should be sued, which court has precedent if there are conflicting proceedings and the upholding of choice of court clauses. Most of the rules are mandatory and the Regulation therefore has the great benefit of creating certainty across the EU member states.

From 1 January 2021 the Regulation will cease to apply in litigation as between parties in the UK and EU member states.  The Withdrawal Agreement simply provides that the Regulation will cease to have effect, except in proceedings that were instituted before the end of the transition period.  There are no provisions for any replacement system in place in the Withdrawal Agreement and Parliament is unable to legislate to cure the problem because any system requires reciprocity as between the UK and EU.

Lugano Convention

It had been hoped that this situation could be rescued by the UK's accession to the Lugano Convention.  The Lugano Convention contains a similar set of rules to the Regulation, but its membership extends to a number of non-EU member states including Iceland, Norway and Switzerland.  The UK is presently bound by the Lugano Convention courtesy of its membership of the EU. Once the UK leaves the EU it will cease to be a member. The UK has applied to rejoin the convention as an individual member, but its accession requires the consent of all other signatories. 

The EU has not provided its consent. Furthermore, even it were to consent to the UK's accession before the end of the year, the Lugano Convention would not take effect until three months after the EU's approval and the UK's deposit of its accession document, neither of which has taken place.

At minimum, therefore, there may be a lacuna in the application of any European rule book.  It may be that we are all pleasantly surprised and the promised trade deal sneaks in a clause whereby the EU agrees to the UK's accession to the Lugano Convention, with a nifty work-around for the three-month accession period.  Optimism, however, may be misplaced.  Even if a deal with the EU is secured, it may not include accession to the Lugano Convention.  The UK government clearly has accession on its agenda and took the step in mid-November of laying the Lugano Convention treaty before Parliament.  However, in a revised notice published at the end of August, setting out how it is envisaged matters including choice of law and jurisdiction would be determined post-Brexit, the European Commission, rather pointedly, makes no reference to future application of the Lugano Convention.

No deal Brexit or no Lugano Convention?

If we have a no-deal Brexit or a trade deal that does not include admission to the Lugano Convention, what then happens? 

The Hague Convention on the Choice of Court Agreements will assist where the dispute relates to a contract with a choice of jurisdiction clause in it.  The UK was also a member of the Hague Convention via its EU membership, but has applied to rejoin this convention independently and importantly the EU has no veto.  The Hague Convention will therefore to apply from 1 January 2021. It gives effect to exclusive choice of court clauses, as well as mutual recognition and enforcement of judgments of the courts designated by those choice of court clauses.

The Hague Convention, however, will not be a universal panacea to the loss of the Regulation and Lugano Convention, not least because it has no application if the basis of the dispute is not contractual but, say, tort or fraud.

In these circumstances, in England, the common law regime that already applies in cross-border disputes between UK parties and parties in other non-EU states will apply.  Many of the common law principles are similar to the existing European regime, but the courts have greater discretion in their decision-making and many processes that are presently streamlined, such as obtaining permission to serve out of the jurisdiction and enforcement of judgments, will be more laborious and more expensive. 

Implications

The resulting uncertainties will mean that, more than ever, parties involved in cross-border litigation will need detailed advice and guidance.  We will be writing in more detail about the consequences of Brexit on the European litigation landscape, but 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.

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