Lugano Convention and the future of civil jurisdiction
This article was co-authored by Isaac Chulu-Chinn, Trainee Solicitor, London office.
On 4 May 2021 in a major blow to the UK legal sector, the EU Commission officially recommended that European Union (EU) Member States do not give consent for the UK to join the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2007. The Commission took the view that as the UK has chosen to opt out of the European Economic Area (EEA) and the European Free Trade Association (EFTA) the UK should not be afforded special privileges and further, UK membership would offend the principles of the Single Market.
What is the Lugano Convention?
The Lugano Convention is a multilateral treaty between the EU and three out of the four members of the EFTA (Switzerland, Norway and Iceland). It provides a framework similar to the Recast Brussels Regulation, a piece of EU legislation that provides Member States with a regime to govern the allocation of jurisdiction and enforcement of judgments in cross-border civil and commercial disputes. Closer to its predecessor the 2001 Brussels Regulation, the Lugano Convention allows parties to litigation to have judgments recognised and enforced in the national courts of its members. Similarly, EU or EFTA domiciled defendants (aside from Liechtenstein) can only sued outside of their home state in very limited circumstances, and where parties chose to submit to the exclusive jurisdiction of a national court of a member, other members’ national courts are typically required to accept it. Although a quite prescriptive Regulation, it does provide parties to a dispute with some certainty.
The UK’s accession
Due to the UK’s decision to leave the EU, the UK ceased to be a member of both the Lugano Convention and the Recast Brussels Regulation at the expiry of the transition period at 11pm on 31 December 2020. Matters relating to jurisdiction and the applicable law governing any dispute now fall to be considered under the common law. Therefore, the UK placed a request for re-accession to the Lugano Convention as an individual member on 8 April 2020. Article 72 of the Convention requires unanimous consent to re-join the Convention from its Members following an application. This looked likely when Switzerland, Iceland and Norway provided formal notification of their intent to support the UK’s request for accession.
However, the EU Commission remained silent on the issue and with the end of the transition period looming, in November 2020 a cross sector group wrote to the European Council seeking their approval for the UK’s application. Despite this, over one year after the UK’s application, in a non-binding recommendation on 4 May 2021, the EU Commission stated:
For the European Union, the Lugano Convention is a flanking measure of the internal market and relates to the EU-EFTA/EEA context. In relation to all other third countries the consistent policy of the European Union is to promote cooperation within the framework of the multilateral Hague Conventions… In view of the above, the Commission takes the view that the European Union should not give its consent to the accession of the United Kingdom to the 2007 Lugano Convention.
Without the protections of the Lugano Convention, outside of the common law, the UK only has the Hague Convention on Choice of Courts Agreements 2005 to fall back on. However, the Hague Convention only applies where there is an exclusive contractual jurisdiction (choice of court) clause and agreements with asymmetrical jurisdictional clauses – commonly seen in financial documents – do not fall within the remit of the Hague Convention. Of particular note, the Hague Convention does not apply to the following:
- Claims for personal injury brought by or on behalf of natural persons;
- Tort or delict claims for damage to tangible property that do not arise from a contractual relationship.
There is also uncertainty whether the Hague Convention will apply to any contracts entered into before 1 January 2021. This is because the Hague Convention only applies in the UK to agreements entered into after the UK acceded to the Convention. However, there are serious questions as to when the UK actually acceded. The UK’s stance is that in October 2015 the UK acceded to the Hague Convention by virtue of being an EU Member State, a position currently reflected in domestic law (The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) Regulations 2015).Conversely, the EU’s view is that the EU joined as a unit and that the UK only falls under the Hague regime once it becomes a signatory in its own right. In light of this, the UK redeposited its instrument of accession to the Hague Convention in September 2020 to ensure that the Hague Convention was in force on 1 January 2021. This creates a legal grey area for disputes arising from agreements signed prior to 1 January 2021 but after October 2015. In practice, because of the Hague Convention’s position in domestic law, English courts will likely apply the Hague Convention to applicable agreements entered into from October 2015, although this is not certain.
When the Hague Convention doesn’t apply, UK consumers and businesses involved in litigation with a European element will be reliant on domestic law. In respect of jurisdiction and enforcement of judgments, this is the common law regime, which can be challenging to navigate and costly for those not regularly engaged in cross border litigation. Jurisdictional challenges and related satellite litigation are becoming increasingly common.
Notably, the EU Commission’s recommendation was not binding on the European Council and the final decision rests with the 27 EU Member States. Given that the loss of rights endorsed in the Convention will be reciprocal for EU and Lugano nationals in the UK, there is a possibility the EU Member States will ultimately provide their support for the UK’s accession to the Convention but that is unlikely to be a swift process.