The Lugano Convention is an international treaty which has existed in one form or another since 1988 when the EU (including the UK) reached an agreement with EFTA states over common rules for jurisdiction and enforcement. Lugano is heavily based on the old Brussels Regulation and broadly provides, with some exceptions, that judgments made in one state will be recognised in another. Since 1988, 16 states have joined the EU with only one departing and for the first time, the accession provisions in the convention are being pored over.
The UK lodged its application for accession in April 2020. Accession as an individual state requires the unanimous approval of all contracting states – and this issue seems to have split the EU down the middle. In April 2021, the EU Commission recommended that the EU reject the UK’s application, but some member states are openly in favour of the UK re-joining. In June, the Law Society Gazette reported the Commission still had not put that proposal to the European Council to vote on.
Assuming the Council were to follow the Commission’s recommendation, where does that leave us?
In the absence of Lugano, we are left relying on largely untested conventions, common law principles and the laws of each individual member state.
Hague Convention on Choice of Law Agreements
One convention that has been getting a lot of airtime is the Hague Convention on Choice of Law Agreements, which the UK ratified in December 2018. Under this, if the contract contains an exclusive jurisdiction clause, that court will have jurisdiction, and any judgment from that court will be recognised in another convention state. Although attractive in principle, there are two limiting factors:
- It does not apply where the parties have agreed a non-exclusive jurisdiction clause. In many contractual relationships, particularly where there is an exchange of data, information or confidential material, a non-exclusive jurisdiction clause may be needed to enable effective recourse in the defendant’s home state.
- It only applies to contracts entered into after the convention has come into force. The problem here is that the EU and UK differ over the relevant date. The EU takes the position that it only applies after 31 January 2021, while the UK takes the position that it applies from 1 October 2015.
For some disputes, this will be relevant but for others it will not. The lack of clarity on Lugano is bringing the exclusive/non-exclusive jurisdiction clause debate into sharp focus and it does little to deal with disputes arising under contracts already entered into.
The Hague Judgments Convention
The ink is barely dry on the Hague Judgments Convention 2019 which also sets common rules for determining issues of both jurisdiction and enforcement beyond a mere jurisdiction clause. The EU Commission suggested the Hague Judgments Convention could be a viable alternative. That may well be right but as matters stand, only two states have ratified it and the convention won’t be in force until later this year. Even once it is, it will only apply to judgments obtained after ratification. Based on the time it has taken the EU to ratify previous Hague Conventions, it may be another five or so years before it has any application at all in the EU.
Commencing proceedings in a post Brexit world
Where proceedings are now commenced in England against a party resident in the EU, we have to fall back largely on common law rules. This means considering, at the very least, the following issues:
1. Can the defendant be served in the jurisdiction? Do they have some presence in England or an agent authorised to accept service?
2. Is permission needed to serve the claim form and particulars of claim out of the jurisdiction? CPR 6 has been amended to include a new CPR 6.33(2B) so that permission is no longer needed if:
- The Hague Convention on Choice of Law Agreements applies (in other words there is an exclusive jurisdiction clause in the agreement), or
- The contract contains a clause providing for the English Court to have jurisdiction
In all other cases, permission is needed under CPR 6.36. This means establishing that:
- The claim has reasonable prospects of success
- Each claim advanced falls within one of the “gateways” in CPR Practice Direction 6B and
- England is the proper place to bring the claim
3. How can the claim be served? All EU Member States are party to the Hague Convention on the Service of Judicial Documents, as is the UK, but not all states apply it in the same way. For instance, Article 10 permits direct service by post, but some Member States oppose this. For those that do not, the Foreign Process Section is able to assist with the mechanics of postal service – there is debate in some other jurisdictions over whether the party or the court must carry out service under this rule.
4. Is it better to issue the claim overseas and submit to their jurisdiction? There are a multitude of issues to consider here, including cost, procedure, location of evidence and the competence of the overseas forum to resolve a foreign law dispute. Local advice is critical.
The effect of uncertainty about Lugano
Spiliada Maritime, decided 35 years ago, is the leading authority on the test under English Law for determining the most appropriate forum. The reality is that any test, however settled, involves a balancing act. There is now greater scope for a defendant based in the EU to ignore proceedings and resist enforcement in their own jurisdiction or to force a claimant into expensive satellite litigation in England by challenging jurisdiction. For that reason, while there is uncertainty over Lugano, any prospective claimant needs to consider these issues carefully before proceeding.