Recognition of Judgements Post BREXIT
April 2021
By Stephen Phillips, Temple Bright
Stephen Phillips | Partner
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The End of the Transition Period
In anticipation of the end of the transition period of the EU / UK Withdrawal Agreement which was scheduled to (and did) take place at the end of 2020, the UK deposited an application to accede to the Lugano Convention (‘Lugano’) on 14 April 2020 8 April 2020.
Lugano governs jurisdiction and the enforcement of judgments in civil and commercial matters between EU member states and Norway, Iceland and Switzerland.
English law has often been the law of choice for many international contracts, including parties within the EU, and often for loans documented under the Loan Market’s Association (‘LMA’) standard form. Securing accession to Lugano has been a strategic objective for the British government as it sees the legal industry as one where the UK had traditionally had a competitive advantage in Europe. Prior to BREXIT a judgement in an English court was recognised in another EU member state without the need to re litigate the issue pursuant to the 2001 Brussels Regulation (44/2001). The UK wants to create a similar structure by joining Lugano in its own right.
Accession to Lugano?
To accede to the Convention, the UK's application will have to be approved by the EU, Denmark (which has an opt-out from certain EU justice conventions), Norway, Iceland and Switzerland. The UK’s accession is supported by Iceland, Norway and Switzerland. The Financial Times reported on 12th April (Brussels opposes UK bid to join legal pact, splitting EU states) that the EC Commission is in favour of rejecting the UK’s entry.
European Commission’s Current Stance
In a recent statement to Practical Law an EU spokesman commented that:
"The Commission has conducted a thorough assessment of the request and has discussed it with Member States. It will come forward with a Communication in the coming weeks.
It is worth noting, however, that the Lugano Convention is a tool used within the EU-EFTA/EEA context. The UK has chosen to leave the EU, the Single Market and the Customs Union. It has chosen to have a more distant relationship with the EU than EEA-EFTA countries.
These choices have to be taken into account when determining the EU's position.
There are alternatives in the field of civil judicial co-operation, such as the multilateral Hague Conventions, which provide a framework for co-operation between the EU and third countries." The UK wanted to accede in order to allow for the continuation of the Brussels regime on jurisdiction and the enforcement of judgments, which Lugano mirrors.
The decision, which has not been made – will rest with member states and there appears to be a split between Baltic States, Nordic countries and the Netherlands in favour of UK accession with France against.
The refusal is likely to be driven by voices within the EC / certain member states to move away from English law as the primary law of choice when significant commercial contracts are agreed between counterparties in EU states. The reasons for the use of English law ie a strong tradition of impartial judgements, commercial knowledge of the judges, certainty of outcome has not gone away post BREXIT and many investors will continue to want to have access to English courts. In addition EU exporters may well want to lure UK counterparties to deal with them on the basis of ease of doing business including the possibility of an enforcement of a judgement within an EU member state. As an English lawyer who enjoys working on cross border matters I appreciate I have a vested interest in the discussion but ease of enforcement on both sides of the Channel strikes me as highly preferable to all European consumers.
An Alternative?
Note that even if the UK is not permitted to accede to Lugano the UK is now a party to the Hague Convention on Choice of Court Agreements 2005 (Hague Convention) in its own right. The Hague Convention includes rules on jurisdiction and enforcement of judgments across signatory states in circumstances where there is an exclusive jurisdiction agreement. The Hague Convention excludes a number of subject matters from its scope including ‘insolvency, composition and analogous matters’. However, it might provide a basis for the recognition of schemes of arrangement, which are derived from the UK Companies Act 2006 and thus are sanctioned outside of insolvency proceedings.
In respect of loans drafted on LMA standard terms the jurisdiction clause will normally be drafted with jurisdiction in England on an exclusive basis but allows the lenders to take actions in other jurisdictions too (a non-two way jurisdiction clause). The LMA has drafted a form of clause which includes a two way exclusive jurisdiction clause which should qualify as compliant under the Hague Convention.
There is some question as to when the Hague Convention will apply. The UK asserts that it will apply to contracts entered into from 2015 when the convention was signed. The EU’s position is that in respect of the UK the Hague Convention entered into force in its own right on 31 December 2020. Accordingly for contracts entered into after 31 December 2020 the judgment of an English court designated in an exclusive two way choice of court agreement should now generally be enforceable in EU member states under the Hague Convention, but, if the EU’s interpretation is correct it would not apply to agreements choosing English law concluded before that date.
Note it is also possible that non-Hague judgements will be recognised in EU member states under the relevant state’s own rules but each contract will need to be considered on a case by case basis depending on the jurisdiction in question. Going forward if English law is preferred a two way exclusive English law jurisdiction clause will be necessary pending resolution of the question of the UK joining Lugano.
Longer term it would be expected that EU member states will want to use their own laws for the restructuring of mainly European Groups. It would appear, however, that in the immediate term UK schemes may well continue to be recognised under the Hague Convention, and schemes could be a viable option where debts are English law governed with Hague compliant jurisdiction clauses, whatever happens to the vexed question of whether the UK accedes to Lugano.
Stephen Phillips | Partner
T. +44 (0) 20 7139 8233
M. +44 (0) 7811 113 895
Temple Bright | templebright.com
81 Rivington Street | London EC2A 3AY
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