EU rejects UK re-entry to Lugano Convention

13 May 2021

Shane_mcveigh_(500x500)

In January 2020, as we braced ourselves for the unknowns of post-Brexit UK, none of us could have dreamt that a much more serious challenge lay beneath the surface. The COVID-19 pandemic quite rightly became the priority, however, while Brexit might no longer be top of the news bulletin many of its problems remain unresolved.

One such issue is the fact that once the UK left the EU it became a third country in relation to the Lugano Convention.

What is the Lugano Convention?

The Lugano Convention is an international treaty between the EU, Iceland, Norway and Switzerland, which permits judgments obtained in those jurisdictions to be enforced in the other Lugano jurisdictions. In simple terms if a NI based company obtained a judgment against an Italian manufacturing company or a Swiss bank then that judgment could be enforced in the Defendant’s home country as though it were a judgment of that country’s judicature. It is a useful treaty as it would permit a Plaintiff to issue proceedings in their home territory (generally the preferred option) but having the effect of being enforceable where the Defendant is carrying on business or resident.

How did it work?

The registration of the domestic judgment in a Lugano convention territory was purely procedural. For example, in the case of undefended proceedings or consent orders there is a process called the European Enforcement Order. The Plaintiff would be required to complete some forms setting out all the specifics of the parties involved, sums awarded, costs awarded and would file these documents in the Court Office of the appropriate jurisdiction. If in order the Court would furnish the moving party with a Court Order of that jurisdiction having the effect of being immediately and automatically enforceable in that jurisdiction.

Brexit

The UK’s exit from the EU on 31st January 2020 meant that it no longer had the convention rights that block membership entitled them to and like many other arrangements it would have to apply as an independent nation.

It should be noted that the UK did accede to the Hague Convention following its departure from the EU, permitting UK based litigants to have some ongoing jurisdiction and enforcement rights that were available pre-Brexit.

Accession

So is it in the UK’s interest to re-join? For business, very much so as it streamlines a very difficult process that people would prefer to avoid, that being instructing lawyers and litigating in a foreign jurisdiction. Although it won’t have received prominence in the Brexit debate, Convention membership was one of the many benefits of EU membership that ordinary voters will not have been mindful of when casting their ballot.

The UK government applied to accede to the Convention on 8th April 2020. The Application was unique as it would make the UK the only Lugano nation that was not a member of the European Union, the European Economic Area or the European Free Trade Association. By opting for a hard Brexit (‘hard’ defined by the writer as leaving the Single Market and the Customs Union) the UK Government cemented its position in this regard.

Decision

The EU Commission, by far the biggest influence within the Convention, rejected the UK’s application on 4th May 2021. Although the Commission’s decision is not binding it is expected that the European Parliament and the Council will ratify the decision.

The Commission has set out the reasons for the refusal of the UK’s request:

  • The Convention effectively extends the benefits of the EU framework of recognition and enforcement of judgments to signatory countries, thereby facilitating greatly access to the EU’s area of justice in civil and commercial matters.
  • The Convention therefore represents an essential feature of a common area of justice and acts as a solid legal basis for the EU’s economic relations with the EFTA/EEA countries.
  • The Convention supports the EU’s relationship with third countries which have close regulatory alignment with the EU.
  • The Convention can only be the appropriate general framework for judicial cooperation with third countries if that third country signs up to participation in the single market and to close regulatory alignment with the EU.

On the basis of the above it is difficult to see how the UK or indeed any third country could be accepted into the Convention without, to use the Commission’s words, ‘participation in the single market’ or ‘close regulatory alignment’.

We know that membership of the single market is out of the question and regulatory alignment remains a difficult sell to voters, so for now it looks like the answer is no.

There may be more to this decision than first appears. Relationships between the UK and the EU remain delicate as they grapple with vaccine supply issues, fishing disputes and the Northern Ireland Protocol, so it could be a case that the EU’s opposition is more strategic than ideological.

It is not surprising that the EU would choose to prevent the UK from obtaining the benefits of international treaties that EU membership previously afforded them, or even more simply, that the EU would give the UK government something it wants while trust is in low supply. The non-EU Lugano nations have indicated that they are agreeable to allowing UK accession, so it is very much the EU keeping the UK out.

Effect

As highlighted above GB and NI based litigants will continue to have Hague Convention rights which allow for cross-border enforcement. However, Hague Convention rights primarily deal with the choice of court and jurisdiction clauses. The shut-out from Lugano however, means that for non-Hague Convention cases then cross-border enforcement of judgments becomes complicated, subject to conflicts of laws between the UK Courts and the third country of enforcement.

Parties will have no choice but to seek local advice in those countries to take their proceedings to the next step, and could find that the domestic judgment in their favour is not the end of the matter. It is likely that this will entail fresh proceedings in that country, guaranteeing more time and more costs are spent on the matter.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

Back