• Avinder Laroya

EU block the UK from becoming members of the Lugano Convention.

What are the options available for businesses with small claim cross border disputes in the EU?


The Lugano Convention is an international treaty that governs cross border jurisdictional matters, enforcement, and recognition of court judgments within contracting states. Contracting states include the EU, Denmark, Iceland, Norway, and Switzerland. Prior to Brexit, the UK was party to the Lugano Convention by virtue of being a member state to the EU. As the UK is no longer part of the EU, it has to accede to the Lugano Convention in its own right in order to continue benefiting from its provisions.



This article will discuss the UK’s accession to the Lugano Convention, why this is significant, implications of the UK’s failure to become party to the Lugano Convention especially on small claims, and lastly practical steps you should take into consideration to protect your business position in the EU during this transition.


  1. The UK’s accession to the Lugano Convention

  2. The significance of the Lugano Convention

  3. The Implications of the UK’s failure to accede to the Convention

  4. Practical steps for your business


1. The UK’s accession to the Lugano Convention

On 8 April 2020, the UK requested to become a member of the Lugano Convention. After a closed-door meeting held by EU diplomats on 12 April 2021, an assessment report was published by the European Commission stating that it does not consent to the UK joining the Lugano Convention. The Commission came to this conclusion based on the fact that the Convention is a ‘flanking measure for the EU’s economic relations with the EFTA/EEA countries.’ Since the UK is no longer part of the EU, it is viewed as a third country under the Convention. Although the Convention in principle allows for a third country to join the Convention upon unanimous consent from all contracting members, it is not aimed at just any third country particularly one without close regulatory integration with the EU. Only Poland has acceded to the Convention as a third country since it was originally agreed in 1988 and this is only because it was on its path to joining the EU.


It is important to note that the European Commission’s report is only preliminary and therefore does not represent a final decision on this matter. A unanimous decision by all Contracting Parties, with an overarching exclusive authority from the European Union, is required to accept or reject the accession of another state to the Convention.


2. The Significance of the Lugano Convention


The Lugano Convention sets out the rules concerning international jurisdictional matters and provides a quasi-automatic enforcement and recognition system of civil and commercial judgments within member states. Essentially, if the UK is granted permission to join the Lugano Convention, UK businesses and individuals will be able to bring claims to the English courts involving other individuals and/or businesses based in the EU. Consequently, English court judgments will have no obstacles in being enforced and recognised in EU member states and vice versa.


By way of an example, Company A which is based in the UK imported widgets from a supplier based in Germany. Half of the last shipment which was delivered by the supplier in February 2019 was faulty. Company A tried to resolve the issue with the supplier unsuccessfully. Because the UK was still a member of the EU during this time (until 31 December 2020), Company A brought a claim against the German supplier in the English courts. Company A was awarded a court judgment which he was able to enforce in Germany without any difficulty.


3. The implications of the UK’s failure to accede to the Convention


Prior to the end of the UK’s transition period out of the EU (31 December 2020), there was a reciprocal recognition of parties’ choice of jurisdiction and enforcement and recognition of English judgments across the EU. Therefore, any parties that commenced dispute resolution proceedings on or before 31 December 2020 are still covered by this principle.


Proceedings commenced on or after 1 January 2021 may be covered by The Hague Convention on Choice of Court Agreements [2005] (‘The Hague Convention’) depending on whether they fall within its scope and if the terms of the contract contain an exclusive jurisdiction clause in favour of the English courts. The EU and UK are both signatories to The Hague Convention thus an exclusive jurisdiction clause will be upheld by both the EU and English courts. The fate of contracts with non-exclusive or asymmetric jurisdiction clauses is in the hands of judicial or statutory clarification i.e. English common law, international conventions, and/or national rules of individual EU countries. This is likely to be the same position for disputes that predated 1 October 2015 before the UK acceded to The Hague Convention through its membership under the EU. It should be noted that there is uncertainty on the application of The Hague Convention to claims that started before 1 January 2021 when the UK acceded to the Convention in its own right.


English common law provides for the enforcement of foreign judgments including those made in the EU through the commencement of proceedings in the English courts, where the judgment is for a money debt claim. Although this provides a solution for claims that may not be covered by The Hague Convention, it leads to additional court fees and prolongs the enforcement of foreign court judgments. Holding proceedings in foreign jurisdictions may also lead to extra fees associated with appointing lawyers in a foreign jurisdiction and/or traveling to another country to attend court proceedings in addition to language barrier.


The European Commission is planning to propose EU conclusion of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

[2019] (‘2019 Hague Judgments Convention’) which will perhaps improve the current judicial cooperation between the UK and EU. The 2019 Hague Judgments Convention is specifically designed to regulate the enforcement and recognition of judgments made within member states.


4. Practical steps for your business


If you already have existing contracts running with counterparties in the EU, review the terms and consider changing non-exclusive and/or asymmetric jurisdiction clauses to exclusive jurisdiction clauses in order to benefit from the provisions of The Hague Convention.


Our commercial team provide a document audit service to review your dispute resolution mechanisms and renegotiate and draft existing agreements, you can find out more by clicking here


Alternatively, consider reviewing your dispute resolution clause to ensure in the event of a dispute an appropriate mechanism is used. Contact a member of our team to discuss your contractual matters by clicking here


Following our case study above, Company A has since found another widget supplier based in Germany. Since company A had built a good relationship with the new supplier, he continued to purchase widgets from him even after Brexit. Recently, Company A was unable to receive his widgets on time due to the delays caused by Covid-19 and the supplier’s contract has no force majeure provisions. As the UK has left the EU, the Lugano Convention will not regulate how the concerned parties proceed with this dispute. If the supplier contract has an exclusive jurisdiction clause appointing England as the choice of court for dispute resolution, The Hague Convention will apply. Company A can therefore bring its claim to the English courts. Any judgments made by the English Courts will be enforceable in Germany.


In absence of an exclusive jurisdiction clause, Company A should consider an alternative mechanism to settle the ongoing dispute. It is advisable for Company A to seek legal advice on how to proceed with this dispute. In such circumstances, pre-existing bilateral agreements between the UK and Germany and the German and/or English national laws on enforcement may come into play.


Summary


Prior to the UK’s exit from the EU, the Lugano Convention automatically regulated jurisdiction matters and enforcement and recognition of court judgments between the two blocks. Now that the UK is no longer part of the EU, it is required to accede to the Lugano Convention in its own right in order to continue benefiting from its provisions.


A final decision to the UK’s application to join the Lugano Convention is yet to be made. In the interim, it is advisable that you review all existing cross border contracts to ensure that your business position is protected in case of any future disputes. Our commercial team provide a document audit service, you can find out more by clicking here


Firstly, ensure that your contracts contain an exclusive jurisdiction clause electing the English courts as your choice of court for dispute resolution. In effect, The Hague Convention to which the UK and EU are both contracting parties will govern the settlement of any disputes involving your business. It will also set out the rules regarding enforcement and recognition of all court judgments consequently made.


Contact our commercial law specialists here to receive a complimentary 15 minute consultation on how to redraft existing contracts and/or draft future contracts to include a dispute resolution mechanism best suited for your business. We also offer a tailored legal document audit service according to your needs and objectives.


Who are Serenity Law LLP?


Serenity Law has an experienced team of commercial law experts who are dedicated to helping clients achieve legal solutions. We support our clients to settle their disputes through ADR procedures such as mediation. Our co-founding partner, Avinder Laroya, is CEDR accredited and a CMC registered mediator for commercial and workplace disputes. She is passionate about resolving international commercial disputes. As a CEDR accredited mediator, Avinder Laroya can work with you to overcome disputes, minimising the need to go through lengthy, costly, and stressful court proceedings. Click here to book your free 15-minute consultation.