Treading carefully – cross-border litigation after Brexit

The transition period has ended and, in theory at least, Brexit is now complete. This should mean there is clarity where future UK-EU relations are concerned. Why, then, are litigators left scratching their heads? Here, we identify three areas of continuing uncertainty where parties should tread with care.

When the Brexit trade deal was unveiled at the end of December, it came as no surprise that it said nothing about commercial disputes. These were not covered in the framework document that the deal was based on, and time was short anyway. Despite the importance to the UK of its legal services sector – it generates more than £35bn for the economy every year – facilitating cross-border litigation was clearly not at the top of the government’s list of priorities.

The result is not catastrophic – most UK judgments will continue to be enforceable in most EU jurisdictions and breaches of exclusive jurisdiction agreements can often be dealt with by obtaining an anti-suit injunction from the English courts. These agreements will also continue to be supported by EU jurisdiction rules in certain situations, albeit on a discretionary basis. Nevertheless, the lack of any deal concerning commercial litigation is disappointing, since a large measure of continuity could have been achieved quite easily by allowing the UK to rejoin the Lugano Convention 2007 (Lugano), which currently covers the remaining EU member states and three of the four EFTA countries (Iceland, Norway and Switzerland).

It is true that ‘separation provisions’ in the Withdrawal Agreement ensure continuity in limited respects. Cases that were pending when the transition period ended will continue to be protected by EU jurisdiction rules and any judgments resulting from them will also be enforceable under EU rules, regardless of when the judgments are made or enforcement proceedings begin (Article 67).

Also, some documents that were in the process of being served across borders when the Brexit transition period ended were allowed to continue on their journey under EU rules where these previously applied (Article 68). But in other respects there is simply a change in relationship, with the UK being treated (at least for the time being) as a ‘third state’ where civil litigation is concerned.

To make matters worse, confusion has arisen in relation to three specific issues, as follows.

When should claimants issue English proceedings?

The first of these concerns disputes that were already brewing when the transition period ended but have not yet resulted in proceedings being issued in England. Should claimants simply go ahead and issue a claim form when the time is right, even though any resulting judgment may be relatively difficult (or even impossible) to enforce in the relevant EU member state, or should they wait until the UK is allowed to rejoin Lugano?

The answer depends on how quickly a party needs to turn its claim into cash, of course, as well as on limitation issues. Some claims need to be litigated urgently, otherwise they will be time-barred. But in many cases, parties will have a genuine choice as to whether to litigate now or in some months’ time, when the legal landscape may have changed.

The arguments for waiting are powerful. Although the Brexit process is technically complete and there is little pressure on the EU now to make cross-border litigation less difficult, it could still allow the UK to rejoin Lugano. The other Lugano states have already given their consent and the UK has prepared for the event by laying Lugano before parliament. Parties both inside and outside the EU would benefit from the arrangement.

However, if permission is given and the UK rejoins Lugano, this would not have retrospective effect. The wording of Article 63, which governs the temporal scope of Lugano, is not entirely clear on the point, since it was not designed to cover states leaving at one moment and rejoining the next. But the effect of the provision appears to be that, if and when the UK rejoins Lugano, its rules will apply only to cases commenced after that takes place. In other words, cases brought now, while the UK is waiting for the EU to give its permission, may not benefit from Lugano’s jurisdiction and enforcement provisions. The problem is exacerbated, as it happens, by a two- to three-month period between a country taking the necessary procedural steps for accession and this taking legal effect (Article 73).

Of course, claimants cannot wait for ever. However, it may be worth delaying for a few months at least, before taking a view as to whether the UK is likely to rejoin Lugano in the short or medium term. Acting precipitately may not be in a claimant’s best interests.

When can parties rely on the Hague Convention 2005?

Another source of confusion is the Hague Convention on Choice of Court Agreements 2005 (Hague). The UK joined Hague in October 2015 as an EU member state and it has now rejoined as an independent contracting state – which it was free to do unilaterally, without obtaining permission from the EU or anyone else.

In the longer term, this will be very valuable, even though Hague applies only to a relatively narrow range of disputes and only where the parties have entered into a straightforward exclusive jurisdiction agreement identifying courts of a Hague state. However, from the UK perspective, Hague has very little application now, even within these limits. This is because its temporal scope is defined not by reference to when proceedings are commenced, as is the case with Lugano, but by reference to when the relevant jurisdiction agreement was concluded (Article 16).

Uncertainty arises because it is not clear what the relevant cutoff date for that should be. Initially, it was hoped Hague would continue to cover disputes governed by exclusive English jurisdiction agreements concluded from 1 October 2015 onwards. This is the date that appears in the official status table for the Convention, and it is also the date fixed in UK rules and legislation following Brexit, so reliance can be placed on it when enforcing EU jurisdiction agreements and judgments within the UK.

However, the position is less clear where outward enforcement is concerned – that is, when UK judgments are being enforced in the EU. The European Commission has issued guidance saying in effect that the cutoff date is the end of the Brexit transition period, meaning 1 January 2021. This may not be very logical but given that courts in the EU are unfamiliar with Hague and the Court of Justice of the EU is unlikely to clarify the issue any time soon, it is best to assume that the Commission’s view will prevail in the EU for the foreseeable future. This means that, from the perspective of a judge in the EU, very few disputes will fall within the temporal scope of Hague for some time to come.

How should claimants enforce EU judgments in England?

A third area of uncertainty concerns the enforcement of judgments from the EU that do not benefit from the Withdrawal Agreement’s separation provisions and also fall outside the scope of Hague.

In principle, a foreign judgment can be enforced in England as a debt at common law. Fresh proceedings have to be commenced, so the procedure is not an easy one. However, it can be quite short if the claimant is able to obtain summary or default judgment. An even quicker procedure is available under the enforcement statutes, which allow judgments from certain jurisdictions to be enforced through a process of registration. In theory, these include a number of major jurisdictions in the EU, including France, Germany and the Netherlands.

However, the bilateral treaties that underpin these arrangements may not be in force now, because some (or all) of them were arguably superseded by EU enforcement rules and would have to be explicitly endorsed by the relevant national governments to have legal force again.

The position is far from clear. Unfortunately, this creates a problem because common law and registration procedures are mutually exclusive and if the wrong procedure is chosen it may not work, or if it does, the claimant may suffer a costs penalty.

Tread carefully

These, then, are the major areas of uncertainty, following Brexit, where cross-border litigation is concerned. Whether they will be resolved quickly remains to be seen. It is also not clear whether the English courts will take a robust approach by issuing anti-suit injunctions where exclusive jurisdiction agreements have been breached in the EU. Hopefully the courts will be supportive in this way unless and until the UK is allowed to rejoin Lugano, but in the meantime parties need to tread carefully in all these areas, delaying issuing proceedings where appropriate and accepting that, at this stage, outcomes may not be predictable in every case.

Contributed by Chris Burdett, partner, and Giles Hutt, professional support lawyer, Clyde & Co