Cross-border disputes: can Hague 2019 fill gaps left by Lugano?

The pre-Brexit legislation that enabled reciprocity of enforcement of jurisdiction clauses and judgments between the EU and the UK is quickly becoming a distant memory.  The EU Commission has continued to reiterate its stance that the EU is "not in a position" (see here) to give its consent to the UK's accession to the 2007 Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the "Lugano Convention") (covered in our previous note here). The EU Commission has gone further to state that, instead of the Lugano Convention, it considers "the Hague Conventions should provide the framework for future cooperation between the European Union and the United Kingdom in the field of civil judicial cooperation".

In this note, we examine the coverage that could be afforded by the 2005 Hague Convention on Choice of Court Agreements ("2005 Hague Convention") and the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the "2019 Hague Convention") (together, the "Hague Conventions").

We consider there are significant gaps in coverage between that afforded by the Hague Conventions and that previously offered by the Lugano Convention. If it came down to a choice between the two, it is clear the Lugano Convention offers greater certainty of reciprocity between the UK and the EU. However, in the absence of that choice, then the 2019 Hague Convention would be a welcome, albeit partial, solution.

Where are we now?

Pre-Brexit, the rules on jurisdiction and enforcement of judgments for parties in England were governed by Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters ("Brussels Recast"), its predecessor Council Regulation 44/2001 of 22 December 2000 (the 2001 Brussels Regulation), and the Lugano Convention. These regulations ensured that parties' contractual choice of jurisdiction was enforced and that judgments from the English courts were recognised and enforceable in the EU (under Brussels Recast) and in Iceland, Norway and Switzerland (under the Lugano Convention).

At the end of the transition period on 31 December 2020, Brussels Recast no longer applied to the UK and, as matters stand, the EU Commission opposes the UK's accession to the Lugano Convention. On 28 September 2020, the UK government deposited its instrument of accession to the 2005 Hague Convention, meaning the UK re-joined in its own right on 1 January 2021, having previously been a party to this only by virtue of its status as an EU member state. Therefore, in relation to the recognition and enforcement of English court clauses and English judgments, the UK is currently reliant on individual member states' local law and the extent to which they will apply the 2005 Hague Convention. There is also the prospect that it may eventually be assisted by the 2019 Hague Convention.

The 2019 Hague Convention would provide a single global framework for the recognition and enforcement of civil and commercial court judgments given in accordance with jurisdiction clauses, including non-exclusive and asymmetric clauses. The 2019 Hague Convention was concluded on 2 July 2019 but has not yet entered into force. In order to come into force, at least two states need to accede to or ratify it and, so far, none have. Some states have indicated their intention to ratify, the most notable being Israel, Ukraine, and Uruguay, who have each become signatories. The EU indicated an intention to accede on 16 July 2021, when the EU Commission published a proposal for a European Council decision in favour of accession (see here). In addition, the US "indicated informally during the negotiations...that they consider adopting both the Judgments Convention and the Choice of Court Convention as a package" (see here). By contrast, the UK has yet to reach a position on whether it intends to accede to the 2019 Hague Convention.

Recognition of English jurisdiction clauses in the EU

The 2005 Hague Convention requires the courts of member states (the UK, the EU, Singapore, Mexico and Montenegro) to recognise and enforce an exclusive choice of court clause (a court must accept jurisdiction where it is the chosen court, and decline jurisdiction where it is not). The 2005 Hague Convention does not cover non-exclusive or asymmetric jurisdiction clauses (where one party is limited to bringing proceedings in one court, but the other is not, such as those commonly found in finance agreements).

Post-Brexit, the UK and EU have expressed divergent views as to how the 2005 Hague Convention shall apply to exclusive jurisdiction clauses agreed before 1 January 2021. Whilst the UK has legislated to apply the 2005 Hague Convention continuously to all relevant contracts entered into since October 2015 (when the UK acceded to the convention by virtue of its membership of the EU), the EU has suggested that the 2005 Hague Convention should only apply to exclusive jurisdiction clauses agreed after 1 January 2021 (when the UK re-joined, independently of the EU). This situation of a signatory 're-joining' is unprecedented and therefore is a question that falls to the courts of the EU member states to decide (see our previous article here). If the courts of the EU member states choose to apply the 2005 Hague Convention only to exclusive jurisdiction clauses agreed on or after 1 January 2021, the gap left by the pre-Brexit legislation could be even greater than the, already significant, one afforded by the UK's interpretation.

The Hague 2019 Convention as currently proposed does not cover jurisdiction clauses whatsoever and so will not assist the English courts or the UK more generally on the question of jurisdiction.

Recognition of English judgments in the EU

How do the Hague Conventions interact on the question of judgments?

The 2005 Hague Convention requires the courts to recognise and enforce judgments given by courts that are designated by exclusive jurisdiction clauses. The 2019 Hague Convention is complementary, in that it will sit alongside rather than replace or override, the 2005 Hague Convention. The 2019 Hague Convention, if popular amongst states, could therefore provide the UK with an additional layer of protection.

What is the coverage of the Hague Conventions?

Put simply, together with the 2005 Hague Convention, the introduction of the 2019 Hague Convention would ensure that any qualifying judgment handed down in the English courts would be recognised in other contracting states (those who accede to or ratify the Hague Conventions), and vice versa - creating greater certainty in relation to the circulation of foreign judgments.

What are the gaps left by the Hague Conventions?

• The Hague Conventions do not cover the recognition or enforcement of non-exclusive or asymmetric jurisdiction clauses: for example,where one party is limited to bringing proceedings in one court, but the other is not, such as those commonly found in finance agreements.

• The Hague Conventions may not cover the recognition and enforcement of exclusive jurisdiction clauses agreed before 1 January 2021: as highlighted above in the context of recognition of English jurisdiction clauses, there is a lack of clarity over whether the 2005 Hague Convention applies to contracts with English parties entered into before 1 January 2021 - see here.

• Risk of parallel proceedings: Under the 2005 Hague Convention, where the parties have chosen a court to have exclusive jurisdiction, any other courts of contracting states (even if the court first seised) must decline jurisdiction. This means that, for disputes brought in accordance with exclusive jurisdiction clauses, there is little risk of parallel proceedings occurring.

  However, there is no similar protection in the 2019 Hague Convention for non-exclusive or asymmetric jurisdiction clauses and therefore there is a risk that multiple proceedings brought in accordance with non-exclusive or asymmetric jurisdiction clauses, between the same parties and on the same subject matter, may take place in different states.

  The Lugano Convention provides that the court first seised takes priority and all other states must stay any proceedings subsequently commenced until the first court has decided the issue of jurisdiction. This is inferior to the provisions of the Brussels Recast, as it allows one party to deliberately start proceedings in a slow moving jurisdiction to block proceedings in the contractually designated court. However, it does prevent the expense of parallel proceedings in different states over the same subject matter. While the 2019 Hague Convention addresses the priority of judgments arising out of parallel proceedings, and therefore the risk of inconsistent judgments, it does not prevent such proceedings taking place.

• Specific exclusions: The 2005 Hague Convention excludes certain anti-trust and intellectual property disputes. The 2019 Hague Convention goes further and, in addition, excludes disputes such as defamation, privacy and sovereign debt restructuring (disputes that would be covered by the Lugano Convention).

  However, there are some welcome inclusions in the 2019 Hague Convention that are excluded by the 2005 Hague Convention. For example, the 2005 Hague Convention is limited to commercial transactions, yet the 2019 Hague Convention applies to employment and consumer contracts, rights in rem and leases of immovable property.

• States' ability to restrict the application of the 2019 Hague Convention:

1. Declaration limiting scope: it ispossible for a contracting state to refuse to have a reciprocal relationship with another contracting state, meaning that judgments would not be recognised between those states. In addition, the 2019 Hague Convention allows contracting states to make a declaration that it will not apply the Convention to a specific matter where it has a "strong interest" in not applying it. The EU Commission's proposal is one example of how this power may be used but it remains to be seen how other key players (perhaps the US and China) would interpret such a power.

2. Fundamental principle of procedural fairness: a state may refuse to recognise and enforce a judgement on certain grounds, including if the judgment would be "manifestly incompatible" with the public policy of the requested state, including "situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness". The key question that arises is whether states, where procedural fairness is at the very core of civil disputes, will refuse to recognise the judgment of less established jurisdictions. Restrictive interpretation of 'procedural fairness' may lead to uncertainty and unpredictability in the application of the 2019 Hague Convention and limit its usefulness.

• Ratification timeline of the 2019 Hague Convention: whilst the 2019 Hague Convention may assist in the future, it does not assist parties facing or looking to bring litigation in the short to medium term. By way of example, the 2005 Hague Convention took ten years to come into force.

We will be closely monitoring which states intend to accede to the 2019 Hague Convention, and subsequently how its provisions are applied.  Whilst the Hague Conventions may not offer the same level of reciprocity afforded by the Lugano Convention, if the 2019 Hague Convention were to see significant international uptake, it would be a welcome development for the UK.

Next steps

Given the potential gap left by the 2005 Hague Convention, the fact that the UK's accession to the Lugano Convention is increasingly uncertain and the 2019 Hague Convention is unlikely to take effect for some time, you may wish to consider the following:

1. Review your existing key contracts to ensure that the dispute resolution clauses are still suitable. Where enforceability issues arise, consider taking advice as it may be a good idea to amend and restate the contract to include an alternative clause.

2. Consider whether your existing boilerplate dispute resolution clauses are appropriate for use in future contracts, taking into account any enforceability risk.

3. Take advice on the question of jurisdiction if you are considering issuing a claim, or are facing proceedings.

We work closely with our European offices on jurisdiction and enforcement issues to ensure we deliver clear, aligned and holistic advice on post-Brexit civil justice matters. If you have any questions, please get in touch.