Update: Private international law after the transition period

As a Member State of the EU, common rules governing the recognition of choice of law clauses (the Rome I & II Regulations) and jurisdiction and the enforcement of judgments in civil and commercial matters (as set out in Brussels I Regulation (recast) (the Recast Regulation)) applied to the UK. The result was extensive protections throughout the EU for English choice of law and jurisdiction clauses and court judgments.

The existing regime in relation to governing law is not based on reciprocity and will remain in effect post-Brexit. By contrast, the Recast Regulation, which currently continues to apply by virtue of the ongoing transition period, will fall away on 31 December 2020, with extensive ramifications for companies making use of English jurisdiction or seeking to rely on English court judgments in the EU. We’ve commented extensively on these ramifications throughout the negotiation and transition phases (for instance, see our article here).

Having first suggested it might do so as early as Summer 2017, the UK formally applied to accede in its own right to the Lugano Convention on 8 April 2020 (the relevant materials have been published by the Depositary here and in the annex here).

The Lugano Convention applies as between EU Member States, Norway, Switzerland and Iceland and, like the Recast Regulation, it currently continues to apply to the UK as a result of the ongoing transition period. If the UK were to accede to the Lugano Convention prior to the end of the transition period it would ensure that – in most significant respects – the current regime in respect of the recognition and enforcement of English jurisdiction clauses and court judgments across Europe would remain in place (save that certain protections under the Recast Regulation would fall away). If the UK was not able to accede to the Convention the recognition and enforcement of English jurisdiction clauses and judgments would be determined, depending on the particular circumstances, by the more limited provisions of the Hague Convention on Choice of Court Agreements (the Hague Convention) or local law.

What happens next?

Unanimous consent of the existing state parties is required in order for the UK to accede to the Lugano Convention in its own right. As such, the UK’s accession is far from a foregone conclusion and, and as reported by the Financial Times (paywall), the EU’s position in respect to it is likely to be linked to other matters under negotiation.

Where are we now?

As things stand, in the absence of an agreed position between the UK and EU, the most likely scenario is as set out below:

• the transition period will end on 31 December 2020;

• from that point, the Recast Regulation and - presuming no deal is
  agreed between the UK and EU in the course of 2020 - the Lugano
  Contention will fall away; and

• as a result, the Hague Convention will determine the status of
  English jurisdiction clauses and judgments before EU Member State
  courts. As has been widely commented on, there are a number of gaps
  in, and transitional issues related to, the Hague Convention (see our
  commentary here). Most significantly, it does not apply to commonly
  used non-exclusive and asymmetric jurisdiction clauses. As such, EU
  Member State courts will consider these in accordance with their
  differing local law regimes.

In the future the Hague Convention on the Recognition and Enforcement of Foreign Judgments, the purpose of which is to create a set of uniform rules for the recognition and enforcement of judgments in cross-border cases in civil and commercial matters, may resolve many of the most significant issues with the above scenario. However, parties cannot currently rely on the Judgments Convention being in force anytime soon. It was agreed by the Hague Contracting States (including the UK and EU) on 2 July 2019. But, based on previous example, the timeframe for accession and effectiveness is uncertain and could be lengthy; it took over 10 years from the date on which the Choice of Court Convention was signed by Contracting States to the point at which it was ratified and entered into force. Further analysis is available here.

Practical Risks and Mitigating Steps

• In respect of governing law, parties need not have significant
  concerns about choosing English law for their contracts, as such a
  choice will continue to be recognised across the EU. There is some
  increased risk of non-derogable provisions of local law being
  applied, but for most commercial counterparties this will be
  outweighed by the benefits of retaining an English choice of law.

• There is a greater risk in relation to the recognition of English
  jurisdiction clauses and enforcement of judgments. In relation to
  commercial agreements to be entered into following the transition
  period, parties who wish any disputes with an EU27 connection to be
  heard by courts in the UK should consider using an exclusive
  jurisdiction clause in order to benefit from the provisions of the
  Hague Convention.

• The Hague Convention is unlikely to be applied to agreements entered
  into prior the end of the transition period. Firms that have
  historically entered into significant numbers of non-exclusive and
  asymmetric jurisdiction clauses are particularly advised to consider
  the risks faced. It may be unrealistic to revisit all agreements, but
  businesses may want to consider restating jurisdiction agreements in
  relation to key business relationships or those contracts deemed to
  be of highest risk.