The United Kingdom and the European Union concluded the long-awaited Trade and Cooperation Agreement on 24 December 2020. The agreement sets out the terms of their future cooperation following the ‘very final’ Brexit that occurred on 31 December 2020.
The agreement does not address judicial co-operation, although Brexit has a material impact e.g. on the recognition and enforcement of English judgments within the EU (and vice versa). The issue involves almost all commercial arrangements, but is perhaps of particular relevance to the parties of various financing arrangements.
For example, many of the existing loan agreements of Finnish companies are governed by English law, and any disputes arising under such agreements are agreed to be settled by English courts. Accordingly, the parties to a loan agreement in particular have an interest in ensuring that a judgment issued by an English court is enforceable in Finland in addition to any other EU Member States where the borrower or the other obligors may have assets.
Legal regime prior to the ‘very final’ Brexit
The Brussels I Regulation (N:o 1215/2012 recast) stipulates which court has jurisdiction in a matter linked to more than one EU Member State. Furthermore, the regulation provides a legal regime for the recognition and enforcement of judgments in other Member States.
The scope of the regulation is relatively wide, and it covers almost all commercial matters. Accordingly, financiers have relied on the regulation forming a rather solid legal basis for jurisdiction clauses and the recognition and enforcement of judgments in other Member States since the regulation was adopted in 2001.
Brussels I Regulation was directly applicable both in the UK and the EU until 31 December 2020. However, the regulation is no longer applicable in terms of the UK since that date.
Current legal regime
Currently, judgments issued by English courts are recognised and enforced in EU Member States based either on national law or the Hague Convention on the Choice of Court Agreements (2005) (the “Hague Convention”). The provisions of national law vary between jurisdictions, but a foreign judgment is usually not recognised and cannot be enforced unless its recognition and enforcement is based on the Brussels I Regulation or some applicable international convention. This is also the case in Finland.
Both the UK and the EU are parties to the Hague Convention. Further, there has been speculation on the UK joining the Lugano Convention on the Recognition of Judgments in Civil and Commercial Matters (2007) (the “Lugano Convention”). Both conventions are touched upon separately below.
The Hague Convention
The Hague Convention is an international convention on exclusive jurisdiction clauses and the recognition and enforcement of judgments in other contracting states. The UK was previously a party to the Hague Convention in its capacity as an EU Member State and, in anticipation of the very final Brexit, the UK re-acceded to the convention in its own right on 28 September 2020.
The Hague Convention will apply between the UK and the EU in commercial matters where an exclusive jurisdiction agreement (or an exclusive jurisdiction clause included in an agreement) is entered into on or after 1 January 2021. However, the UK and the EU disagree on as to whether the Hague Convention also applies to jurisdiction agreements or clauses that were entered into on or after 15 October 2015 (the UK’s position) or only to those that were concluded on or after 1 January 2021 (the European Commission’s position).
Since the Hague Convention applies only in terms of exclusive jurisdiction agreements or clauses, so-called asymmetric clauses, which leave it to one party to decide if a dispute is commended in another court than the one named in the jurisdiction agreement or clause, are excluded from the scope of application. Furthermore, the convention is also otherwise narrower in scope than the provisions of the Brussels I Regulation. For example, the matter must have an international connection beyond the choice of a foreign court in order to fall within the scope of the Hague Convention.
The Lugano Convention
The Lugano Convention is an international treaty that attempts to clarify which national courts have jurisdiction in civil and commercial cross-border disputes. It also aims to ensure that judgments made in such disputes can be enforced across borders. The Lugano Convention currently applies between the EU, Denmark (which has opted out of the Brussels I Regulation), Iceland, Norway and Switzerland.
The UK has applied to re-accede to the Lugano Convention as an independent member with effect from 1 January 2021. The UK’s application has received support from Switzerland, Norway and Iceland, but there is no sign that the EU and Denmark support the application. The UK’s re-accession to the Lugano Convention requires the unanimous consent of all signatories, excluding Denmark, which has opted out of justice and home affairs under the relevant EU treaties. As soon as the parties have given their consent, the depositary will invite the UK to accede to the Lugano Convention.
If the UK does re-accede to the Lugano Convention, its re-accession should basically eliminate any need to rely on the Hague Convention or on local laws in terms of enforcing English judgments. The Lugano Convention largely replicates the Brussels I Regulation and could provide an almost seamless transition with regard to the enforcement of judgments across the UK and the EU. English jurisdiction clauses would largely continue to be respected by the EU and the other contracting states, and English court judgments would continue to be readily enforceable within these states.
The recognition and enforcement of English judgments in Finland may currently be based on the Hague Convention. However, the application of the convention is subject to the existence of an exclusive jurisdiction agreement or clause that leaves no room for any asymmetry, and any judgments may nevertheless turn out to be unenforceable if the agreement or clause was entered into before 1 January 2021. Further, the scope of application of the Hague Convention is also otherwise very narrow. One should carefully assess e.g. whether the relevant matter has an international connection beyond the choice of a foreign court.
Finally, the Trade and Cooperation Agreement concluded between the UK and the EU on 24 December 2020 does not address judicial co-operation. To the extent of our knowledge, the EU has given no indication that it will consent to the UK’s re-accession to the Lugano Convention. As such, it remains to be seen as to whether the EU will allow the UK’s re-accession, which would more or less restore the pre-Brexit status quo in terms of the recognition and enforcement of English judgments in Finland and in other EU Member States.
Borenius’ lawyers are available to assist in addressing any questions you may have regarding this legal alert.