Where are we now?
EU law continues to apply to the UK during the transition period with some limited exceptions. The current EU regime for cross-border litigation will therefore continue to apply to the UK until 31 December 2020. In particular, this means that insurers can still rely on the Brussels Recast Regulation (1215/2012) which governs jurisdiction and the enforcement of judgements between EU Member States.
The end of the transition period is, however, fast approaching. As the current UK government has indicated on numerous occasions that it does not intend to extend the transition period, insurers have been concerned about significant changes to cross-border litigation after the transition period.
A glimmer of hope
On 28 January 2020, the UK government posted statements of support from Norway, Iceland and Switzerland for the UK's intent to accede to the Lugano Convention 2007 after the end of the transition period. Further, Iceland and Norway expressed a willingness to agree alternatives for civil judicial cooperation even if the UK does not become a party to the Lugano Convention by the end of the transition period.
Why is this significant?
The Lugano Convention provides an alternative legal regime for cross-border litigation in the absence of EU regulations.
The Lugano Convention was originally concluded between the EU and the European Free Trade Association (EFTA) with the exception of Liechtenstein to provide a legal regime for determining issues of jurisdiction and enforcing judgments in the contracting states. The UK automatically became a party to the Lugano Convention by virtue of its EU membership. As soon as the transition period ends, the UK will, however, cease to be a signatory to the Lugano Convention. The UK therefore needs to accede to the treaty in its own right at the end of the transition period.
The statements of Norway, Iceland and Switzerland are important in this context because the UK's accession to the Lugano Convention requires agreement from all contracting parties, including the mentioned EFTA countries. If the EU also agrees, the path would be clear for UK accession to the Convention at the end of the transition period, providing cross-border litigants with much needed legal certainty.
CJEU – a potential roadblock?
Protocol No. 2 of the Lugano Convention requires signatory states to pay "due account to" rulings of the Court of Justice of the European Union (CJEU). As the UK government has signalled frequently that it desires no alignment with the CJEU, this may seem problematic. However, the Convention does not state that CJEU judgements are binding nor does it ascribe supreme jurisdiction to the court. Further, the new government expressed its intent to accede to the Lugano Convention, presumably in full awareness of the mentioned Protocol. Therefore, this provision of the Convention should not be an issue.
Benefits of joining the Lugano Convention
If the UK joins the Lugano Convention in its own right at the end of the transition period, there would be no significant changes to cross-border litigation between the UK, Norway, Iceland, Switzerland and the EU27.
UK courts would continue to recognise and enforce judgements of the other contracting states and vice versa.
Jurisdictional issues will also continue to be determined as under the current legal regime. The general rule of the Lugano Convention in relation to jurisdiction is that persons domiciled in a contracting state may only be sued in the courts of that state, regardless of their nationality. However, there are are several exceptions to this rule, including where there are claims for tort. A claimant can choose to sue in the courts of the place where the harmful event occurred or may occur if they want to bring a claim for tort.
Further, a special regime is also in place under the Lugano Convention for matters relating to insurance (Articles 8–14). Thus Article 9(1) of the Convention states:
"An insurer domiciled in a State bound by this Convention may be sued:
(a) in the courts of the State where he is domiciled; or
(b) in another State bound by this Convention, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts for the place where the plaintiff is domiciled; or
(c) if he is a co-insurer, in the courts of a State bound by this Convention in which proceedings are brought against the leading insurer."
If the UK accedes to the Lugano Convention at the end of the transition period, these provisions would continue to apply to cross-border litigation in the UK, Norway, Iceland, Switzerland and the EU27.
The "Italian torpedo" - a potential drawback to UK accession
Despite the mentioned advantages of UK accession, a potential issue for cross-border litigants is that the Lugano Convention does not protect against the so-called "Italian torpedo". Currently, the Recast Brussels Regulations ensures that a court other than the first involved court may continue to hear a matter if there is an exclusive jurisdiction clause to that effect. The Lugano Convention, however, requires a mandatory stay of proceedings on a second court if proceedings have already been issued in another contracting state.
Consequences of failing to accede to the Lugano Convention
Nevertheless, the consequences of not acceding to the Lugano Convention will be much more problematic for most cross-border litigants. In the absence of alternative arrangements, there would be no specific jurisdiction regime applicable between the UK and the EU27 except the Hague Convention on Choice of Court Agreements (assuming the UK accedes to the Hague Convention which is almost certain as the consent of the other contracting parties is not required). However, the Hague Convention only applies to exclusive choice of court agreements and even some of these are affected by Brexit uncertainties. Insurers should therefore review exclusive jurisdiction clauses before the end of the transition period.
Iceland, Norway and Switzerland are not contracting parties to Hague Convention. Courts of these EFTA states would therefore apply their national laws when determining whether they have jurisdiction to hear disputes and the courts of England and Wales would apply common law principles.
A potential solution to these legal uncertainties would be for the UK government to negotiate a bilateral treaty with the EU that incorporates the current rules on jurisdiction and enforcement. As such negotiations are, however, likely to be extensive, a bilateral treaty would not provide a short-term solution for cross-border litigants.
Accession to the Lugano Convention therefore remains crucial and the supporting statements of Norway, Iceland and Switzerland should be considered a positive development towards ensuring there are no significant changes to cross-border litigation post-Brexit.
For further information please contact Sara-Jane Eaton, Head of the European Group on +44 (0)20 7280 8827 or at Sara-Jane.Eaton@dwf.law or Rishab Reitz, International Claims Handler on +44 (0)20 7220 5322 or at Rishab.Reitz@dwf.law