While the corona crisis is first and foremost on everyone’s minds, negotiations on the United Kingdom’s departure (‘Brexit’) from the European Union are still ongoing. Despite the obvious need for European cooperation in the response to COVID-19, the Johnson government is determined to end the current transition period by December 31st, 2020. One of the many aspects of the negotiations is whether the UK will remain part of the EU’s regime on jurisdiction, recognition and enforcement of judgments in civil cases. According to the Financial Times, the European Commission has advised the Member States to reject the UK request to remain within that regime through accession to the Lugano Convention. This blog will set out the core rules of the Lugano regime, its impact on UK private international law and the forum non conveniens doctrine in particular, and reasons why the UK could or could not join the Lugano Convention.
The core of the EU’s regime on jurisdiction, recognition and enforcement in civil cases is the Brussels-I bis Regulation. The current Regulation was preceded by the 2001 Brussels-I Regulation and the Brussels Convention of 1968, and entered into force in 2012. The Regulation of course only applies to EU Member States, but is supplemented by the Lugano Convention of 2007. The Lugano Convention mirrors most of the rules of the Regulation and makes them applicable to non-EU signatories, which currently include Denmark, Iceland, Norway and Switzerland. The rationale behind the regime, as stated in the Recitals, is that mutual recognition and easy enforcement of judgments improves legal certainty and reduces litigation costs for EU citizens, which in turn supports the functioning of the internal market.
The general jurisdictional principle of the Brussels-I regime is that defendants shall be sued in the courts of the state where they are domiciled. For natural persons, this is determined according to domestic law of the relevant Member State. For legal persons this is defined in Article 63 of the Regulation and can either be where they have their statutory seat, central administration or principal place of business. This principle also defines the scope of the Regulation: only suits brought against EU-domiciled defendants fall within the scope of the Regulation. For suits against defendants not domiciled in a Member State, jurisdiction is determined according to the domestic private international law of the state where the suit is brought. The Regulation is semi-exhaustive: in cases that fall within its scope, courts of Member States cannot rely on rules of domestic law to assume or refuse jurisdiction. The only possible exceptions to the domicile rule are those that are listed in the Regulation itself.
There has always been some friction between the Regulation and the English legal tradition. The idea of compulsory jurisdiction is more closely associated with the civil law tradition of continental Europe, than with the common law tradition of the United Kingdom. English courts traditionally have more leeway to assess whether it is appropriate to exercise jurisdiction on a case-by-case basis. This is a consequence of a different outlook on what jurisdictional rules are for: the civil law tradition emphasizes predictability and legal certainty; the common law tradition emphasizes procedural justice.
The adoption of the Regulation and its predecessor, and the Brussels Convention before that, has imposed some of the civil law tradition onto English courts. One very noticeable effect, which was initially not obvious to English courts, was that they could no longer rely on traditional common law doctrines to stay proceedings in favour of foreign courts. In particular, pursuant to the ECJ’s seminal Owusu decision, English courts can no longer apply the forum non conveniens doctrine to lawsuits against defendants domiciled in England. This doctrine allows courts to stay proceedings in favour of a foreign court, if the case is more closely connected to that court and substantial justice can be done there.
The Owusu ruling has made it much easier to litigate against English corporations and their foreign subsidiaries for harmful acts committed abroad. Since the late 1990s, an increasing number of lawsuits has been brought in English courts concerning detrimental impacts of corporate activities on people and the environment. I discussed some of those cases on this blog and elsewhere, outlining the importance of litigating them in European courts in absence of meaningful prospects for substantial justice elsewhere. Before Owusu, such cases would often get bogged down in years of forum non conveniens litigation where defendants argued that the state where the harms occurred offered a more natural forum, which was both expensive and time-consuming for claimants. While such lawsuits are still complex and often subject to extensive litigation on jurisdictional matters, the ECJ has at least removed forum non conveniens as a potential barrier for claimants.
Should the UK leave the Brussels jurisdictional regime, forum non conveniens (FNC) may be back on the table again for lawsuits against English corporations acting abroad. This would undoubtedly be welcome for some English lawyers; even the Supreme Court of the United Kingdom has voiced its discontent over the Brussels regime removing FNC from the judicial toolbox. There have even been some unsuccessful attempts to reintroduce the possibility of applying the FNC doctrine during the recasting process of the Regulation. In that respect, it would have seemed logical for the UK not to want to join the Lugano Convention and keep being subject to the Brussels regime; under the Lugano Convention the UK would still be subject to the Brussels rules, but as a non-Member State would have even less power to amend that regime.
Moreover, the Lugano Convention contains even less possibilities to stay cases than the Regulation itself. The most recent version of the Regulation offers a ‘quasi-FNC’ option in the form of broader lis pendens rules. Articles 33 and 34 of the Regulation allow courts of EU Member States to stay proceedings in favour of courts of third states, if the same or sufficiently related proceedings are pending there and a decision of that court can be recognized and enforced in the Member State. These rules were applied in an ongoing case related to foreign impacts of the activities of English corporations, and may be relevant in another. These rules were not part of earlier versions of the Regulation, nor are they part of the Lugano Convention. Although English courts have controversially applied these new rules reflexively, it is not certain whether the ECJ would accept such an interpretation.
Why then, would the UK still want to join ‘Lugano’? The answer lies in economic benefit. English legal culture, litigation-friendly procedural law and the availability of an array of funding possibilities made England an attractive place for commercial litigation. Many companies are registered on the London stock exchange or confer exclusive jurisdiction on English courts in contracts. Currently, judgments by English courts can then be easily recognized and enforced elsewhere in the EU pursuant to the Regulation. This has produced a booming and lucrative litigation sector with many high-paying jobs. Apparently, the economic interests of that sector outweigh the possible downsides of FNC no longer being available in cases against English defendants. Joining the Lugano Convention would ensure that judgments could still be recognized by EU courts, and keep the London lawyers in business.
The UK desire to keep its cash cow may now be thwarted by the Commission and other Member States. According to the Financial Times, the main reason for the Commission’s advice is that thus far, the British position has been that Brexit will also mean departure from the single market and the European Economic Area (EEA). As the Brussels regime, including the Lugano Convention, is intended to support the single market, the current signatories to the Convention all participate in the single market, either as EFTA states (Norway and Iceland) or through special agreements (Switzerland). According to the Commission, becoming a signatory to the Lugano Convention without joining the single market would mean that the UK would receive some of the economic benefits of the single market without having to open up its markets for other states in the EEA.
As with most things Brexit, it remains to be seen whether over the course of the negotiations the respective positions on these points will soften. It is of course tempting to assume that mutual economic benefit will eventually lead the UK to join the Lugano Convention, and continue to be part of the EU legal order – at least for civil procedural purposes. The strange history and unpredictable nature of the Brexit procedure, compounded by the ongoing pandemic, do mean that this is far from a given. January 1st, 2021 may still be the day to shred a large number of private international law textbooks.