Brexit... Dispute resolution

In a word, no. These agreements do not contain any provisions on general judicial co-operation in civil matters and the UK’s request to join the Lugano Convention remains outstanding.

As of 1 January 2021, the UK is no longer a party to the Brussels jurisdiction and judgments regime nor the Lugano Convention but it is a contracting state of The Hague Convention on Choice of Court Agreements 2007.

This, of course, like everything else, will depend on whether the UK strikes a trade deal with the EU by 31 December 2020.

The current position is that any judgment issued by the English Court or, for example, the Italian Court shall be treated in Italy or in England as if it were a judgment of its own Courts. It is automatically recognised and immediately enforceable. This means that Italian or English commercial parties cannot avoid their obligations to parties from the other country by keeping their assets against which judgments can be enforced in their own country.

The Lugano Convention provides a comparable and relatively easy way for Judgments to be recognised and enforced. The UK is hoping to accede to this as part of an overall deal with the EU.

If the agreement between the parties over which the dispute arose is a commercial agreement containing an ‘exclusive jurisdiction clause’ then the Hague Convention on Choice of Court Agreements sets out a relatively easy process by which an English or Italian Judgment can be recognised and enforced. The UK has confirmed that it will accede to this on 1 January 2021.

If there is no Lugano Convention and the Hague Convention doesn’t apply, then the situation would be very different. Each country would have the right to follow its own internal rules on whether a Judgment is capable of recognition and enforcement. In England, in order to convert an Italian Judgment into one capable of enforcement in England, you would have to issue fresh proceedings, under what’s referred to in common law as ‘an action on a Judgment’. This would mean a delay of some months and extra costs incurred in converting the Italian Judgment into an English one or vice versa.

This is about a Court having the right to decide on whether it has jurisdiction to hear a particular dispute. The Italian torpedo is so-called this way because of how slow the Italian courts are in making that decision. Instead of determining jurisdiction at the outset of the proceedings, as English courts do, Italian courts leave that decision to be made at the end at the time of trial, which may not take place for an average of five years in commercial cases. Without the EU regime (as explained below), parties with poor prospects of success could stifle a claim by racing to issue proceedings first in Italy even where there is a jurisdiction clause for England. The Italian torpedo used to be a well-known delaying tactic and we may well see its return.

The Brussels Regulation and the Lugano Convention laid down a rule for parallel proceedings that gave priority to the court “first seized”, i.e. where proceedings were commenced first to be the Court to decide who has jurisdiction. If proceedings were started in two member state courts the second in time was required to stay its proceedings until the first in time court had ruled on jurisdiction. This applied regardless of any jurisdiction clause.

The current position under the Recast Brussels Regulation is that the member state court named in the exclusive jurisdiction clause is given priority regardless of which claim was started first.

The Lugano convention retains the simple ‘first in time’ rule for parallel proceedings. If the UK’s application to join the Lugano Convention succeeds, as is the hope of the UK Government, the availability of the Italian torpedo as a tactic will return. If the UK’s application to join the Lugano Convention does not succeed, then the risks are even greater because there are likely to be parallel proceedings running at the same time as parties go to their own courts to issue proceedings with neither Court having any obligation to stop. There will therefore be risks of contradicting judgments coming out of different Courts.

International commercial arbitration has been available to businesses from England and the EU-27 for many years. It has never formed part of the EU Regime on Judgments and therefore insofar as that is concerned, it is business as usual. It requires parties negotiating a contract to agree to take any disputes outside the court system all together and to have them resolved in a final, flexible and confidential manner, privately. It used to be a worry that it was more expensive than litigation, not least because the arbitrator’s fees are paid by the parties, but arbitration practitioners and arbitrators and parties have in recent years made real efforts to deal with disputes efficiently and the costs can be much lower than litigation, even for an Italian party, for example, who is accustomed to the relatively low costs of litigating in Italy.