Switzerland: Why The UK May Consider Taking The Swiss Approach

With question marks over the UK as a place of jurisdiction, one option would be to replace the present arrangements with the Lugano Convention

The Brussels Regulation

The Brussels Regulation (1215/2012) determines which EU member state court has jurisdiction in a dispute and ensures that judgements will be recognised and enforced without the need for separate proceedings in EU member states. Once the UK formally exits the EU the Brussels Regulation will cease to apply for the UK. It is not clear what approach the UK will follow to replace the Brussels Regulation. What does this mean for litigants?

Jurisdiction clauses

If the UK does not comprehensively replace the Brussels Regulation the recognition and enforceability of English judgements in Europe may depend on the national laws of the country where recognition and enforcement is being sought. As a result, the process of recognising and enforcing English judgements in European countries may take longer, cost more and be more diffi cult. In particular, local law advice may be required and create additional costs for litigants. This may discourage parties from litigating in the UK.

As long as uncertainties with replacing the Brussels Regulation remain contractual parties may consider revising and renegotiating existing jurisdiction clauses conferring jurisdiction on UK courts. Contractual parties may even argue that Brexit constitutes a force majeure event or a material adverse change and that jurisdiction clauses in favour of the UK are void.

For new contracts, jurisdiction clauses need to be drafted deliberately and the consequences of Brexit on international litigation need to be incorporated. To ensure the recognition and enforcement of judgements in the EU parties may consider replacing UK jurisdiction clauses with clauses in favour of other countries with well-reputed jurisdictions or with arbitration clauses.

Alternatives to the Brussels Convention

The UK is still party to the Brussels Convention (72/454/ EWG) that was in force in the country in 2001 and currently only applies to Aruba and French overseas territories. The Brussels Convention will re-emerge because of Brexit.

However, since it is outdated and would only apply between the UK, the pre-2004 members of the EU and its various overseas territories, the UK will undoubtedly want to replace the Brussels Convention with a more up-to-date international agreement.

The UK could seek to accede to the Hague Convention on exclusive choice of court agreements, which applies to contracts containing exclusive jurisdiction clauses. Since many agreements (eg fi nancial ones) are non-exclusive, the Hague Convention would not comprehensively replace the Brussels Regulation.

A more likely option for the UK is to replace the Brussels Regulation with the Lugano Convention (LugC). Current parties to the LugC are the EU, Norway, Denmark, Iceland and Switzerland.

Switzerland initiated the establishment of the original LugC to connect with the successful European civil procedure governed by the Brussels Convention. The LugC signifi cantly facilitates jurisdiction disputes within Europe, in particular for countries outside the EU and the European Economic Area (EEA) such as Switzerland. The LugC differs from the Brussels Regulation in that it does not contain a rule to prevent torpedo actions. Apart from this the LugC is almost identical to the Brussels Regulation and may further converge, with future amendments of the LugC.

Thus, the LugC may be a considerable option for the UK. The UK will need the consent of all parties to the LugC (including the EU) to join the LugC, if it does not rejoin the European Free Trade Association (EFTA) at the same time.

Conclusion

Contractual parties are generally advised to include jurisdiction clauses to reduce uncertainty. However, Brexit has shown that political changes may cause uncertainty for jurisdiction clauses in favour of the UK.

Norway, Denmark, Iceland and Switzerland, being outside the EU's internal civil procedural system, have had positive experiences with the LugC. The LugC may also be the solution for the UK to mitigate international litigation risks associated with Brexit. For the time being, contractual parties need to be aware of the impact of Brexit on the UK as place of jurisdiction.

Previously published by The Lawyer | 25 July 2016

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