Following the end of the Brexit transition period on 31 December 2020, the full effects of the UK's departure from the EU have arrived. One such change is to the procedures available for enforcing judgments of the UK courts in EU member states and judgments of the courts of EU member states in the UK.

This gives rise to an important point for transactional lawyers: from 1 January 2021, it is necessary to include an exclusive jurisdiction clause in a contract in order for the contracting parties to benefit from streamlined procedures for enforcing judgments, should litigation subsequently arise.

The position may change in the coming months as the UK awaits the EU's decision on its application to join the Lugano Convention. As things stand, it will usually be advisable to include an exclusive jurisdiction clause rather than a non-exclusive or asymmetric jurisdiction clause in contracts with a UK/EU cross-border element. 

What enforcement procedures are available?

Following the end of the Brexit transition period, the UK no longer benefits from the terms of the streamlined procedures for enforcing judgments in the Recast Brussels Regulation (subject to transitional provisions for proceedings commenced before the end of the year). No replacement to the Recast Brussels Regime has been agreed as part of the UK-EU Trade & Cooperation Agreement (TCA) announced on 24 December 2020 (for an overview of the TCA see here). 

The UK has applied to join the Lugano Convention (an agreement on jurisdiction and enforcement which operates between the EU and Iceland, Norway and Switzerland) which provides a streamlined enforcement process with most, but not all, of the benefits of the Recast Brussels Regulation. The UK's accession to the Lugano Convention requires the consent of the existing members. Iceland, Norway and Switzerland have provided statements of support. It was anticipated that, if the UK and EU were able to conclude an agreement on their future relationship (which they have now done, in the form of the TCA), then the EU might support the UK's accession to the Lugano Convention. However, the EU has made no mention of the UK's accession to the Lugano Convention since the TCA was announced. 

On 1 January 2021, the UK acceded to the 2005 Hague Convention on Choice of Court Agreements in its own right (the EU having acceded on behalf of its member states in 2015). The reciprocal recognition of jurisdiction agreements and enforcement of judgments provided by the Hague Convention is narrower in scope than that provided by the Recast Brussels Regulation and the Lugano Convention. An important limitation of the Hague Convention is that it only applies to contracts with an exclusive jurisdiction clause entered into after the Convention came into force for the state concerned. It is for this reason that the benefits of exclusive jurisdiction provisions have increased in importance. There is also disagreement between the UK and European Commission as to whether parties to contracts entered into before 1 January 2021 are able to invoke the enforcement provisions in the Hague Convention.

Where the Hague Convention does not apply, enforcement matters are likely to be governed by the domestic rules of each member state. EU member states would enforce most foreign judgments under their domestic rules, but the processes have varying degrees of complexity and will usually take significantly longer than is currently the case. Before the Brussels Convention existed, the UK agreed bilateral mutual enforcement arrangements with Austria, Belgium, France, Germany, Italy and the Netherlands and there has been some speculation that these might be automatically revived, but there is no certainty on this.

Asymmetric jurisdiction clauses

A jurisdiction clause is described as asymmetric if it requires one party to an agreement to commence proceedings in the courts of a particular jurisdiction and allows the other party greater flexibility to commence proceedings in any court with jurisdiction. The question of whether asymmetric jurisdiction clauses, most commonly seen in English law finance documents, amount to an exclusive jurisdiction clause for the purposes of the Hague Convention has once again become topical. The Explanatory Note to the Hague Convention states that asymmetric jurisdiction clauses are not exclusive for the purpose of the Hague Convention and so are outside its scope. This is generally accepted as the correct view, although it is not beyond argument (and was a topic of debate in obiter comments in a Court of Appeal judgment in Etihad Airways PJSC v. Lucas Flöther [2020] EWCA Civ 1707 last month). As such, it is anticipated that lenders will wish to include mutual exclusive English court jurisdiction clauses in their new English law facility agreements with EU borrowers, rather than asymmetric jurisdiction clauses. This will ensure any resulting dispute, and English court judgment arising from it, will be within the scope of the Hague Convention. 

It is important to be aware that the advantages of selecting an exclusive jurisdiction have increased. An exclusive jurisdiction clause will usually be the best choice if it may be necessary to enforce a judgment of the selected UK courts in an EU member state (unless there are good reasons to prioritise the flexibility afforded by a non-exclusive or asymmetric jurisdiction clause). This may be a temporary position – we will know more when the EU member states respond to the UK's request to accede to the Lugano Convention.