My Lords, this is an area in which I have long been engaged as a practitioner, and I believe that I still have the honour of chairing the Lord Chancellor’s advisory committee on private international law—although, so far as I recall, we were not consulted on this Bill, nor on the 2018 regulations on private international law that until now have operated as the default on Brexit.
At the heart of this Bill is jurisdiction. Former practitioners such as I know that jurisdiction is commonly the most important preliminary issue in international litigation. The noble Baroness, Lady Shackleton, referred to this in the context of divorce. I shall be referring to commercial litigation, but the same applies to other areas, including matrimonial disputes, children, insolvency and divorce. Any party wishing to avoid or delay liability or a judgment will seek the slowest or most amenable jurisdiction. To prevent this, it is common in commercial law to insist on an agreed forum for disputes—a choice of court or arbitration clause, often in favour of London.
London’s practitioners and courts have a reputation for the impeccable handling of complex disputes. It is part of the package of financial, business and trading facilities and activities that has made London a—if not the—world business centre. But what matters is that other courts and states recognise our jurisdiction. We can legislate domestically for all we are worth, but international recognition and enforcement of jurisdiction and judgments require in practice reciprocal international agreement.
The Bill’s Explanatory Memorandum notes that “key stakeholders” have consistently made clear the importance of the UK continuing to take a leading role internationally on private international law. The Minister has emphasised that it is essential for legal certainty to have a framework. The memorandum goes on to say that the UK
“will need to take steps to ensure continued participation in key PIL international law agreements”,
and that Brexit will allow the UK
“to agree ambitious new PIL frameworks with international partners all over the world”.
There is hyperbole in both statements. We are ceasing to participate in some key instruments with EU states, and the Bill is unspecific—to say the least—about the ambitious new frameworks with other world partners.
From the end of this year, the UK will cease to be party to what is probably—in fact, certainly—the most significant set of private international law measures in the world: the Brussels regime regulating jurisdiction and the enforcement of judgments across EU states, and parallel measures such as the insolvency Regulation 2015/848 and the regulation on jurisdiction, recognition and enforcement in matrimonial and parental matters. The UK was itself a proponent of the successful recasting in 2012 of the first of those—the central Brussels regulation—to meet UK needs. As the Minister noted, we helped build these instruments.
The Government’s ambitions do not extend to repeating this existing framework, which has, over 35 years, attracted very considerable support in London as elsewhere. However, some form of substitute is now necessary, to apply as between the UK and EU states. In relation to children, there are, happily, the Hague conference conventions of 1996 and 2007—non-EU measures, which are referred to in the Bill—on which to fall back. In relation to commercial law, insolvency and divorce, there are no such parallels, although there are other measures focusing on commercial law, which are referred to in the Bill, to which I come.
The Bill is by its own lights a sensible measure, but its lights are rather dimmer than the halogen welcome given to it by the Explanatory Memorandum. I take first the Hague choice of court convention of 2005, which Clause 1(2) of the Bill paves the way to joining. That is an excellent instrument, again promoted by this country. In that, the committee that I chair had the privilege of playing a role but, absent specific declaration, it does not cover the very important area of asymmetric jurisdiction clauses. Many of the derivatives and banking clauses on which the City relies are asymmetric; in other words, they give one party but not the other, or others, a choice of jurisdiction.
The better view is that the existing Brussels regime covers all choice of court clauses, whether they are asymmetric or not.
As a consequence of that, if you go to the website of the International Swaps and Derivatives Association, the first document you will see is headed “ISDA Amendment Agreement”, to change
“English Law to Irish or French Law”.
It provides the means to change the usual London jurisdiction clause in favour of Paris or Ireland. That is a measure of the current doubts about the future value of English jurisdiction clauses, which have been allowed to continue for some four years now to the detriment of London as a world centre.
A second problem about the Hague choice of court convention is that, even on the most optimistic reading, it covers only exclusive jurisdiction clauses agreed since l October 2015, when the EU first signed the UK up as a member state. In contrast, the 2012 Brussels regulation, which we have at present, applies to all proceedings begun since 10 January 2015; that is, proceedings begun rather than jurisdiction clauses agreed. But this will cease to apply to all proceedings begun after the end of this year. So, the position is that presently enforceable asymmetric jurisdiction clauses in favour of London will cease to be recognised at an international level by other EU states overnight on 31 December 2020. Indeed, all enforceable jurisdiction clauses, asymmetric or not, will cease to be recognised at an international level; they may, of course, be recognised at an overseas domestic level—that is quite a different matter. Until 19 June 2018, the UK’s position was that such clauses should be preserved, or grandfathered; that is, retain their current validity. This has gone. No doubt, even an additional glimmer of Court of Justice jurisdiction after the end of the year, however benign, was not acceptable.
A third problem with the Hague choice of court convention is that it contains a list of excluded topics, which is considerably longer than that in the Brussels regime. The excluded topics include, for example, personal injury, simple tort claims, immovable property and intellectual property claims.
I turn to the second instrument, which the Explanatory Memorandum and the Government’s paper on the future relationship evince enthusiasm for acceding to. As already mentioned, that is the Lugano Convention 2007; Clause 2 of the Bill would be used for that. The Lugano Convention corresponds to the main Brussels regulation before it was recast in 2012. As a result, it has severe defects. On the other hand, no doubt the great attraction, in the Government’s eyes, would be that the European Court of Justice would have no jurisdiction over it; there would be an obligation merely to take account of Court of Justice jurisprudence, not necessarily to agree with it.
On the other hand, the UK needs the consent of the other parties to join. There are four, three of which have welcomed the UK aboard. Switzerland, Iceland and Denmark all welcomed the UK aboard, but the last party—the EU, for its member states—is apparently silent, and there are rumours that it may not consent. Any clarity the Minister can give would be most welcome.
Even if we were to sign up, the un-recast, unreformed Lugano has significant weaknesses. First, its arbitration exclusion is less clear than the Brussels regime; again, that is important for London. Secondly, it is vulnerable to the famous “Italian torpedo”, whereby a London choice of court clause can be undermined by an entirely wrong or even abusive commencement of jurisdiction in some other court—the typical example being Italy. The aphorism comes from an Italian law professor, so I am not, I hope, in any way using unduly what is a well-quoted phrase. Lugano’s third defect is that it makes no provision for stay of proceedings in the face of prior litigation in a non-contracting state: in other words, you can agree on a New York choice of court clause, but Lugano will override it. That is an extraordinarily Eurocentric provision, which the recast Brussels regime avoids, largely. Can the Government say whether, having joined Lugano, they hope to follow the Brussels example, whereby the UK did have a big role, and recast the Lugano convention to cure these defects?
There is one other problem with signing up which the Government may have overlooked—again, I would welcome the Minister’s comments. If we sign up to Lugano, we are locked into its limitations, potentially precluding us from getting the advantages of the next instrument which the Government express an interest in joining: the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. This is fairly hot off the press: it is mentioned in the Explanatory Memorandum and, again, the UK played a significant role in its preparation in the Hague conference. Perhaps it is one of the “ambitious new” private international law frameworks which the Government hope to agree
“with international partners all over the world”.
The less hyperbolic reality is that it has at present only two member states, with which our most obvious affinity is purely alphabetical: Uruguay and Ukraine. Even according to the Hague conference website, they have only signed, not ratified.
Secondly, this instrument deals only with recognition and enforcement; it does not limit or define jurisdiction, as the Brussels regime and Lugano do. Nevertheless, it appears to have one particular advantage in relation to our former EU partners which Lugano does not. It should be noted that the EU has expressed interest in signing up to the 2019 convention. If it does and we do, the convention will go some way to avoiding the Italian torpedo, because it will enable the refusal of such recognition or enforcement of any judgment given in breach of a choice of court clause, whether exclusive or asymmetric. For example, if proceedings were commenced in Italy in breach of a choice of court clause pointing to London, the UK or any EU contracting state could refuse to recognise the judgment. That beneficial provision would go some way to evading the Italian torpedo and correcting the main defect of the Lugano convention. Under Lugano, EU and Lugano courts—including the UK if it joined Lugano—would have to recognise and enforce the Italian judgment, even though it was patently given in proceedings started in Italy in breach of a London choice of court clause.
The UK would lose the advantages of this beneficial provision if we signed up to Lugano before signing up to the 2019 Hague convention, because Article 23 of the latter states expressly that it does
“not affect the application by a Contracting State of a treaty that was concluded”
by that state prior to conclusion of the convention. I would be very glad to hear the Government’s thinking on this. On the face of it, the message is: festina lente—in other words, be very careful and do not sign up immediately to Lugano without thinking very hard about it. By all means, sign up to the Hague choice of court convention as soon as possible, but consider whether it may not be better to wait for the EU to sign up to the 2019 convention and sign up ourselves at least before any attempt to join Lugano.
There are one or two minor points, or at least more minor points, although I do not want to underestimate their importance, particularly relating to the width of the powers relating to delegated legislation, on which noble Lords have already spoken. Even taking into account the Constitutional Reform and Governance Act, providing for scrutiny of any international agreement, the powers of delegated legislation are of a width that is questionably wide. That refers among other things, but perhaps particularly, to the Henry VIII clause, which my noble and learned friend Lord Judge has referred to.
Of particular interest to me, I declare as a practising arbitrator, is the definition of “private international law” to include recognition or enforcement of foreign arbitral award. Private international law normally keeps court jurisdiction and arbitration separate. International arbitration awards are enforceable under the New York convention of 1958. Brexit should not affect the enforceability or recognition and enforcement of arbitration awards. The Bill seems quite an inappropriate place to give Ministers the power to make regulations about arbitration, even subject to affirmative approval.
I conclude by welcoming this opportunity to discuss openly in this House a subject of huge importance to the City and this country’s financial position. There has been a fear that it may have been too low down the Government’s agenda and the subject of too little attention. I hope this debate will have focused minds and that there will now be wide and open consultation on whatever future measures, ambitious or not, the Government may consider signing up to.
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