The negative consequences of the UK’s decision to leave the European Union vis-à-vis international trade, are profound. More recently, the government has found itself, according to CNN, “at the mercy of EU leaders” while requesting to re-join the Lugano Convention (2007).
UK refused entry to the Lugano Convention
The convention is an international treaty tying together EU states and other European states from the European Free Trade Association, such as Switzerland, Iceland and Norway. It clarifies which national courts have jurisdiction in commercial and cross-border disputes, thereby ensuring that courts’ judgments are enforced across borders.
For years, London has been regarded as the ‘global capital’ for resolving such international disputes, due to Britain’s highly esteemed criminal justice system. Dominic Grieve, the former attorney general for England and Wales, reiterates this:
“There’s no doubt that the UK, when it was in the EU, was seen as the place of dispute resolution of choice for EU litigation of every conceivable kind”.
The UK automatically left the Lugano Convention when it left the EU, but last April the UK government applied to re-join Lugano as a solo state. While non-EU signatory states like Iceland, Norway and Switzerland, agreed to its readmission, the European Commission advised EU members to deny the request.
What benefits did Lugano provide the UK?
There are many benefits to the Lugano Convention. It provides a reliable and efficient way to establish which national jurisdiction should hear a cross-border civil or commercial dispute, as well as ensuring speedy recognition and enforcement of civil and commercial court rulings.
The UK also enjoyed extensive political and economic advantages through its membership. The legal services sector in Britain employs a staggering 350,000 people, two-thirds of whom live outside London. In 2018, legal services contributed just under £60bn to the UK economy, according to the Law Society , and in 2017 the exporting of legal services abroad added £5bn.
Brexit ended all this. States can only become members of the Lugano convention if they are regarded as being on a high level of mutual trust with the EU. It comes as no surprise that the UK is not seen as trustworthy. The UK government’s pursuit of a ‘hard brexit’, their refusal to comply with international law, and the continuation of corruption, sleaze and lies, has eroded trust.
Zach Meyers and Camino Mortera-Martinez of the Centre for European Reform (CER) think-tank, suggested that the EU Commission opposed the UK’s re-entry to the convention because “Britain remains a difficult partner for the EU on a range of issues, not least in honouring its own word”.
The UK must surrender its position as litigation hub
Now, the UK will have to surrender its position as a ‘litigation hub’ for EU disputes. Many disputes will no longer be taken to London courts. Worse, the UK government insists on non-alignment with the EU and as a result, shuts itself out of mutually beneficial arrangements. So now, the UK will have to revert to the regime we had prior to joining the EU. This means disputes will be subject to the national laws of each Lugano signatory. This will result in lengthy court processes, and enforcing judgments will be more a great deal more complicated and difficult.
Joseph Galez, a former Spanish judge who worked in both Del Canto Chambers in London and Galvez Pascual in Spain, said: “This Lugano limbo the UK finds itself in is the worst situation possible as lawyers on both sides have no clarity on what will happen in the long term. I think the EU wants to make the UK suffer and give EU jurisdictions the opportunity to take business from England.”
But let’s remember, the British government is solely responsible for refusing any alignment with the EU that could have avoided this situation.
Catherine McGuinness, policy chair at the City of London Corporation, worries that “ordinary people” and “smaller businesses” will suffer. They undoubtedly will.
As court proceedings become more complex and time-consuming, SMEs are set to bear the brunt of this avoidable situation. Businesses without legal departments, or those that cannot readily afford or access legal advice, face higher risks when trading with the EU and will have to cover the costs involved in any disputes.
Trade with the EU has already dropped significantly owing to Brexit.
What options does the UK have?
The Law Society Gazette suggests that one alternative for the UK, now that it cannot re-join Lugano, is the 2005 Hague Convention on choice of court agreements, where party members recognise and decide a court to discuss international trade disputes. (The UK and the EU are already party to this convention.) However, a possible issue with the Hague Convention is that it only covers exclusive, limited jurisdiction agreements.
In addition to the 2005 Convention is the more recent Hague Judgements Convention (2019); due to its broader scope, the EU Commission has suggested that the UK join this treaty. It does, however, fall short of Lugano.
The UK government chose to take the UK out of a single market and put it back to the pre-1992 period, when everything had to be negotiated separately with each separate trading partner in any member state. The reason that no other EU member state has decided to leave the single market is because they know how damaging the consequences for their prosperity would be. And none of them want the onerous, costly burdens of going back to procedures that existed before they all decided to form the single market for mutual benefit.
But this was never just about trade. In civil disputes, there weren’t arrangements to improve and smooth out the problems arising, for example, from cross-border family disputes, including divorce and child custody. The EU gradually facilitated a more predictable and smoother system. The UK government chose to leave that and individuals will suffer as a result.
Being outside the EU has put British businesses and people on a unique footing: it is back to the 1980s. The problem is that the world has move on since then – forwards not backwards. And the UK government ignored experts and warnings. The consequences are alarming and worst of all, could have been avoided.