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UK to be locked out of pact that protects cross-border contracts

Irish consumers and businesses have been thrown into Brexit limbo over the EU’s refusal to admit the UK to an arcane legal pact.

he European Commission said the UK should not rejoin the Lugano convention, a 2007 treaty that governs civil and commercial contracts, because it has now officially left the bloc’s single market.

“The United Kingdom is a third country without a special link to the internal market,” the Commission said in its decision.

It means any contracts signed with UK companies since January 1 may no longer be enforceable in Ireland or in the rest of the EU.

“If you buy a vehicle from the UK and something goes wrong, it’s going to be very hard to enforce the contractual terms on behalf of any Irish person,” said Adrian O’Higgins BL, a member of the EU Bar Association.

The move also affects the tens of billions of euro worth of food and other goods traded with the UK each year.

Mr O’Higgins said Irish businesses need to reassess any contracts signed with UK companies since January 1 and make sure they contain “exclusive jurisdiction” clauses, listing the Irish courts as competent in the event of any dispute.

“Irish businesses need to be conscious of the fact that we are in a very different scenario than we were before January. The UK has third-tier status when it comes to the legal framework for civil disputes in Europe.”

But the move may also be of benefit to the Irish legal system, as the country is now the largest common law jurisdiction in the EU, and Irish court judgments benefit from automatic recognition and enforcement throughout the bloc.

For instance, since 2018, the International Swaps and Derivatives Association has been providing template contracts for traders to use Irish law to settle related disputes.

“The Irish courts are becoming an increasingly attractive seat for disputes given the certainty their judgments have under the EU civil jurisdiction framework,” said Mr O’Higgins.

The Lugano convention allows any EU court – including the courts of Norway, Iceland and Switzerland – to hear cross-border disputes and recognises EU court judgments in civil and commercial cases.

Although the convention is open to non-EU countries, the Commission said it was “not the appropriate general framework” for cooperation with the UK. The Commission is opting instead for the 2005 Hague convention.

But the Hague rules don’t apply to consumer, employment or intellectual property cases, and require specific “exclusive jurisdiction” clauses to be inserted in contracts.

A final decision on whether to readmit the UK to the Lugano convention rests with EU governments, who are split on the issue. While Ireland is in favour, large countries such as France support the Commission’s position.

Meanwhile, there is no legal reason why Ireland and the UK couldn’t enact a law to recognise each other’s judgments, Mr O’Higgins said. “However, the EU may not want member states acting unilaterally when gifting legal benefits to Brexit Britain.”

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