The relevant date for EU member states, inclusive of the UK as a member of the EU, was 1 October 2015. However, the date from which the UK will be treated as acceding to the Hague Convention post-Brexit is yet to be clarified. It is not clear if the UK will be treated as party to the agreement from the point it acceded as an EU member state, on 1 October 2015, or from the point it accedes in its own right on 1 January 2021. Until this question is clarified, it is impossible for parties to determine if they satisfy the second Hague Convention pre-requisite requirement.

Perhaps the biggest barrier preventing parties from satisfying the requirement for a valid exclusive jurisdiction clause is the caveat relating to asymmetric jurisdiction clauses. Asymmetric jurisdiction clauses have long been a standard in finance documentation, with perceived benefits to lenders. However, unlike the Recast Brussels Regime, the Hague Convention explanatory report provides that the Hague Convention is not intended to apply to asymmetric jurisdiction clauses. This runs the risk of asymmetric jurisdiction clauses not being recognised under the Hague Convention, consequently, parties may be forced to rely on individual European laws, running the increased risk of English judgements facing re-examination.

This raises the question of whether the post-Brexit cross border enforcement of judgements regime will change market practice of adopting asymmetric jurisdiction clauses for European deals. On 18 September 2020, the Loan Market Association (the LMA) issued guidance, warning lenders to consider whether a two-way jurisdiction clause would be more appropriate than traditional asymmetric clauses. Additionally, from 1 January 2021, the LMA will be adding an optional two-way jurisdiction clause to its English law facility documentation, in an attempt to address the issues the Hague Convention poses.

Local Laws in EU 27 jurisdictions

If the UK fails to secure a reliable reciprocal regime which recognises and enforces asymmetric jurisdiction clauses, it is likely that the domestic laws relating to recognition of judgements in EU member states will be applied. It is thought possible that many EU member states will enforce English judgements in the absence of the Brussels Recast Convention, or equivalent. However, this is not certain, and foreign judgements enforced for the sake of continuity are likely to be of limited substance.

The inconsistent approach from EU states to date also generates uncertainty about the approach post-Brexit. Despite the widespread enforcement of asymmetric jurisdiction clauses under the current Brussels Recast Regime, their validity has not been universally accepted in the past, most notably in Mme X v. Rothschild [2012] where the Paris Court of Appeal refused to recognise the validity of an asymmetric jurisdiction clause.¹ This refusal may signal that France will unlikely be willing to adopt a ‘business as usual’ approach, as French courts will not recognise asymmetric jurisdiction clauses under the Hague Convention, or any post-Brexit regime. The persuasive authority of this judgement across Europe post-Brexit is yet to be determined.

In any event, this uncertainty emphasises the importance of ensuring covenants to pay are inserted within local law security documentation going forward. However, this safeguard would not remove completely the need to ascertain the provisions of the main credit agreement under the governing law of that document, which is frequently English law. Such provisions will include determining whether an appropriate default has indeed occurred, and if so whether that default entitles the lenders to enforce their local law security.

For completeness, it should be noted that these issues of enforcing cross-border security will only arise if a successful judicial challenge under finance documentation leads to the cross-border enforcement of security. Parties are free to resolve disputes under finance documents themselves, and frequently do, with court proceedings being the last resort. Furthermore, security is often enforced out of court without the need for any judicial process or proceeding, where once again the absence of the Recast Brussels Regulation or any successor convention will have no effect.

Conclusion

The mechanism for enforcing EU cross-border security post-Brexit is yet to be clarified. The Lugano Convention, the Hague Convention and local laws all offer partial solutions, but there are many questions to be answered before a sound regime can be adopted.

Use of asymmetric jurisdiction clauses reflects market practice, but perhaps in light of a new post-Brexit regime and recent LMA guidance this traditional approach poses more problems than solutions. Symmetric jurisdiction clauses may resolve this issue, as they are enforceable under the Hague Convention. The disadvantages of selecting symmetric jurisdiction clauses may be outweighed by the advantage of being able use the Hague Convention by selecting such symmetric clauses, rather than relying on the differing law and legal regimes in the 27 EU countries.

Finally, we also expect that parties, in order to address or mitigate these various uncertainties, may decide to be more proactive, both in terms of enforcing security and commencing court proceedings. For example, the risk of delay in the determination of dispute, under the Lugano Convention, can be addressed by a party commencing litigation in accordance with a jurisdiction clause, and thereby avoiding the risk of proceedings being commenced elsewhere first and taking priority, for 2021.

1. X v. Banque Privée Edmond de Rothschild Europe (Société) Cour de Cassation (France) [2012] 9 WLUK 444

Client Alert 2020-610