On 4 May 2021 the European Commission recommended that the UK’s accession to the Lugano Convention should be blocked by the EU. Whilst the final decision on the UK’s accession to the Lugano Convention rests with a qualified majority the European Council, it is anticipated that this recommendation is likely to influence the awaited final decision.

What is the Lugano Convention?

The Lugano Convention 2007 (the Convention) is an international treaty between the EU member states and the EFTA states (except Lichtenstein) on international jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.

The purpose of the Lugano Convention is to give legal certainty as to which courts in those countries have jurisdiction to hear disputes. It also allows for countries to enforce foreign judgments of other countries within the Convention.

This facilitation of international legal action is of particular importance to those businesses operating across borders as it allows them to issue proceedings in their home country in the knowledge that a ruling against the defendant would be enforceable in the defendant company’s home country where their business operates. For example, if a claimant company based in France obtained a judgment against a defendant company in Switzerland, then the Convention would allow for that judgment to be enforced in Switzerland as though it was a judgment of their court.

This framework is similar to that of the Brussels (Recast) Regulations however the benefit of this for the UK ceased on 1 January 2021.

The effect of Brexit

Since the UK’s exit from their EU membership on 31 January 2020, the UK no longer has the same rights as were previously afforded by the main EU instruments regarding cross-border jurisdiction and enforcement in civil and commercial cases commenced in the UK from 1 January 2021.

The UK continues to have rights under the Hague Convention 2005 on Choice of Court Agreements after re-joining on 1 January 2021, although this is limited to exclusive jurisdiction clauses and it is unclear whether it only applies to those agreements commenced before 1 January 2021. Those proceedings which fall outside the scope of the Hague Convention will mean the UK and EU courts revert to their own domestic laws to decide which court will have jurisdiction over a legal issue and whether a judgement will be recognised and therefore enforceable.

UK based companies would therefore currently need to instruct legal representation in foreign jurisdictions to litigate their cross-border disputes or to determine whether their UK court judgments are enforceable.

In the UK’s position as a nation independent from the EU, the European Economic Area and the EFTA, an application would need to be made to re-join the Convention to avoid this current complicated and expensive process of instructing counsel in foreign jurisdictions.

The UK made such application to the Convention on 8 April 2020, and all EFTA states have indicated their support of the application. However, in order for the application to be accepted, it requires the consent of all parties to the Convention – including the EU.

Rejection by the EU

The application was rejected by the EU Commission (the Commission) on 4 May 2021 and, whilst this amounts only to a recommendation as opposed to a final decision, the influence of the Commission is expected to be endorsed by the European Parliament and the European Council which will be a final and binding decision.

Some of the main reasons provided by the Commission for their recommendation included that the Convention is appropriate for judicial cooperation with third countries if they sign up to participation in the Single Market, and if they sign up to close regulatory alignment with the EU – both of which the UK does not satisfy.

The Commission therefore concluded:

“The United Kingdom is a third country without a special link to the internal market. Therefore, there is no reason for the European Union to depart from its general approach in relation to the United Kingdom. Consequently, the Hague Conventions should provide the framework for future cooperation between the European Union and the United Kingdom in the field of civil judicial cooperation.”

It appears that the EU are opposed to allowing the UK to benefit from agreements afforded to them as part of their EU membership which they chose to withdraw from. Since Brexit, the UK and EU have continued in their negotiations surrounding multiple issues, including fishing rights and COVID-19 vaccination supplies. It may therefore be possible that future negotiations could result in a beneficial decision for the UK despite this current setback from the EU Commission.

Until then, the recommendation of the European Commission was a reiteration of the EU’s position to third countries, now including the UK, which is to rely on the Hague Convention on Choice of Court Agreements.

Further, it was recommended that Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters 2019 (Hague Judgments Convention) should be concluded by the EU. Although, neither the EU, nor any of the EFTA states, nor the UK has signed to bring it into force, and given that it took 10 years to conclude the Hague Convention 2005, this is unlikely to be a suitable short-term solution for businesses with ongoing cross-border disputes.

What happens now?

The final decision will be taken by the European Council, which will form the decision of the EU.

This decision will consider the views of the 27 EU member states’ national governments by way of a vote. The vote by does not need to be unanimous, it requires only a qualified majority.

If the majority is achieved and therefore consent is given by the EU (and other contracting parties such as the EFTA states), then the UK would accede to the Convention within three months.

If the final binding decision taken is not successful for the UK, then the Hague Convention 2005 should continue to be observed to recognise Choice of Court Agreements and recognition and enforcement of judgments between the UK and the EU

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 came into force on 4 May 2021.

What is Breathing Space?

The Debt Respite Scheme, also known as Breathing Space, is a new free government scheme which is intended to give debtors temporary relief from the pressure of dealing with their creditors. This period of ‘breathing space’ allows debtors the time to seek advice on their outstanding debts and, where possible, to arrange debt solutions such as setting up manageable payment plans.

Subject to meeting the eligibility criteria under the scheme, creditors will be prevented from adding interest and fees to those debts included in a Breathing Space, and they will not be able to take enforcement action against you for a period of 60 days.

There are two types of Breathing Space available to debtors:

1. A standard breathing space; and,
2. A mental health crisis breathing space.

A standard breathing space is available to anyone with ‘qualifying debt’ under the scheme which will pause most creditor enforcement action and contact from creditors, and prevent further interest and fees being added to those debts for a period of 60 days.

A mental health crisis breathing space is only available to debtors who are receiving mental health crisis treatment. This requires the debtor to have received treatment from an Approved Mental Health Professional (AMHP) who has certified that the debtor is receiving such treatment.

This type of Breathing Space offers further protection for the debtor than the standard Breathing Space as it will last for as long as the person is receiving mental health crisis treatment, plus 30 days thereafter (no matter how long the crisis treatment lasts).

Most debts are likely to be qualifying debts, they may include but are not limited to:

• credit cards
• personal loans
• pay day loans
• overdrafts
• utility bill arrears
• mortgage or rent arrears

Breathing Space is not a payment holiday, therefore if the debtor can afford to make their regular payments then they should do so.

How do I apply for Breathing Space?

Applications can either be made through a debt management service who are authorised by the FCA or via the local authority.

If the application is approved, then the temporary protection will be noted on the register maintained by the Insolvency Service in relation to the debts included in the application. The period of Breathing Space will begin on the day after the debtor’s details were added to the register.

Joint debts can be included in a Breathing Space, even if only one person makes the application. The joint debt would be protected, and the enforcement action protections must be applied to the other people who jointly owe the debt.

During the initial 20 days, creditors are given an opportunity to challenge the application and the specific debts included in it. Such request will likely prompt a review of the specific debts included in the debtor’s application. Otherwise, the review may not be carried out until mid-way through the Breathing Space. This review aims to ensure that the debtor is complying with their obligations, such as keeping up payments on other liabilities not included in the Breathing Space.

Further debts cannot be added to an existing Breathing Space unless the debts were incurred before the date on which the Breathing Space started. Those debts incurred after the Breathing Space started will not be protected under the scheme.

Debts which are added to an existing Breathing Space will not be afforded protection for a full 60 days from the date they were added, they will only benefit from the Breathing Space for the number of days remaining within that existing Breathing Space.

After a Breathing Space begins

As a creditor, if you’re told that a debt owed to you is in a Breathing Space, you must stop all action related to that debt and apply the protections. These protections must stay in place until the Breathing Space ends.

Creditors should receive a notification with information about each debt owed to them in a Breathing Space and confirmation of the date the Breathing Space started. Creditors must make sure the protections are applied from the date on the notification, as the debt could have been added by the debtor mid-way through an existing Breathing Space.

Creditors should inform any agent acting on their behalf for recovery of a debt about a Breathing Space, such as High Court Enforcement Officers.

Creditors, throughout the duration of a Breathing Space, must not pursue debtors in relation to the debts listed in that Breathing Space as follows:

• apply interest, fees, penalties or charges to a debt;
• take any enforcement action to recover a debt; or
• chase a debtor for repayment of a debt (without Court permission).

However, creditors may still apply interest to the principal debt, but not on the arrears.

After a Breathing Space ends

Unless a Breathing Space is ended early, for example if a debtor enters into a debt solution before the end of the 60-day period or if a decision is taken to end the Breathing Space upon on a review, then creditors must wait until the expiry of the Breathing Space period.

Creditors should be notified when a Breathing Space ends, following which they can continue with any actions that had been paused during that Breathing Space – unless the debtor has already entered into a debt solution or formal arrangement in relation to the debt.