Cross-border enforcement of judgments in the post-Brexit age: a glimmer of light on the horizon?
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This article considers whether Hague 2019 represents an attractive additional international convention for UK commercial litigants in cross-border disputes. It assesses the benefits and potential downsides – and the extent to which the convention will reverse the effects of Brexit in the civil justice sphere.
* This article was first published in the January issue of Butterworths Journal of International Banking and Financial Law.
The cross-border enforcement of judgments in civil and commercial matters is an area of private international law that has seen significant and (it sometimes feels like) constant change over the last five years. Following the end of the Brexit transition period on 31 December 2020, the long- established European framework for allocation of jurisdiction and enforcement of judgments ceased to apply in the UK, save in legacy matters. Although the UK promptly re-joined the 2005 Hague Convention on Choice of Court Agreements (Hague 2005), which covers the enforcement of judgments issued pursuant to exclusive jurisdiction clauses in many commercial contracts, for all other matters, litigants wishing to bring proceedings in England or enforce judgments in England have had to revert to the common law, whilst those looking to enforce English judgments overseas are having to consider the local law enforcement regime in each relevant jurisdiction.
The UK’s application to re-join Lugano 2007 remains pending. However, in recent months, another international convention on the cross-border enforcement of judgments has entered the spotlight: the 2019 Hague Convention on Recognition and Enforcement of Judgments (Hague 2019). This increased focus is likely to be the result of two factors. First, when the EU Commission lodged an objection to the UK’s application to re-join Lugano 2007, it argued that the appropriate instrument for the UK to join in order to promote cross-border co-operation between the UK and the EU was Hague 2019. Second, Hague 2019 has been ratified by the EU and Ukraine, meaning it now has sufficient ratifications to enter into force and will do so between those states in September 2023. The question commercial parties and practitioners have therefore raised is: will the UK now follow suit? It is widely anticipated that the Ministry of Justice will consult stakeholders on whether the UK should ratify Hague 2019 in the near future.
This article considers whether Hague 2019 represents an attractive additional international convention for UK commercial litigants in cross-border disputes. It focuses primarily on judgments issued in contractual disputes. It assesses the benefits of the UK signing up to such a treaty and, in particular, whether it provides a workable solution to residual concerns about the recognition and enforcement of English judgments in Europe following Brexit. It also considers the potential downsides and some of the practicalities of enforcing judgments under Hague 2019.
Objectives of Hague 2019
The policy backdrop to Hague 2019 is clearly recorded in the recitals to the instrument.
These refer to the objective of creating a “uniform set of core rules on recognition and suggests that the inability to ensure easy and efficient cross-border enforcement of judgments can deter business. In the broadest sense, it hampers confidence if parties consider they will struggle to recover any unpaid debts or there is no effective means to enforce a counterparty’s contractual obligation. A commercial party may reconsider the forum selection identified in its contract or change the structure of a deal to improve enforcement prospects and, in finance contracts, if enforcement is unlikely to be straightforward, guarantees or other comfort may be more likely to be sought from the borrower, which may add to the costs and complexity of a deal.
Hague 2019 is intended to dovetail with Hague 2005, which, as noted above, provides that contracting states must give effect to exclusive choice of court agreements in favour of contracting states, and recognise and enforce any resulting judgments. Hague 2019 covers a wide range of judgments, including those issued pursuant to asymmetric jurisdiction clauses and judgments arising from tortious claims (and excludes judgments covered by Hague 2005).
Over time, its proponents say, the widespread ratification of Hague 2019 could promote the cross-border enforcement of judgments globally and, ultimately, lead to a position equivalent to that relating to the recognition and enforcement of arbitral awards under the New York Convention on the Recognition and Enforcement of Arbitral Awards 1958. Under that highly successful Convention, on paper at least, 170 contracting states recognise and enforce arbitral awards issued by tribunals in other contracting states subject only to limited exceptions. Although currently only ratified by the EU and Ukraine, there is an argument that by offering potentially wide-ranging enforcement opportunities for court judgments globally, Hague 2019 will, over time, encourage commercial parties back into national courts to resolve their disputes and away from private arbitration processes.
Taking this argument a stage further, it has been suggested that such a development would promote open justice and the development of the law in jurisdictions where (as in England) court decisions create binding legal precedent.
Hague 2019 requires contracting states to recognise and enforce judgments given in other contracting states in civil or commercial matters, subject to certain limited exceptions (Art 4(1)).
Enforcement under Hague 2019 does not involve a review of the merits of the judgment in the requested state (Art 4(2)). The only consideration of the merits permitted is “as is necessary for the application of this convention”. This presumably may arise when, for example, the enforcing court is assessing whether the judgment given by the court of origin complies with the jurisdictional thresholds at Art 5 (see below).
Although Hague 2019 is a treaty dealing with the enforcement of judgments, it is noteworthy that by Art 5, it sets out a list of “requirements” for any judgment to be “eligible” for recognition and enforcement under this instrument. These “requirements” consist of a list of jurisdictional bases upon which the court of origin took jurisdiction in the first place. The bases are in some instances familiar and echo those found in European instruments. For example, a judgment will be eligible for enforcement under Hague 2019 if the subject matter of the dispute was located in the jurisdiction of the court of origin (see Art 5(h)) or the defendant was “habitually resident” or had its “principal place of business” in the jurisdiction of the court of origin at the time it became a party to the proceedings in the court of origin (Arts 5(a) and (b)) or the defendant had a branch or agency or “other establishment without separate legal personality” in the state of origin at the time a party became a party to the proceedings in the state of origin and the claim arises out of the activities of that branch, agency or establishment (Art 5(d)).
However, there are some differences and novelties from the Brussels Recast and Lugano 2007 regimes, and practitioners will need to consider these threshold issues carefully.
Subject matter exclusions
Hague 2019 excludes a number of areas from its scope, including some areas that are within scope of Lugano 2007, such as family law matters, probate matters, insolvency, defamation and privacy, intellectual property, anti-trust matters and sovereign debt restructuring. There are different reasons for these exclusions. For example, insolvency is excluded because cross- border recognition already largely exists via the implementation of the UNCITRAL Model Law on Cross-Border Insolvency, which was given effect in the UK by the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) (CBIR 2006). Defamation and privacy claims were excluded because they involve constitutional rights like freedom of expression, and because these were considered areas of law in a state of flux across the contracting states.
Certain excluded areas, such as intellectual property (IP), were initially intended to be included. Under one version of the text, it was proposed that IP judgments would be capable of being recognised under Hague 2019 if they were given in a contracting state where the IP right was registered. Judgments that ruled on validity would also have been subject to an exclusive jurisdictional filter, and judgments on infringement would only have been eligible for recognition if the court ruled on an infringement in its own territory. Despite the relatively limited nature of these proposals, however, the inclusion of IP judgments proved too contentious and they were ultimately excluded in their entirety. Given the Unified Patents Court initiative, it may be that EU negotiators considered intellectual property matters less of a priority.
Parties will need to be alive to these exclusions when assessing whether Hague 2019 might prove to be a useful route to enforcing their judgments.
Declarations and reservations
Hague 2019 provides scope for contracting states to limit its application in a number of circumstances, including by applying state-to-state exclusions, bespoke subject matter exclusions, and exclusions for judgments arising under proceedings where a contracting state is itself a party.
Under Art 17 of Hague 2019, a contracting state may declare that its courts can refuse to recognise or enforce a judgment given by a court of another contracting state if the relevant parties were resident in the requested state (ie the enforcing state), and the relationship of the parties and all other elements relevant to the dispute, other than the location of the court of origin, were connected only with the requested state.
Under Art 18, contracting states also have the power to declare that Hague 2019 will not apply to specific subject matters, in addition to those already excluded under the convention. The result of a contracting state making such a declaration is two-fold: (i) its own courts need not apply Hague 2019 in relation to that specific subject matter; and (ii) the courts of other contracting states need not apply Hague 2019 in relation to judgments concerning the specific subject matter emanating from the contracting state that made the declaration.
Finally, under Art 19, contracting states may also declare that their courts shall not apply Hague 2019 to judgments arising from proceedings involving the contracting state in question, its government agencies, or persons acting on behalf of that state or its government agencies.
When negotiating dispute resolution clauses or considering routes to enforcement, parties will need to bear in mind the possibility that contracting states may have made declarations and reservations that will limit the scope to enforce judgments in certain scenarios, and tailor their approaches accordingly.
Grounds for resisting enforcement
Article 7(1) of Hague 2019 sets out the specific circumstances under which the courts of a contracting state may refuse to recognise and enforce a judgment from another contracting state. These circumstances include: (a) if the document that instituted the proceedings leading to the judgment was not notified to the defendant in sufficient time for them to arrange their defence or was notified to them in a way that is incompatible with the principle of service in the state being asked to enforce the judgment; (b) if the judgment was obtained by fraud; (c) if recognition/enforcement would be manifestly incompatible with the public policy of the enforcing state; (d) if the initial proceedings were contrary to a jurisdiction clause in favour of the courts of another state; (e) if the judgment is inconsistent with a judgment concerning the same dispute between the same parties given in the state being asked to enforce; and (f), if the judgment is inconsistent with an earlier judgment given by a court of another state between the same parties on the same subject matter. In addition, Art 7(2) also provides that recognition and enforcement may be refused if proceedings between the same parties on the same subject matter are pending before a court of the state being asked to enforce, and (i) the courts of the state being asked to enforce was the court first seized; and (ii) there is a close connection between the dispute and the state being asked to enforce. These grounds are broadly similar to those under Brussels Recast and Lugano 2007.
When considering routes to enforcement, parties will need to be aware of these potential arguments that judgment debtors may avail themselves of in an attempt to hinder enforcement.
Practicalities of enforcement
Hague 2019 will not necessarily change the UK’s position in relation to exequatur.
Under Brussels Recast, judgments were more or less automatically enforceable in other member states. Irrespective of their domestic law, member states could not require that a judgment creditor go through an exequatur process before enforcement. However, under Hague 2019, once a judgment creditor has provided a certified judgment, evidence that it is enforceable in the state of origin, and a translation if required, the procedure for recognition and enforcement is governed by the law of the state in which enforcement is sought. In practice, therefore, enforcement may take longer in some jurisdictions than in others and will likely be slower than enforcement under the Brussels Recast regime.
In addition, if there is a pending appeal, or if the time limit for a potential appeal is still running, then the enforcing state can refuse enforcement on that basis (although that would not prevent a subsequent application for recognition or enforcement). This will mean that anyone seeking to enforce a judgment under Hague 2019 may need to wait until after any potential appeals have been resolved.
Does Hague 2019 fill the gaps left by the Brussels Recast and Lugano 2007?
A key benefit of the Brussels Recast and Lugano 2007 regimes was that they simplified cross-border enforcement of English judgments in the EU, and most EFTA states.
These instruments covered various types of judgments (not just money claims) and permitted enforcement with relative ease in any enforcing state. Since Brexit, English judgments can now only be enforced across the EU and EFTA states on a reciprocal treaty basis in quite limited circumstances, namely if they relate to agreements that contain exclusive choice of court clauses favouring England, pursuant to Hague 2005. There has also been a lengthy, and largely inconclusive, debate about whether enforcement may also be permissible in certain member states under various bilateral treaties that predated the EU regime. Commercial parties have had to incur time and costs investigating the enforcement position in relevant jurisdictions under national law.
For many commercial parties that include exclusive English jurisdiction clauses in their contracts, Hague 2005 has essentially “filled the enforcement gap” left as a result of the Brussels Recast and Lugano 2007 ceasing to apply. Assuming that the UK does sign up to Hague 2019, this will lead to a much more streamlined and predictable cross-border enforcement process for other English judgments in most EU and EFTA states.
Hague 2019 should also largely resolve concerns about fragmentation. For many practitioners and commercial parties it is this that is a core driver for advocating for the UK to ratify Hague 2019.
However, Hague 2019 is still not as comprehensive an instrument as Lugano 2007 or the Brussels Recast. First and foremost, the European instruments cover jurisdictional allocation as well as enforcement, and therefore significantly reduce the risk of parallel proceedings.
As discussed further below, there are no equivalent provisions in Hague 2019. Second, unlike the Brussels Recast and Lugano 2007, Hague 2019 provides no mechanism for the enforcement of interim measures. Third, Hague 2019 also excludes a broader number of key areas from its scope, albeit there are sensible reasons behind such exclusions.
Fourth, there are more grounds on which enforcement may be refused under Hague 2019 than under the other regimes.
As noted above, Hague 2019 deals with enforcement and not jurisdiction. Notwithstanding the “requirements” relating to “eligible” judgments at Art 5, there are no provisions that dictate in which national courts an issue should be heard or when a court should stay proceedings or decline jurisdiction in favour of another court. Under Lugano 2007 and the Brussels Recast, the lis pendens rule applies such that courts that are not first seized of a dispute must generally stay proceedings unless the first seized court determines whether it has jurisdiction. Only when the first seized court determines it has no jurisdiction may other courts hear the dispute. Hague 2005 contains a similar rule, although because Hague 2005 applies only to disputes arising under agreements that contain exclusive jurisdiction clauses, this is not sufficient to prevent parallel proceedings in other areas. Article 7(2) of Hague 2019 is as close as the instrument gets to a lis pendens mechanic, but it is by no means as comprehensive as the provisions under the Brussels Recast and Lugano 2007 aimed at preventing parallel proceedings. As a result, even if the UK signs up to Hague 2019 in addition to Hague 2005, there remains a risk of UK disputes being subject to parallel proceedings in other states. This risk might be neutralised in cases covered by Hague 2005 by the issuance of an anti-suit injunction by the English court, but this remedy is unlikely to be available to many litigants.
In terms of timing, Hague 2019 will only apply to a judgment if the convention was in force for both the state of origin and the state of enforcement when the proceedings leading to the judgment commenced. Even if the convention was in force when the judgment was given, that is not sufficient for Hague 2019 to apply. In addition to this, once a country ratifies Hague 2019, there is a 12-month time lag before it enters into force in relation to that country. This is because upon ratification, other states will have a 12-month period in which they may serve a notice declaring that Hague 2019 will not apply as between themselves and the acceding state. If the UK was to ratify Hague 2019 in 2023, therefore, it would only apply to judgments in proceedings initiated a year later, ie at some point in 2024.
A note on judgments issued pursuant to asymmetric jurisdiction clauses
Of particular interest for commercial parties will be the possibility of enforcement of judgments pursuant to asymmetric jurisdiction clauses under Hague 2019 where there is a selection in favour of a contracting state court. Such asymmetric jurisdiction clauses have historically been popular in the financial and other market documentation. They are not within the remit of Hague 2005. It seems that judgments given pursuant to asymmetric jurisdiction clauses (and indeed non-exclusive jurisdiction clauses) will be within the scope of Hague 2019 (whereas those given pursuant to exclusive jurisdiction clauses are expressly out of scope (Art 1(m)), so as to preserve the role of Hague 2005. If the UK does ratify Hague 2019, then commercial parties that may have switched to include exclusive English jurisdiction clauses in their contracts post-Brexit, in order to ensure that they fall under Hague 2005, may consider switching back to asymmetric clauses in due course. However, there remain doubts in some jurisdictions (such as France) as to whether such clauses are contrary to public policy and this consideration may, in turn, give rise to enforcement concerns in relation to judgments issued pursuant to such clauses in such jurisdictions.
Risk of divergence?
Of course, unlike the Brussels Recast where the CJEU is the final arbiter of the instrument, with its decisions being enforceable across member states, under Hague 2019 there is no single court offering definitive rulings on interpretation and application. Despite Art 20 which provides that when interpreting Hague 2019 “regard shall be had to its international character and to the need to promote uniformity in its application” there is a risk of potentially diverging interpretations on, for example, the application of the jurisdictional filters at Art 5, or the scope of the exceptions at Art 7. However, Hague 2019 will be in the same position as the New York Convention in this sense and this has not prevented the widespread uptake of this instrument. Furthermore, it is likely that advances in information sharing will allow for greater visibility of decisions on Hague 2019 than previously.
There are good reasons for the UK to ratify Hague 2019. Ratification would significantly streamline the process of cross-border enforcement for commercial parties who obtain English judgments in their favour.
Hague 2019 may herald a return to asymmetric jurisdiction clauses by finance parties transacting under English law contracts. There has been a move to exclusivity in recent years so as to bring any resulting judgments within Hague 2005.
For UK commercial litigators facing cross-border enforcement issues, the combination of Hague 2019 and Hague 2005 will go some way towards reversing the effects of Brexit and extending the circumstances in which reciprocal treaty-based enforcement of English judgments can take place across the EU and EFTA states. Such a scenario will, in the broadest sense, help promote international trade and may contribute to the continued popularity of the English courts for the resolution of cross-border disputes.