Summary
Cross-border enforcement of English court judgments in civil and commercial disputes has been a hot topic throughout the years since 2016, when the UK voted to leave the European Union. Parties have faced considerable uncertainty and change in relation to a question which is fundamental to their contracts; namely, which national courts will be the forum for disputes that arise? The loss of the clear route to enforcement under the EU’s Brussels I Recast Regulation (1215/2012) (Brussels Recast) has created a headache for those concerned about enforcing English judgments and unpaid debts in EU member states.
There has been regular debate since the Brexit vote about the scope of the remaining framework of arrangements and instruments, much of which remains unresolved. Parties and their lawyers have had to pay close attention to local laws on enforcement, to face uncertainty about whether old bilateral arrangements between nations are still operative and to adapt or abandon their preferred contract terms (such as non-exclusive jurisdiction clauses) to fit the new position.
Hague 2019 has been heralded as a “game changer” and will provide parties much more certainty and limit the need for costly and caveat-laden advice from multiple jurisdictions. This client alert looks at what will change and when, as well as the benefits and limitations of the new convention.
The current position
Brussels Recast
Brussels Recast ceased to apply when the UK withdrew from the EU, meaning that proceedings seised on or after 1 January 2021 do not benefit from its provisions. Brussels Recast provided a comprehensive set of rules not just for the recognition and enforcement of judgments, but, perhaps more fundamentally, for the determination of the appropriate jurisdiction for the dispute, thereby limiting the risk of parallel proceedings in two or more jurisdictions and conflicting judgments for the same dispute.
Lugano Convention
In April 2020, the UK applied to join the 2007 Lugano Convention, having previously been a party by way of its membership of the EU. For its contracting states, the Lugano Convention provides benefits similar to Brussels Recast. However, the UK’s accession required the unanimous consent of the current parties and, on 4 May 2021, the European Commission announced that it would block it.
As a result, after the UK’s departure from the EU, issues relating to jurisdiction, recognition and enforcement of judgments have had to be determined by application of a patchwork of existing common and local law rules, bilateral arrangements, the Civil Procedure Rules and Hague 2005. Hague 2019 supplements this framework without otherwise altering it.
Hague 2005
Hague 2005 has been useful and reassuring for parties who have wanted to provide for English jurisdiction in their contracts. In many cases, it provides certainty that an English judgment will be enforceable in the courts of other contracting states. However, its scope is limited by various factors:
- Hague 2005 only applies where parties have an exclusive jurisdiction clause. It provides no assistance for parties whose contracts contain non-exclusive jurisdiction clauses. For example, many OTC derivatives and contracts based on the 1992 and 2002 ISDA Master Agreements contain non-exclusive jurisdiction clauses, and it was not until 2018 that ISDA published model form exclusive jurisdiction clauses.
- Similarly, there has been significant debate about whether asymmetric jurisdiction clauses come within the scope of Hague 2005. Such clauses are commonplace in finance agreements and restrict one party to jurisdiction in one court, while providing otherwise for the other party. While a Dutch court has ruled that asymmetric clauses are not “exclusive” for the purposes of Hague 2005, the English Court of Appeal has suggested otherwise and the point has not been resolved authoritatively.
- There has also been uncertainty on the temporal scope of Hague 2005 for English judgments. The EU says the UK only acceded to the convention as an independent nation on 1 January 2021, so it should only apply to exclusive jurisdiction agreements concluded after this date. The UK counters that it has been a contracting state without interruption since 1 October 2015 and that is the relevant date.
- Hague 2005 does not apply for a number of claims, including tort or delict claims (meaning, for the purposes of the convention, civil actions arising outside a contract) for damage to tangible property and claims for personal injury brought by or on behalf of natural persons.
Local law rules and bilateral arrangements
Local law rules and bilateral arrangements between the UK and other nations provide various mechanisms for recognition and enforcement of foreign judgments. However, the framework is complex and needs close consideration in each case and for each jurisdiction. It is often unclear whether and how those rules and arrangements continue to operate, or if they were superseded and replaced by more recent EU-wide instruments.
The Civil Procedure Rules
In the wake of Brexit, the Civil Procedure Rule Committee broadened the gateways through which a claimant is entitled to serve its claim form out of the English jurisdiction without the court’s permission. This has been a useful change in practice, but it has no effect on the recognition and enforcement of the judgment obtained.
Hague 2019
The ambition of Hague 2019 is “to promote effective access to justice for all and to facilitate rule-based multilateral trade and investment, and mobility, through judicial co-operation [...] through the creation of a uniform set of core rules on recognition and enforcement of foreign judgments in civil and commercial matters”.
Like Hague 2005, the Lugano Convention and Brussels Recast, Hague 2019 provides for recognition and enforcement without a review of the merits of the judgment, except to the extent it is necessary to determine the application of Hague 2019 itself. This means the enforcing party can have confidence that an English judgment will be treated as final in other contracting states.
Hague 2019 will sit alongside and supplement the existing framework described above, and it is specifically drafted to complement Hague 2005. Judgments which can be enforced under Hague 2005 are excluded from the scope of Hague 2019, whereas non-exclusive and asymmetric jurisdiction clauses and judgments in many tort claims are covered in the new convention.
Hague 2019 enters into force for a nation 12 months after the date it deposits its instrument of ratification. The government’s announcement that it intends the UK to ratify Hague 2019 “as soon as practicable” is welcome, and we hope this means it will be operational for the UK from early 2025. Thereafter, Hague 2019 will apply to any English judgment obtained in proceedings instituted while Hague 2019 has been operational in the UK.
Benefits
Unlike Brussels Recast, which only applies to EU member states, all states worldwide can join Hague 2019. The convention has already been signed and ratified by the EU, Ukraine and Uruguay. Other signatories include Israel, the United States, Costa Rica, Russia, Montenegro and North Macedonia, but it remains to be seen whether they will also ratify it. Until they do so, Hague 2019 will not take effect for those nations. Considering the U.S. reluctance to ratify Hague 2005, it may be unrealistic to expect it to ratify Hague 2019. Although the U.S. is already liberal in recognising judgments of foreign courts, ratification of Hague 2019 would streamline the current process for enforcement and reduce the need for local law advice.
There is optimism among many who hope to see a renaissance in national court determination of disputes that Hague 2019 will be adopted widely around the world, becoming an equivalent to the New York Convention, which facilitates recognition and enforcement of arbitral awards. We often advise that a key benefit of including arbitration jurisdiction clauses in contracts is that, because the New York Convention operates in 170 nations, arbitral awards can be easier to enforce than court judgments. Although the prospect currently seems far-fetched, if and when Hague 2019 is ratified by other major nations, we may see judicial dispute resolution in public forums become more popular.
In many respects, Hague 2019 is similar to Brussels Recast and the Lugano Convention. Post-Brexit uncertainty has driven contracting parties to use exclusive jurisdiction clauses (to benefit from Hague 2005) or deterred them from English jurisdiction clauses altogether. The debate whether asymmetric clauses are sufficiently exclusive to come within the ambit of Hague 2005 will become less important, because such clauses are covered by Hague 2019. The certainty provided by the new convention should renew contracting parties’ comfort that an English judgment is one which will be recognised and enforced without difficulty in Europe and other jurisdictions, regardless of the form of their jurisdiction clause.
Hague 2019 will streamline the process for contracting parties and provide predictability. Local law advice as to the applicability of Hague 2005, local law and treaty-based arrangements has been costly for parties, and has often been unclear and heavily caveated. This uncertainty has led to increasingly complicated arrangements. Lenders, for example, have sought elaborate guarantees and security from borrowers, escalating the costs and complexity of transactions. Once Hague 2019 is operational, parties should see material benefits and a reduction in the time and costs spent getting advice on whether enforcement will be possible in various jurisdictions.
Limitations
Hague 2019 has rightly been lauded as a “game changer”, particularly considering the complexity and uncertainty since Brexit. However, it will not, and is not intended to, operate in the same way as the pre-existing European instruments. Where a path to recognition and enforcement was once clear, there is now a more complex network of routes and rules.
Like Brussels Recast and the Lugano Convention, Hague 2019 is not a free pass to enforcement. Courts in enforcing states will still need to be satisfied that the English court validly accepted jurisdiction. Unlike Brussels Recast and the Lugano Convention, Hague 2019 does not assist with determination of the correct jurisdiction in which a dispute should be heard. As a result, there remains a risk of parallel proceedings and conflicting judgments in different jurisdictions.
Importantly, Hague 2019 will not assist in the international recognition and enforcement of interim measures, including injunctions or interim payment orders, unlike Brussels Recast and the Lugano Convention.
Although Hague 2019 provides welcome reassurance that English judgments based on asymmetric jurisdiction clauses will generally be enforced, caution should still be exercised. Hague 2019 allows a party to make exceptions to enforcement on public policy grounds, and there have been suggestions in some jurisdictions (e.g., France) that such clauses are contrary to their public policy.
The process for enforcement will not be as automatic as it was under Brussels Recast. Although the outcome is likely to be the same, the procedure of recognition and enforcement under Hague 2019 is governed by the local law of the enforcing state, so enforcement is likely to be a slower and more procedurally complex process.
Importantly, Hague 2019 contains a number of exceptions and exclusions:
- The convention expressly does not assist parties seeking to enforce judgments dealing with family law, probate, insolvency, defamation, intellectual property and anti-trust matters, among others. Some of these matters are excluded because enforcement is possible under existing arrangements (e.g., insolvency under the UNCITRAL Model Law on Cross-Border Insolvency), whereas others are excluded because they engage constitutional rights which vary significantly between potential contracting states (e.g., defamation claims).
- Contracting states can opt to add further subject matter exemptions.
- For enforcement of judgments based on tort claims, the damage must have occurred in the state of the judgment.
- There are a number of specific circumstances in which recognition and enforcement can be refused. For example, recognition and enforcement may be denied where the proceedings were not notified to the defendant in sufficient time or service did not comply with the principles of the enforcing state; the judgment was obtained by fraud; recognition or enforcement would be manifestly incompatible with public policy in the enforcing state; or in cases of inconsistency with a judgment of the enforcing state.
- A contracting state can exclude recognition and enforcement of judgments arising from proceedings to which it itself was a party, or if one of its government agencies or a natural person acting on its behalf was.
- A contracting state can refuse to recognise an English judgment if the elements of the dispute and its parties were based only in that state.
- Recognition or enforcement can be postponed or refused if the judgment is subject to an appeal or the time limit for bringing an appeal has not been reached.
Finally, in the absence of a unified arbiter for interpretation of Hague 2019 (akin to the Court of Justice of the European Union for Brussels Recast), there is a risk that local law advice will be needed as to the enforcing state’s interpretation and application of the instrument. Hague 2019 contains only a relatively weak provision that contracting states will pay due regard to “its international character and the need to promote uniformity in its application.”
All in all, contracting nations’ options to tailor their exclusions, their public policy differences and the possibility of fragmented interpretation of Hague 2019’s provisions, mean local law advice will remain necessary or prudent, albeit to a lesser extent.
Conclusion
The adoption of Hague 2019 will provide businesses with greater comfort when conducting cross-border transactions and strengthen the UK’s position as the desired forum for dispute resolution, but there are considerable limitations and gaps left by it. The limitations section above is significantly lengthier than the benefits section. While it is regrettable that Hague 2019 contains exclusions and options, this was necessary to produce a convention that could receive widespread ratification, and that will overall be a considerable benefit. As the president of the Law Society has said, the government’s announcement has received “unanimous support”, but “the UK becoming a contracting state to Hague 2019 should not stop efforts to further facilitate cross border enforcement of judgments, including continued discussions to accede to the Lugano Convention.”
Accession to Hague 2019 is undoubtedly a step in the right direction, and its benefits will accumulate as and when other nations join the list of ratifying parties. Although Hague 2019 is unlikely to attain the widespread adoption the New York Convention has had for international arbitration, the new convention is a step towards helping courts compete with arbitral forums.
The Ministry of Justice’s announcement comes at a time of broader reforms aimed at renewing England’s position as a leading centre for determination of international disputes. The UK has also recently signed the Singapore Convention on Mediation and proposed a package of reforms to the law governing arbitration in England and Wales, which were introduced to parliament in November 2023.
In-depth 2023-270
