As Britain leaves the EU on 31 December 2020, uncertainty still exists around the enforcement of cross-border judgments.
Current law provides that EU countries must enforce the judgments of UK courts in proceedings that were commenced prior to 1 January 2021. The Recast Brussels Regulation 1215/2012 (the Regulation) applies during the transition period and provides a streamlined and cost-effective process in respect of the recognition and enforcement of judgments in civil and commercial matters.
Under the terms of the Regulation, if an order is obtained in an English court, for example for payment of a specified sum of money, it is possible to ask a court in any EU member state where the debtor has assets to issue an identical order to allow enforcement to take place there.
This will continue to apply to judgments in proceedings commenced before 1 January 2021.
However, the Regulation only applies to EU member states, meaning that as from 1 January 2021 it can no longer be relied upon by those with judgments from English courts who have commenced proceedings on or after 1 January 2021.
The situation from that date is still subject to speculation, however, one of the following options is likely:
The 2007 Lugano Convention (the Lugano Convention)
The Lugano Convention governs matters of jurisdiction and enforcement of civil and commercial judgments made between the EU and Switzerland, Iceland and Norway (the European Free Trade Association states). The UK is a temporary member of the Lugano Convention during the transition period but has also requested permanent membership.
The terms of the convention are very similar to those of the Regulation, with the same aim of promoting enforcement of cross-border judgments and keeping the process relatively simple and cost-efficient although, under the Lugano Convention, enforcement will be dependent on local rules, so is likely to be less streamlined than under the Regulation.
The UK will need the consent of all of the signatories to the Lugano Convention in order to join. While Denmark, Iceland, Norway and Switzerland are agreeable, the EU has voiced concerns, with the European Commission apparently advising EU member states that a quick decision was not in their best interests and that clear reasons exist to reject the UK’s application.
It has been suggested that one disadvantage for the EU could be the fact that the courts of non-EU contracting states only have to ‘pay due account’ to the case law of the Court of Justice of the EU. In addition, there is no penalisation for deviation from the rules by national courts.
At present, the deadline has passed for the UK to join the Lugano Convention in time for 1 January 2021. If a free trade agreement is not reached with the EU, it seems unlikely that the EU will approve the UK’s request to join.
The 2005 Hague Convention on Choice of Courts Agreements (the Hague Convention)
As a member of the EU, the UK can ratify the Hague Convention on Choice of Courts Agreements, which governs the law when dealing with agreements containing a ‘choice of law’ clause. In late September 2020, the UK filed its instrument of accession to the Hague Convention allowing continuity in respect of the convention terms following the end of the transition period.
Most disputed agreements before UK courts where a choice of law has been made have England and Wales as the chosen jurisdiction.
The contracting states to the Hague Convention are required to recognise and enforce judgments made by fellow contracting states. They will do this using local legislation, so, as with the Lugano Convention, the procedure will not be as simple as under the Regulation. A party seeking the enforcement of its judgment needs to produce various documentation essentially establishing that the judgement is enforceable in England and Wales and the conditions for enforcement have been met.
Current contracted states are the EU, Denmark, Mexico, Montenegro and Singapore. China, the US and Ukraine have all signed the Hague Convention but not yet ratified it.
There is a difference of opinion between the EU and the Ministry of Justice as to when the convention takes effect in the UK. The EU states that it will apply ‘after the Convention enters into force in the United Kingdom as a party in its own right to the Convention’, ie. from 1 January 2021. The Ministry of Justice holds that the convention ‘will continue to apply to the UK (without interruption) from its original entry into force date of 1st October 2015’.
However, the Hague Convention is unlikely to be of assistance where the parties have not entered into an exclusive choice of court agreement.
Bilateral treaties governing the enforcement of judgments exist between the UK and France, Germany, Italy, the Netherlands, Austria and Belgium, dating from before UK membership of the EU. It is anticipated that these treaties will be effective once again following the UK’s departure.
London is renowned as a centre for arbitration and arbitral awards will not be affected by Brexit. The New York Convention 1958 governs arbitration and requires all contracting states to recognise and enforce arbitral awards made by signatories. All EU member states along with numerous others are signatories.
Taking action to protect your legal position
Those involved in contractual disputes which may need to be recognised or enforced within the EU should take legal advice without further delay to mitigate future difficulties as far as possible. This could involve commencing a claim by 31 December 2020 or seeking to enforce an English money order by obtaining a reciprocal judgment in any EU member state where the debtor holds assets.
For those entering into contractual agreements, they should consider carefully whether their choice of court clauses and arbitration provisions are sufficiently robust and will hold up to testing in a potentially difficult period as the UK finds its new position outside of the EU.
Careful drafting will be needed. For example, as referred to above the Hague Convention only applies to choice of court agreements that are exclusive. This means that the contract must expressly exclude the jurisdiction of any other courts.
Robust agreements leading to favourable judgments in the English courts should still offer a strongly favourable position to those doing business and resolving disputes in the UK.
If you are concerned about the strength of your commercial contracts or you wish to review the terms and conditions of agreements between your business and those with whom you deal, now is the time to conduct a reassessment of your legal position and we are happy to assist in this regard.
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