The illusive endgame: Enforcement of judgments post-Brexit

by Woon Yu Jian

Introduction

The result of the Brexit referendum held on the 23^rd June 2016 came as a shock for observers worldwide.[1] After three years and numerous extensions, the new date set (at the time of writing) for the United Kingdom (UK) to leave the European Union (EU) (‘exit day’) is 31^st January 2020.[2] A central issue of interest for private international law scholars and practitioners thus became the uncertainty of enforcement of UK and EU27’s (remaining Member States of the EU) judgments post-Brexit. This post examines the current position for enforcement of judgments, the negative implications and uncertainties on enforcement of judgments if a ‘hard Brexit’[3] (UK leaves the EU without a transitional agreement) occurs, and the options available to avoid those implications.

At present, the UK has yet to leave the EU. With that, the current position for enforcement of both UK judgments and EU27’s judgments are to be governed by the Brussels I Regulation (Recast) (BIR [Recast]).[4]

The BIR (Recast) is profoundly significant for cross-border litigation because Articles 36 and 39 of the Regulation enable judgments issued by Contracting States to be readily recognised and enforced in other Contracting States. This mechanism benefits the business community because it provides a platform for judgments to be recognised and enforced in an efficient and cost-effective manner.

Practical implications if the UK leaves the EU without a transitional agreement (hard Brexit)

After exit day, in accordance with Article 50(3) and 288 of the Treaty on European Union (TEU),[5] the BIR (Recast) would cease to apply in terms of enforcing both EU27’s judgments in the UK as well as UK judgments in the EU27.

Importantly, if a hard Brexit occurs, not only will the BIR (Recast) cease to apply, but also the domestic rules on recognition and enforcement of the UK and the EU27 will come into play. This causes various practical problems specifically – judgments obtained may not be readily enforced on the other side as the merits of a particular dispute would have to be re-examined, there may be risks of parallel proceedings or even differing decisions pertaining to enforcement in different Member States of the EU27. All of these problems would alter the enforcement process, making it more time-consuming and expensive for judgment creditors than the existing mechanism under the BIR (Recast).

On top of that, a hard Brexit could conjure up legal ambiguity for the 14 ‘Old EU Member States’[6] which had acceded to the predecessor of the BIR (Recast) – 1968 Brussels Convention.[7] Specifically, there is an ongoing debate as to whether those States would have to reapply the outdated 1968 Convention when considering UK judgments post-Brexit.[8]

There are two contrasting views as to whether the 1968 Brussels Convention needs to be reapplied. On one hand, some viewed that States need not reapply the outdated Convention because the Convention cannot be ‘revived’ as it has been fully replaced by the BIR (Recast).[9] Conversely, others argued that States would have to reapply the Convention.[10] In other words, the Convention would be ‘revived’ because it was merely superseded by the BIR (Recast) as it was concluded to be an independent treaty under public international law yet to be terminated. With regard to this uncertainty, arguably the attention has turned to the Court of Justice of the European Union (CJEU) to give a definitive answer.[11]

Stances taken by the UK and the EU27 thus far

To combat the aforementioned problems, the UK Parliament had passed the Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 (UK CJJ Regulations) which provides that EU27 judgments can be enforced in the English courts by virtue of the BIR (Recast) if the judgment in question is obtained on or before exit day.[12] Crucially, Article 95(2) of the UK CJJ Regulations states that so long as litigants had initiated proceedings in EU27’s courts prior to exit day, the judgments obtained can be readily enforced in the English courts through the BIR (Recast).[13]

In stark contrast, the European Commission is not as sympathetic. Through the Notice to Stakeholders (18^th Jan 2019),[14] as well as its Q&A document (11^th April 2019), the Commission is of the view that EU27’s courts will not apply the BIR (Recast) to UK judgments even if they were obtained prior to exit day.[15] This entails that the only option left for judgment creditors is to recommence fresh enforcement proceedings in EU27 States pursuant to their domestic enforcement provisions.

Possible resolutions for enforcement of judgments in the future

A feasible solution for both parties would be to enter into an international agreement to replace the BIR (Recast). The following section elaborates on how this may occur.

a) Brussels I Regulation (Recast)

The most straightforward option is for both sides to enter into an agreement for a continued application of the BIR (Recast). Article 67 of the draft withdrawal agreement between the UK & the EU (14^th November 2018) strives to achieve that as it postulated that the BIR (Recast) will continue to apply before the end of the proposed transition period at that time (31^st December 2020).[16] However, that withdrawal agreement had been struck down by the UK Parliament numerous times.[17]

Assuming that the UK and the EU27 are capable of entering into a future withdrawal agreement akin to the terms of the Draft Withdrawal Agreement, the effectiveness of enforcement of judgments will be ensured. This is because judgments issued will be readily enforced on either side under the BIR (Recast) so long the proceedings had commenced before the end of the new transition period. Notably, such an arrangement may be politically unattractive because if the BIR (Recast) continues to apply, the CJEU will still have a say in terms of its application, and this runs foul against the sentiments shared by certain members of the public.[18]

b) Hague Convention on Choice of Court Agreement (2005)

Perhaps one of the most relevant international agreements for the UK to join post-Brexit is the Hague Convention on Choice of Court Agreement (2005).[19] Article 8 of the Convention stipulates when there is an exclusive jurisdiction agreement between disputing parties, all Contracting States are required to enforce any judgments made by courts of any other Contracting States.

However, the scope of the Hague Convention on Choice of Court Agreement (2005) (‘the Convention’) is narrower than the BIR (Recast). This is, first, because it will only apply when there is a pre-existing exclusive jurisdiction agreement between the disputing parties in favour of a Contracting State’s courts.[20] Second, this is also because the Convention will not apply if the exclusive jurisdiction agreement was entered into before the Convention went into force for the chosen State.[21] And third, the Convention does not apply to matters such as insolvency, arbitration, consumer or employment contracts, intellectual property rights, land etc.[22]

The UK is currently a party to the Convention by virtue of its membership with the EU.[23] The British Government has expressed its intention to remain as a party to the convention by acceding to it following the UK’s exit of the EU.[24] Owing to several extensions to the initial exit day, the UK has suspended that accession to 1^st February 2020.[25] This means whether or not the Convention would apply to exclusive jurisdiction agreements concluded prior to 1^st February 2020 remains quite uncertain. The European Commission in their Q&A document (11 April 2019) takes the view that the Convention will not apply to exclusive jurisdiction agreements concluded prior to 1^st February 2020.[26] Thus, those agreements will not be protected merely because of the UK’s independent accession to the Convention. However, the Commission’s view is not conclusive, again, this will be a matter for the CJEU to determine.[27]

c) Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (2^nd July 2019) (Hague Judgments Convention)

Recently on 2^nd July 2019, the Hague Conference on Private International Law (HCCH) finalised a new treaty – Hague Judgments Convention, which effectively creates a new route for enforcement of judgments.[28] The HCCH described this alternative Convention as a ‘Gamechanger’,[29] because it enables judgments issued by a court of a Contracting State (State of origin) to be recognised and enforced in another Contracting State (the requested State) without any reassessment of the merits of a particular dispute.[30] This therefore creates an ideal enforcement regime. Unlike the Hague Convention on Choice of Court Agreement (2005), the Hague Judgments Convention is not solely limited to judgments based on exclusive jurisdiction agreements, and its application even extends to employment and consumer contracts.[31]

Post-Brexit, it could be beneficial for the UK and the EU27 to accede to this Convention to ensure the creation of an effective enforcement mechanism. This Convention nonetheless suffers from a number of shortcomings. For one, it will not come into force for any State until (approximately) 12 months after the given State’s ratification, entailing that neither State can benefit from the Convention immediately despite their respective ratifications.[32] Moreover, it will not apply unless the proceedings that led to the judgment were initiated at a time when the Convention was in force for both the State of origin and the requested State.[33] Furthermore, recognition and enforcement under this Convention may be refused on broader grounds than those set out by the BIR (Recast).[34] For instance, enforcement may be refused on the basis that proceedings involving the same parties on the same subject matter are pending before a court of the requested State.[35]

d) Lugano Convention

The last option to be discussed is the Lugano Convention.[36] Essentially, this Convention provides a recognition and enforcement regime to facilitate civil and commercial matters between the EU and the European Free Trade Association (EFTA).[37] Yet, the Lugano Convention may not be as effective as the BIR (Recast) because it lacks improvements regarding exequatur and lis pendens.[38] For example, Article 39 of the BIR (Recast) expressly abolishes the exequatur requirement (declaration of enforceability) entirely, whereas Article 42 of the Lugano Convention continues to maintain the exequatur requirement.

Similar to the Hague Convention on Choice of Court Agreement (2005), the UK is for the time being a party to the Lugano Convention only because of its membership with the EU.[39] Accordingly, some have advocated that the UK should accede to the Lugano Convention once it leaves the EU. Though realistically, it is difficult for an accession to take place.

If the UK seeks to directly and independently accede to the Lugano Convention under Article 72 it would require unanimous approval of all contracting parties including the EU.[40] Politically, it seems impossible that the EU would easily give its approval and it is highly probable that the EU would object to the accession.[41] Alternatively, to become a party to the Lugano Convention without being dependent on the EU’s approval is by way of the UK re-joining the EFTA.[42] However, the problem would then lie in the fact that such an approach is still subjected to the approval of the current EFTA States (Iceland, Liechtenstein, Switzerland, and Norway). [43]

In summary, whether can the Lugano Convention be a viable option may boil down entirely to politics.

Analysis

This post argues that the best option for the UK and the EU27 is to enter into an agreement similar to the terms of the withdrawal agreement that was struck down. This would allow the BIR (Recast) to continue to be applied at least until the Hague Judgments Convention can come into full effect for both sides. If no agreement can be reached, the Hague Convention on Choice of Court Agreement (2005) should be acceded by the UK in order to minimise the damage. It is also ideal for the UK to accede to the Lugano Convention, but as mentioned it may be politically unfavourable.

In terms of practical advice, it would be beneficial for judgment creditors to leverage on the BIR (Recast) while they still can. After exit day, creditors may be required to bring fresh proceedings in the concerned jurisdictions. If they had yet to initiate proceedings, to avoid the uncertainties, they may resort to arbitration in order to benefit from the New York Convention [44] to recognise and enforce favourable arbitration awards.[45] This is because the New York Convention ensures recognition and enforcement of arbitration awards in a wide range of States, including the UK and all EU Member States.[46] The downside of resorting to arbitration, however, is that arbitration may not always be cheap nor fast.[47]

Conclusion

A lack of a stable enforcement regime would cause greater damage to the UK in comparison to other countries in the EU27. Significantly, judgment creditors seeking to enforce English judgments in EU27’s courts will face different domestic rules on enforcement in different States which may lead to inconsistent outcomes. Meanwhile, despite the fact that enforcement of judgments from the EU27 would be subjected to the common law rules on enforcement of judgments in the UK, those judgments can still benefit from the BIR (Recast) in terms of their enforcement within the EU. Additionally, an ineffective enforcement system is detrimental to the UK because it makes the UK less attractive as a venue for private international litigation. This may even end the UK’s domination as the ‘legal hub’ for international legal services in Europe.

In light of the potential problems, it is salient for both sides to strive for an effective enforcement regime akin to the BIR (Recast) in order to avoid any more detrimental economic implications on businesses that may very well have already been burdened by the economic turbulence caused by Brexit.

In short, the only certainty for enforcement of judgments post-Brexit is uncertainty.

[1] Anushka Asthana, Ben Quinn and Rowena Mason, ‘UK votes to leave EU after dramatic night divides nation’ The Guardian (London, 24 June 2016) <www.theguardian.com/politics/2016/jun/24/britain-votes-for-brexit-eu-referendum-david-cameron> accessed 28 July 2019.

[2] Jon Henley, ‘Boris Johnson wins huge majority on promise to ‘get Brexit done’’ The Guardian (London, 13 December 2019) < www.theguardian.com/politics/2019/dec/13/bombastic-boris-johnson-wins-huge-majority-on-promise-to-get-brexit-done> accessed 20 December 2019.

[3] Hard Brexit is where the UK leaves not only the EU but also the EU’s Single Market and the EU Customs Union. See ‘What is Hard Brexit?’ (The UK in a Changing Europe) <https://ukandeu.ac.uk/fact-figures/what-is-hard-brexit/> accessed 13 November 2019.

[4] European Parliament and Council Regulation (EU) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2012] OJ L351/1 (BIR (Recast)).

[5] Consolidated Version of the Treaty on European Union [2012] OJ C326/13.

[6] For example – Italy, France, Germany etc.

[7] 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters [1972] OJ L299/32.

[8] Sara Masters, Belinda McRae, ‘What Does Brexit Mean for the Brussels Regime?’ [2016] Journal of International Arbitration 483.

[9] Giesela Ruhl, ‘Judicial cooperation in civil and commercial matters after Brexit: which way forward?’ [2018] ICLQ 99.

[10] Richard Aikens, Andrew Dinsmore, ‘Jurisdiction, Enforcement and the Conflict of Laws in Cross-Border Commercial Disputes: What Are the Legal Consequences of Brexit?’ [2016] EBLR 903.

[11] Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the European Union [2016] OJ C202/1 (TFEU), art 344.

[12] Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, SI 2019/0000.

[13] ibid.

[14] Commission, ‘Notice to Stakeholders, Withdrawal of the United Kingdom and EU rules in the field of Civil Justice and Private International Law’ (18 January 2019).

[15] Commission, ‘Questions and answers related to the United Kingdom’s withdrawal from the European Union in the field of civil justice and private international law’ (11 April 2019).

[16] Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (14 November 2018).

[17] Editorial, ‘Brexit: MPs reject May’s EU withdrawal agreement’ BBC News (London, 30 March 2019) <https://www.bbc.com/news/uk-politics-47752017> accessed 28 July 2019.

[18] TFEU, art 344.

[19] Convention on Choice of Court Agreements (concluded 30 June 2005).

[20] ibid, art 1(1).

[21] ibid, art 31(2).

[22] Convention on Choice of Court Agreements (concluded 30 June 2005), art 2.

[23] The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) Regulations 2015, SI 2015/1644.

[24] Ministry of Foreign Affairs of the Kingdom of the Netherlands, ‘Convention on Choice of Court Agreements (The Hague, 30 June 2005) Notification pursuant to Article 34 of the Convention’ (2 January 2019).

[25] Practical Law Dispute Resolution, ‘Brexit: UK suspends its accession to Hague Convention on Choice of Court Agreements for the third time’ (Thomson Reuters Practical Law, 29 October 2019) <https://uk.practicallaw.thomsonreuters.com/w-022-7037?transitionType=Default&contextData=(sc.Default)> accessed 18 December 2019.

[26] Commission, ‘Questions and answers related to the United Kingdom’s withdrawal from the European Union in the field of civil justice and private international law’ (11 April 2019).

[27] TFEU, art 344.

[28] Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (concluded 2 July 2019) (Hague Judgments Convention).

[29] Hague Conference on Private International Law, ‘Gamechanger for cross-border litigation in civil and commercial matters to be finalised in the Hague’ (Hague Conference on Private International Law, 18 June 2019) <https://www.hcch.net/pt/news-archive/details/?varevent=683> accessed 28 July 2019.

[30] Hague Judgments Convention, art 1.

[31] ibid, art 5(2).

[32] ibid, art 29.

[33] ibid, art 16.

[34] ibid, art 7.

[35] ibid, art 7(2).

[36] Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (signed on 30 October 2007, entered into force on 1 January 2010) (Lugano Convention).

[37] Lugano Convention, art 33, 38.

[38] BIR (Recast), art 29.

[39] Civil Jurisdiction and Judgments Act 1991.

[40] ‘ … State concerned to accede only if it has obtained the unanimous agreement of the Contracting Parties.’.

[41] Johannes Ungerer, ‘Consequences of Brexit for European Private International Law’ (2016) 4 European Papers 395.

[42] Lugano Convention, art 71.

[43] Convention establishing the European Free Trade Association (signed on 4 January 1960) art 56.

[44] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (adopted 10 June 1958, entered into force 7 June 1959) 330 UNTS 3.

[45] ibid art 1; because recognition and enforcement of arbitral awards under the New York Convention is not dependent on the UK’s membership with the EU.

[46] ‘Contracting States – List of Contracting States’ <http://www.newyorkconvention.org/list+of+contracting+states> accessed 20 December 2019.

[47] Gareth Hughes, ‘International Arbitration: Reducing Time and Costs.’ (Conventus Law, 15 May 2016) <http://www.conventuslaw.com/report/international-arbitration-reducing-time-and-costs/> accessed 30 July 2019.