The UK has not been a member of the European Union and thus of the comprehensive European framework for cross-border civil litigation since 1 January 2021. Within the EU, the Brussels I Recast-Regulation (Regulation [EU] 1215/2012) not only provides a set of common rules on the jurisdiction of the courts but also ensures rapid and simple recognition and enforcement of judgments in civil and commercial matters issued in the Member States. Under the Brussels I Regulation, judgments are enforceable without any declaration of enforceability. A judgment rendered in France or Romania can be enforced in Austria without much trouble and vice versa.
After Brexit, Brussels I Recast no longer applies to the UK, and judgments may be enforced based on bilateral or multilateral treaties. Parties are often not even aware of the possible enforcement difficulties when they decide to file a claim at the agreed place of jurisdiction, such as London.
Mind the gap!
At present, the only multilateral treaty with respect to the enforcement of commercial judgments ratified by the EU and the UK is the Hague Convention of 2005 on Choice of Court Agreements. The scope of the 2005 Hague Convention is quite narrow. It provides for the enforcement of judgments only when the judgment has been handed down by a court specified in an exclusive (symmetric) jurisdiction clause concluded between commercial parties after the 2005 Hague Convention entered into force.
With respect to the enforcement of a UK judgment in Austria or vice versa, gaps may be partly covered by the 1961 bilateral treaty between Austria and the UK. This treaty only guarantees the recognition of decisions by “superior courts” such as the Austrian Regional Courts (Landesgerichte) but excludes decisions of District Courts (Bezirksgerichte). Furthermore, only monetary claims are enforceable under the bilateral treaty and only within six years of the judgment becoming final.
This patchwork of enforcement mechanisms leads to considerable insecurity in commercial contracts as well as finance transactions or M&A transactions (if litigation is preferred to arbitration).
An early Christmas present?
After being denied access to the Lugano Convention of 16 September 1988 on jurisdiction and the enforcement of judgments in civil and commercial matters, the UK recently decided to sign the Hague Convention of 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Judgments Convention”) as soon as possible. All EU Member States except Denmark acceded to it in 2022 and it entered into force in 26 EU Member States on 1 September 2023.
The Judgments Convention is intended as an equivalent of the New York Convention 1958 for the Recognition and Enforcement of Arbitral Awards for court decisions.
The scope of the Judgments Convention is broader than the scope of the 2005 Hague Convention. The Judgments Convention generally applies to all civil and commercial matters (Art 1) but certain matters such as family law matters, insolvency, privacy and intellectual property are excluded from the scope of the Judgments Convention (Art 3).
The Judgments Convention leaves the procedure for recognition and enforcement (declaration of enforceability) to the contracting state in which the judgment is to be recognised and enforced (Art 13). Nevertheless, the Judgments Convention can be expected to reduce the cost and risks of cross-border litigation by establishing a clear and effective framework and limiting the grounds for refusal of recognition and enforcement.
According to the Judgments Convention, judgments given by a court of a contracting state will be recognised and enforced in another contracting state if certain criteria are met. The bases for recognition and enforcement (Art 5) include: habitual residence or principal place of business of the defendant; branch, agency or other establishment without separate legal personality of the defendant in the state of origin if the claim on which the judgment is based arose out of the activities of that branch, agency or establishment; express consent of the defendant to the jurisdiction of the court of origin or pleading to the merits before the court of origin without contesting jurisdiction; judgment on contractual obligation given by a court of the state in which performance of that obligation took place or should have taken place; judgment on damages given by a court in the state where the act or omission causing the harm occurred (but not exemplary or punitive damages).
Recognition and enforcement may only be refused on certain grounds (Art 7), such as lack of service of the document instituting the proceedings, judgment obtained by fraud, inconsistency with a judgment given by a court of the enforcing state in a dispute between the same parties or violation of public policy.
Unlike the Brussels I Recast-Regulation, the Judgments Convention does not directly determine the proper choice of forum. As a result, it does not limit the exorbitant exercise of jurisdiction and does not coordinate parallel proceedings (but does include a discretionary provision in Art 7(2) to postpone or refuse recognition and enforcement).
Next steps
Despite this weakness, the Judgments Convention is clearly a step forward in EU-UK cross-border litigation. Once in force in the UK, it should make life easier for parties involved in international litigation and cross-border enforcement by bringing more certainty, less complexity and lower costs.
However, even if the UK government signs and ratifies the Judgments Convention within a few months, it will still be 12 months before it enters into force. It is therefore high time to review jurisdiction clauses in contracts. Also keep in mind that the Judgments Convention only applies to recognition and enforcement if the convention had effect between the corresponding states at the time the proceedings were instituted. So perhaps it is not an early Christmas present after all.
By Sara Khalil, Counsel, and Daphne Aichberger-Beig, Associate, Schoenherr