September 18, 2019

A new safety net for English law judgments after Brexit

When the UK leaves the EU, it may no longer be possible to enforce UK judgments across borders in the same way under European rules. However, new global rules will support UK judgments whatever the outcome of Brexit negotiations. In this article, we consider the implications of these for the long-term future of London as a hub for international dispute resolution.

Whatever form any Brexit takes - hard or soft, deal or no-deal - the enforcement of UK judgments in the EU will present claimants with a challenge. For many years, most EU Member States' judgments of a civil or commercial nature have been easy to enforce in other Member States by relying on the Brussels Recast Regulation (EU 1215/2012). However, like other EU Regulations, this will cease to apply to the UK after Brexit or the end of any agreed transition period.

What will happen

If the UK leaves without a deal, which is to say without a Withdrawal Agreement similar to the one negotiated by Theresa May's Government, UK judgments will not be generally be enforceable under EU rules. The date on which proceedings began will be irrelevant, as will the date when judgment was given.

If the UK leaves with a deal, on the other hand, this should include a Transition Period which will suspend the UK's effective departure from the institutions of the EU by several months or years. According to the current version of the Withdrawal Agreement, the Transition Period might end as late as 31 December 2022 (Articles 126 and 132 of the Withdrawal Agreement). Until then, current EU rules on cross-border enforcement will apply to UK judgments as if it were still a Member State (Article 127).

The Transition Period has a long tail, so even after it finishes it will be possible for UK judgments to be enforced under EU rules for an indefinite period, providing the initial proceedings begin before the Transition Period ends (Article 67). Again, the date of the judgment itself is immaterial, and the timing of enforcement proceedings is irrelevant too.

But what happens where proceedings begin after the Transition Period ends? It is possible, of course, that the UK will have negotiated a further agreement governing long-term UK-EU relations, and that this agreement will support UK judgments in EU27 countries as they are supported now. However, the current blueprint for such an agreement (the non-binding Political Declaration that accompanied Theresa May's Withdrawal Agreement) says nothing at about civil proceedings, but focuses on trade, security and other such matters instead. Therefore, the prospect of EU rules continuing to support UK judgments indefinitely and seamlessly after Brexit looks uncertain at this stage.

One possible solution could be to see the UK re-joining the 2007 Lugano Convention (Lugano), which currently extends EU jurisdiction and enforcement rules to three of the four European Free Trade Association (EFTA) states: Iceland, Norway and Switzerland (but not Liechtenstein). The key advantage of Lugano, from a Brexit perspective, is that membership is open to any country in the world.  This means that the UK could re-join the Convention whether it remains closely aligned to the EU or prefers to go into own way. All that would be needed is the desire to put the arrangement in place, including from EFTA states, whose consent would be required.

Safety net

The current political impasse in Brexit negotiations means that a complete rupture from the institutions of the EU on 31 October 2019 is possible, and as just mentioned, a negotiated exit will not necessarily lead to a comprehensive arrangement regarding the enforcement of UK judgments in the EU (and vice versa). That does not mean, however, that UK judgments would be unenforceable in EU27 in the absence of such an arrangement. On the contrary, where proceedings are commenced after a no-deal Brexit or after any Transition Period ends, parties will be able to rely on Member States' national enforcement rules, which are perfectly serviceable in most cases. This is what currently happens, for example, when non-EU/EFTA judgments are enforced in EU Member States. There may be no bilateral arrangement in place to facilitate the process, but enforcement works reasonably well, for example, in Germany under the German civil procedural rules, with relatively little expense or delay.

It may even be possible to rely on the bilateral arrangements between the UK and individual Member States (including France and Germany) that were put in place before the current EU rules came into being. Some argue that these have been superseded now by EU arrangements, but that is far from clear.

The practical difficulty with national rules and bilateral arrangements, though, is that they tend to be narrow in scope and, as one would expect, each works in a different way. It is helpful, then, that they are supplemented by a global Convention which could function as a safety net if the UK falls entirely out of the European regime. This is the 2005 Hague Convention on Choice of Court Agreements (Hague 2005). However, Hague 2005 is limited in a number of ways. As its name suggests, it supports the enforcement of judgments made by courts in contracting states, including in effect all Member States of the EU. But in addition, the parties must have conferred exclusive jurisdiction on those courts, so the jurisdiction agreement cannot be a non-exclusive one, or even an asymmetric/one-sided agreement - that is, exclusive in part.

Crucially, Hague 2005 is also limited in its temporal scope: it only covers judgments where the relevant agreement was entered into after the Convention came into force for the jurisdiction concerned. This means that it will be of limited use to the UK in the period immediately following Brexit. The reason for that is that the UK currently participates in Hague 2005 by virtue of its membership of the EU, so when it leaves the EU, the UK would have to re-join Hague 2005 as an independent contracting state. Unfortunately, the government has conceded that when that happens, the clock will be reset to zero as far as the EU is concerned. Therefore, the only English judgments that will be enforceable in the EU under Hague 2005 will be those covered by a jurisdiction agreement entered into after Brexit has taken place. [1]

A new Convention

Fortunately, a new Convention has just been concluded which may alleviate this problem. This is the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, generally known as the Hague Judgments Convention (Hague 2019).

At first sight, the two Hague Conventions dovetail with each other, one covering judgments given in the context of an exclusive jurisdiction agreement, and the other covering judgments where a different kind of jurisdiction agreement has been entered into (Article 5(1)(m)). However, Hague 2019 applies in other situations too, for example where (broadly speaking):

  • the defendant submitted (explicitly or otherwise) to the jurisdiction of the court giving judgment, although it did not need to do so (Article 5(1)(e) & (f))
  • judgment was given in the jurisdiction where a contractual obligation was to be performed (Article 5(1)(g))
  • judgment was given where a tortious act was committed, wherever the resulting harm occurred (Article 5(1)(j))

In any of these situations, the resulting judgment is supported by Hague 2019 regardless of whether a jurisdiction agreement was entered into, and when that might have happened. In terms of Hague 2019's temporal scope, the only condition that has to be met is that proceedings began at a time when the Convention was in force both in the jurisdiction where judgment was given and where enforcement is subsequently sought (Article 16). [2] This, and the somewhat broader subject matter scope of Hague 2019, make it potentially much more useful than Hague 2005 in the years immediately following any Brexit.

Implications

It is true, of course, that Hague 2019 will only benefit claimants directly when it has come into force, which will happen when at least two parties sign and ratify the Convention or take equivalent steps. However, it seems likely that the UK will take the plunge fairly soon, and the EU may follow shortly afterwards. This is because the two Conventions complement each other, forming a whole, so most parties to Hague 2005 will want to join Hague 2019 with a minimum of delay.

In the meantime, more and more judgments will fall within the temporal scope of the earlier Convention as time passes and an increasing number of disputes are covered by a jurisdiction agreement post-dating the UK's departure from the EU. For any judgments that are not covered by Hague 2005, work-arounds exist in the form of national enforcement rules etc, as explained above.

In the long-term, then, the effect of any Brexit on the enforceability of UK judgments in Europe could be relatively small. Its enduring legacy may only be an increased willingness of parties to choose arbitration over litigation in cross-border transactions, side-stepping enforcement issues and jurisdiction concerns too. Awards in international arbitration have the great merit of being enforceable in all major jurisdictions under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York), which binds the UK and Member States of the EU. This will continue to operate after any Brexit it as it does now. However, the advisability of going down this route depends on a number of factors - the famous pros and cons of arbitration versus litigation. Enforceability is one important factor to bear in mind, but by no means the only one. Confidentiality, the possibility of obtaining summary judgment and/or a court precedent, the expertise of the judge or tribunal and their approach to costs are just some of the factors that a party will take into consideration.

The key point is that parties have a choice of options, both when a dispute arises and initially, when putting dispute resolution arrangements in place. Some organisations are changing these arrangements to take account of Brexit, but whether this is a general or long-term trend is too early to tell. What does seem clear, though, is that whatever the outcome of the UK's negotiations with the EU, enforceability issues are unlikely to cause serious harm to London's status as a hub of international dispute resolution, particularly given the continuing appeal of English commercial law.

[1]  See paragraph 2.16 of the Explanatory Memorandum that was issued with the first draft of The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018, and section 4 of the Regulations themselves.  Note that there may be a gap of days or even months between Brexit and Hague 2005 coming into force again for the UK.

[2] See also paragraph 332 of the Revised Preliminary Explanatory Report that accompanies Hague 2019.