Brexit Negotiations Series: ‘Negotiating Brexit – Recognition and Enforcement of Judgements’

Although it could never attract as many tabloid headlines as other ‘negotiating Brexit’ issues, a successful resolution to questions about the future framework for recognition and enforcement of judgements is key for safeguarding individuals’ rights and the success of any UK-EU trading relations post-Brexit.

The UK has publicly acknowledged that the regime established by the recast Brussels Regulation (‘Brussels Recast’) incorporates ‘important principles that will form part of the negotiations’; however, it is uncertain how high up the UK’s priority list for the negotiations this issue will feature and how it will be covered in any agreement reached.

This is not just a concern for those going into bat for the UK in the Brexit negotiations: the EU27 Member States will also want to ensure that judgements of their courts can be enforced effectively in the UK. The EU’s current Brexit negotiating guidelines also make clear that the agreement governing the UK’s withdrawal ‘should ensure that the recognition and execution of national judicial decisions handed down before the withdrawal date remain governed by the relevant provisions of Union law…’. The position of post-Brexit judgements is more uncertain.

This article discusses the current state of play, the possible outcomes if the UK and EU27 do not take any pro-active steps in this regard, and the alternative options available for a long-term arrangement. As with other Brexit-related issues, this is expected to be a complex part of the negotiations. As other practitioners have noted, dealing with this out of the political spotlight will best ‘enable cool heads to reach agreement on these technical points’.

Current regime

Under Article 42(1) of Brussels Recast, a party who is the beneficiary of a judgement delivered in one EU Member State and wishes to enforce it in another simply needs to provide the competent enforcement authority in that other Member State with a certificate issued by the court that has delivered the judgement and a copy of the judgement which satisfies the conditions necessary to establish its authenticity.

Brussels Recast has sought to set a high bar for refusal of recognition and enforcement.  Consequently, under the current regime, a party dealing with a counterparty elsewhere in the EU can be reasonably confident of being able to enforce a judgement delivered in one Member State against a counterparty in another.

As so often in life, practical reality proves more complex than theory. Parties have experienced obstacles to the free movement of judgements across the EU under Brussels Recast. In particular, the public policy exception under Article 45 can be (and has been) interpreted widely by Member State courts. This can ultimately result in the recognition and enforcement of judgements being subject to national law by the backdoor, with proceedings becoming drawn out where there are several tiers of appeal in that jurisdiction.

Default position post-Brexit

Recognition and enforcement of EU27 court judgements by UK courts

If the UK Government elects to do nothing, Brussels Recast will no longer apply in relation to the recognition and enforcement of EU27 court judgements after Brexit. Consequently, the courts of England and Wales will most likely have to resort to common law rules.[1] While circumstances in which the recognition and enforcement of EU27 judgements would fail to satisfy the common law requirements are likely to be limited, ultimately, the enforcement process may become more cumbersome and time-consuming post-Brexit.

The prospects of IndyRef2, let alone a referendum which reaches an outcome different to that of 18 September 2014, may be receding. That said, Brexit also raises the awkward question of what would happen in terms of judgement recognition between an independent Scotland, the remaining legal jurisdictions of the UK, and the EU27. 

Recognition and enforcement of UK judgements by the courts in the EU27

The position will be similar in the EU27 post-Brexit. Enforcement of UK judgements (which post-Brexit will be third state court judgements) across the EU27 will be subject to the national laws of each Member State. However, the national laws on recognition of third state court judgements vary and indeed, in a number of jurisdictions, the procedure is more cumbersome than the automatic recognition rules under Brussels Recast.

Ultimately, the Brussels Recast regime is (at least) a two-way street, and the EU27 Member States also have a vested interest in finding a workable solution to protecting judgement creditors, who post-Brexit will be seeking to enforce a domestic judgement from courts in the EU27 against assets in the UK.

Other options

The other possible options for the UK include:

1. entering into a bespoke UK-EU agreement on the continued application of Brussels Recast (or a framework to that effect);
2. acceding to the 2007 Lugano Convention (‘Lugano’) as an independent party; and
3. acceding to the 2005 Hague Convention (‘Hague’) as an independent party.

Bespoke UK-EU Agreement

To preserve the status quo, a new treaty would have to be negotiated between the EU and the UK (or provisions included in any overarching withdrawal agreement) providing for reciprocal arrangements for recognition and enforcement of judgements. This is unlikely to be straightforward, as such a bespoke UK-EU treaty would require unanimity among the EU27.

Denmark concluded such a bespoke treaty with the EU since it is not bound by the relevant treaty provisions under which Brussels Recast was enacted. Importantly, however, the Danish agreement provides for references from the courts of Denmark to the Court of Justice of the European Union (‘the CJEU’) and for CJEU jurisprudence on Brussels Recast to be taken into account by the Danish courts. Denmark also cannot enter into international agreements that affect or alter the scope of Brussels Recast without the EU’s consent. Given the current political climate, these aspects of such a bespoke treaty are unlikely to be acceptable to the UK Government. Are there more politically palatable alternative options?

Lugano

Lugano, which regulates recognition and enforcement issues, is currently applicable in Switzerland, Norway, and Iceland, as well as in the EU Member States. These rules are a step behind Brussels Recast. Nevertheless, by comparison with doing nothing, acceding to Lugano as an independent party would be a tenable fall-back option for the UK as it would preserve some of the reciprocal benefits of Brussels Recast. Importantly, however, as further discussed below, pursuing this option would require the UK courts to take ‘due account’ of CJEU jurisprudence.

Hague

The UK could also join Hague as an independent party and could do so unilaterally without the consent of the other signatories. 

However, the impact of Hague is limited as, currently, only judgements rendered pursuant to exclusive jurisdiction clauses are recognised and enforced. Moreover, like Lugano, Hague does not benefit from the expedited procedure in Brussels Recast. In addition, beyond the EU Member States (except Denmark), only Mexico and Singapore participate in it. The list of contracting states is likely to increase, at least with the addition of the US and Ukraine that have signed, but not yet ratified, it. So, while Hague provides some relief, it is not the final answer.

Key issues for those litigating post-Brexit

CJEU

The most delicate (and perhaps tempestuous) issue to be resolved in relation to any post-Brexit agreement on the issues of recognition and enforcement is the future role of Luxembourg. The UK has made it clear that it intends to end the jurisdiction of the CJEU and that the courts of England and Wales will not be required to consider the CJEU’s jurisprudence made after Brexit.

If any workable post-Brexit solution is unlikely without accepting some form of role for the CJEU, hostility towards the CJEU among many in the UK (fuelled regularly by ‘Brexiteering’ aspects of the UK media) could be a deal-breaker when it comes to a continuation of any aspects of Brussels Recast – either in the form of a bespoke UK-EU agreement, or under Lugano.

Ultimately, the position on the weight of CJEU jurisprudence may end up being settled in respect of other areas of negotiating Brexit and the same applied to any continuing framework based on Brussels Recast.

Courts of England and Wales

Depending on their priorities, the uncertainty with recognition and enforcement of judgements following the UK’s departure from the Brussels Recast framework may encourage debate as to when the UK courts (particularly those in England and Wales) are the most appropriate choice of court.

Our courts have long been the forum of choice for cross-border litigation in the EU and internationally. Many of the reasons why parties select them are unrelated to Brussels Recast and, therefore, unaffected by Brexit. These include, among other things: the fundamental constitutional principles underpinning the common law system, such as the doctrine of precedent, judicial independence, and the near unrivalled calibre of the judiciary, the availability of specialist courts and specialist judges for technical cases such as the Commercial and Admiralty Court and the Technology and Construction Court, and the availability of high quality dispute resolution practitioners, procedural certainty, speedy procedure for interim injunctions, and availability of a wide range of remedies.

At the same time, it is important to recognise some of the challengers. For example, Singapore has been attracting international parties to its courts by explicitly modelling them on the London Commercial Court. In addition, courts in other major European financial centres such as Paris, Frankfurt, and Amsterdam also now offer capabilities to hear cases in English, or are thinking of making it easier for English law governed cases to be heard in their courts.

The way forward

Irrespective of what path the UK will choose to take post-Brexit, in due course, the reality is that there is likely to be uncertainty for quite some time. What steps can parties take to mitigate this?

Parties entering into contracts now should consider whether they are prepared to take a risk on enforcement of judgements in the EU27, even if the process is slower/more complex. Various factors may well tip the balance in favour of continuing to litigate in the courts of England and Wales. In such cases, parties may continue to choose the exclusive jurisdiction clause of the courts of England and Wales.

If parties are sufficiently concerned about enforcement, they could include a ‘Brexit trigger clause’ (ie, wording to enable parties to arbitrate, or use a dispute resolution forum other than the courts of England and Wales when a dispute arises, if there is no reciprocal post-Brexit arrangement for the enforcement of judgements). Alternatively, a London seated arbitration could be agreed upon upfront.

The path that people choose to tread is likely to depend upon appetite for risk, the nature of the contract to be concluded, and the factual context; for example, is litigation likely, is consensual dispute resolution possible, and where are the parties’ assets located? 

While this will sound obvious, to ensure maximum protection of their interests, parties should weigh up their options carefully and seek legal advice, as appropriate. 

One politician leading the Brexit campaign during last year’s referendum famously said that we have ‘had enough of experts’. Those trying to work out the impact of Brexit on their litigation strategy choices (let alone those tasked with negotiating Brexit) may find greater comfort in access to wise counsel.

Tom Snelling is litigation partner at Freshfields Bruckhaus Deringer LLP. This post was prepared with the help of Lauma Skruzmane, Ashmita Garrett, Ramya Arnold and Phoebe Chan, also within the Dispute Resolution team at Freshfields Bruckhaus Deringer LLP.

This post is part of the ‘Brexit Negotiations Series’, a series of posts based on contributions at the ‘Negotiating Brexit’ conference that took place in Oxford on 17 March 2017.