Following on from our guide to Brexit and Contracts here, Julie Murphy O'Connor, Karen Reynolds and Gearóid Carey take a look at how Brexit will affect cross border disputes, in particular the enforcement of judgments obtained in such disputes.
How will Brexit impact on cross border enforcement of civil and commercial judgments?
If a counterparty against which judgment may be obtained has assets or enterprises in other jurisdictions against which enforcement may be required, enforceability can be a significant factor when it comes to choosing governing law and jurisdiction in contracts. Parties need to be confident that they will be able to enforce their contractual obligations in a straightforward manner. The rules relating to the recognition and enforcement of judgments in EU/EFTA Member States are currently set out in:
- the Brussels Regulation (Regulation (EC) No 44/2001) (for proceedings commenced before 10 January 2015) and Brussels Regulation (Regulation (EU) No 1215/2012) (the "Brussels Recast Regulation") (for proceedings commenced on or after 10 January 2015) for disputes between parties domiciled in EU Member States (together the "Brussels Regime");
- the Lugano Convention on jurisdiction and the enforcement of judgments in civil and commercial matters 2007 for disputes involving parties domiciled in the EU and Norway, Switzerland and Iceland (being EFTA Member States) (the "Lugano Convention");
- the Hague Convention on Choice of Court Agreements of 2005 (the "Hague Convention") for disputes involving parties domiciled in EU Member States, Mexico, Singapore and Montenegro; and
- the common law for all other disputes.
There is uncertainty as to the extent to which non EU/EFTA judgments will be recognised and enforced across the EU, and they may require separate applications subject to differing domestic rules in each EU Member State. Enforcement proceedings are regularly subject to jurisdictional challenge and the judgments tend to have to be final and conclusive, as well as merit based. All of this contributes to rendering the enforcement process less certain, less effective, more time-consuming, more cumbersome and more expensive.
For judgments covered by the Brussels Regime and the Lugano Convention (for EU and EFTA Member States), what constitutes a judgment under those instruments is broadly defined and includes orders or judgments in the nature of injunctions and costs determinations as well as interim orders (but excludes insolvency related judgments). Proceedings for cross border recognition and enforcement are straightforward and predictable with little or no potential for delay.
If the Withdrawal Agreement and Political Declaration on the future relationship between the UK and the EU (the "Withdrawal Agreement") applies to Brexit, it provides (at Article 67(2)) that the Brussels Recast Regulation shall continue to apply to the recognition and enforcement of judgments sought before the end of the transition period (which, by virtue of Article 126, will expire on 31 December 2020) and given in legal proceedings instituted on or after 10 January 2015. Accordingly, the Withdrawal Agreement maintains the status quo until the end of December 2020, during which time it would be for the UK and the EU to reach a long term arrangement with regard to recognition and enforcement.
Brussels Regime & Lugano Convention
Once the UK leaves the EU, the Brussels Regime and the Lugano Convention will no longer apply to the UK. Although the UK Government has indicated a desire to reach agreement with the EU27 on continued civil justice co-operation post-Brexit, it remains to be seen what, if anything, will be negotiated. The UK has indicated that it will apply to re-join the Lugano Convention in its own right at a later date.
Pursuant to the draft Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019, published by the UK Government in December (the "Exit Regulations"), UK courts will apply current rules in relation to enforcement of judgments where the EU Member State court's judgment was given in proceedings commenced pre-Brexit. By way of contrast, in the EU's Notice to Stakeholders, Withdrawal of the United Kingdom and EU rules in the field of Civil Justice and Private International Law, published on 18 January 2019 (the "EU Notice to Stakeholders"), it is stated that EU Member State courts will not apply the current enforcement rules to UK court judgments unless the exequatur procedure has been completed before exit day, even if the judgment was handed down before exit day or the enforcement proceedings were commenced before exit day.
There is an argument that the Brussels Convention of 1968 (a treaty signed by the then six members of the European Communities and since expanded) could still be used to enforce certain EU Member State judgments in the UK (or UK judgments in certain other EU Member States), as that instrument has not been abrogated. However, quite apart from the fact that it only has potential relevance to contracting states, both the Brussels Recast Regulation and its predecessor, the Brussels Regulation, purport to "supercede" the Brussels Convention.
A party seeking to rely on the Brussels Convention would face a difficult and uncertain argument in the jurisdiction where enforcement may be sought that the Brussels Convention remains a vehicle for enforcement. The ultimate determination of such argument may fall to the European Court of Justice, which is a scenario the UK would presumably seek to avoid, given it is contrary to the principle of Brexit. Accordingly, the more prudent view is that the Brussels Convention cannot be relied upon as a route to enforcement post-Brexit.
The Hague Convention could act as a fallback for a no-deal Brexit. The UK deposited its Instrument of Accession to the Hague Convention on 28 December 2018. The UK Government has indicated it will withdraw its Instrument of Accession to the Hague Convention if the Withdrawal Agreement enters into force. As matters stand, the Hague Convention will enter into force on 1 April 2019, two full days after exit day.
The Hague Convention, however, is limited in its scope. The parties to a dispute must have entered into an agreement containing an exclusive jurisdiction clause in favour of one of the contracting states, which agreement must have been concluded after the Hague Convention came into force for that state. To take advantage of its application, parties should therefore try to defer agreeing exclusive UK jurisdiction clauses until 1 April 2019 (ie, the date the Hague Convention will enter into force in the UK, in a no-deal scenario).
In terms of the recognition and enforcement of judgments under the Hague Convention, only judgments on the merits are covered. It is not therefore possible to seek enforcement of interim rulings. In addition, certain types of claim, such as contracts for carriage and certain intellectual property claims, are excluded; and the Hague Convention does not extend to insolvency, arbitration, consumer, employment, antitrust and insurance matters (and certain other specific matters).
Enforcement at Common Law
For all cases which fall outside the scope of the Hague Convention (whether because there is no exclusive jurisdiction clause, or because any such agreement precedes 1 April 2019, or because the subject matter or relief obtained is not covered by the Hague Convention), enforcement of UK court judgments in Ireland (and vice versa) will be dependent on common law rules of private international law. This means that receivership and enforcement will only be possible where the judgment is final and conclusive and involve a fixed monetary amount. In addition, other considerations such as questions of jurisdiction and public policy may also be relevant to whether it will be recognised and enforced. Enforcement of UK judgments in other EU jurisdictions will similarly depend on their domestic rules on the enforcement of foreign judgments which may differ between jurisdictions. Recognition and enforcement of non-final or non-money judgments are not facilitated at common law, rendering it necessary to bring fresh proceedings in Ireland in which the foreign judgment or order forms the basis of the action.
What should I consider if I am still negotiating a contract with a counterparty in the UK with regard to my prospects of being able to enforce a judgment on foot of that contract?
If you are still negotiating your arrangements with a counterparty, but fear for the prospects in the future of enforcement of an Irish judgment in the UK, or vice versa, you should endeavor to defer concluding your agreement until at least 1 April 2019 and include an exclusive jurisdiction clause. If the counterparty has assets in other jurisdictions and you would like to preserve the option of additionally enforcing a judgment in another EU or EFTA country, you should consider including an exclusive jurisdiction clause in favour of Ireland or another EU Member State, so that you can avail of the Brussels Regime.
What if I already have a judgment and I want to enforce it in the UK?
The Brussels Recast Regulation will continue to apply to the recognition and enforcement in the UK of judgments given in proceedings commenced prior to 31 December 2020 if the Withdrawal Agreement comes into effect.
However, in the event of a no-deal Brexit, enforcement of a judgment already obtained will depend on whether you have a UK judgment to be enforced in Ireland, or an Irish judgment to be enforced in the UK:
- For a UK judgment to be enforced in Ireland, the EU Notice to Stakeholders addresses the position once the UK becomes a non-EU Member State (ie a third country). It clarifies that EU rules on recognition and enforcement of judgments will not apply to UK judgments unless the judgment involved has been enforced before the withdrawal date. This is so, even where the UK judgment was handed down before the withdrawal date or the enforcement proceedings were commenced before the withdrawal date.
- For an Irish judgment to be enforced in the UK, the Exit Regulations provide that the UK will continue to enforce judgments from EU Member States where the relevant proceedings were commenced before exit day (even though it seems that the EU will not reciprocate).
In the event of a no-deal Brexit, if UK judgments are obtained against corporations with assets spread across the EU, it will potentially be necessary to make applications for enforcement in each EU Member State.
Read further updates in our Cross Border Disputes Series:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.