The Brexit date of 29 March 2019 is fast approaching, and there is now a distinct possibility of the UK leaving the EU without agreed terms. Our MoFo Brexit Task Force is coordinating Brexit-related legal analysis across all of our offices, and working with clients on key concerns and issues, now and in the coming weeks and months. We are also continuing to provide MoFo Brexit Briefings on a range of key issues. We are here to support you in any and every way that we can.
From a commercial contracting and disputes perspective, Brexit has the potential to impact four key areas: jurisdiction; recognition and enforcement of judgments; service; and governing law. This update note focuses on the second of these areas – recognition and enforcement of judgments. You can find our update notes on the other three areas here.
As with other areas, it is difficult to predict what the exact impact of Brexit will be on these matters until we know what post-Brexit model and terms the UK and the EU will agree, if any agreement is reached at all. In the meantime, uncertainty remains. That said, there are some practical steps that parties entering into or renegotiating contracts can take now to seek to protect themselves from the impact of Brexit and the intervening uncertainty.
Will you be able to enforce English court judgments in EU Member States (and vice versa) post-Brexit?
The recognition and enforcement of judgments obtained in the UK and EU Member States post-Brexit is likely to be an issue of significant importance for contracting parties. There is no point in obtaining a judgment if you cannot enforce it in a jurisdiction (or the jurisdictions) in which the defendant has assets.
The current regime
The recognition and enforcement of judgments on civil and commercial matters within the EU is currently governed by the Recast Brussels Regulation, which provides a robust and streamlined method of automatically recognising and enforcing judgments in civil and commercial matters across the EU.
Post-Brexit, the Recast Brussels Regulation, which relies on reciprocity, will cease to apply in the UK post-Brexit. Although it is theoretically possible for the UK and the EU to agree that the Recast Brussels Regulation, or an equivalent arrangement, will continue to apply on a reciprocal basis, this is unlikely. Among other things, it would be contrary to the UK government’s position that the jurisdiction of the Court of Justice of the European Union should end in the UK post-Brexit.
The most likely post-Brexit scenario is that the UK accedes to the 2005 Hague Convention on Choice of Court Agreements (“Hague Convention”) or the 2007 Lugano Convention.
The Hague Convention
The UK currently participates in the Hague Convention, which is in force in all EU Member States, Mexico, Montenegro and Singapore, as an EU Member State. Post-Brexit, in the absence of concluding an alternative agreement, the UK plans to re-join the Hague Convention in its own right and does not need the consent of the remaining EU Member States to do so. The Hague Convention is an international agreement pursuant to which the courts of Contracting States agree (among other things) to recognise and enforce final judgments granted pursuant to exclusive jurisdiction agreements in favour of the courts of another Contracting State. The Hague Convention does not apply to judgments granted pursuant to non-exclusive jurisdiction clauses (in contrast to the Recast Brussels Regulation and Lugano Convention) or exclusive jurisdiction agreements entered into before 1 October 2015. In addition, under the Hague Convention, interim protective measures (such as interim injunctions or freezing orders) cannot be enforced, in contrast to the existing position under the Recast Brussels Regulation.
The Lugano Convention
The government has previously announced its desire to participate in the Lugano Convention post‑Brexit, although noting its view that the Lugano Convention is limited in scope, and its desire to explore a bilateral agreement with the EU. Contrary to the Recast Brussels Regulation, the Lugano Convention requires only that states have regard to the decisions of the Court of Justice of the European Union. However, in contrast to the Hague Convention, the UK would need the consent of the other signatories (including the remaining EU Member States, Iceland, Norway and Switzerland) in order to accede to the Lugano Convention.
If the UK adopts the Lugano Convention or some other international treaty, there should be a clear framework for the mutual recognition and enforcement of judgments across the UK and EU, as with the existing position under the Recast Brussels Regulation.
On 13 September 2018, the government published guidance on “Handling civil legal cases that involve EU countries if there’s no Brexit deal”. As the guidance noted, in a “no-deal” scenario, the UK would “revert to the existing domestic common law and statutory rules”. The guidance further stated that the government will take the necessary steps for the UK to re-join the Hague Convention in its own right. To facilitate this, on 28 December 2018, the UK deposited its Instrument of Accession to the Hague Convention with the Netherlands’ Ministry of Foreign Affairs.
As noted in the guidance, the government anticipates that the Hague Convention would come into force throughout the UK on 1 April 2019, which would potentially leave a two-day gap of coverage after the Brexit “exit day” on 29 March 2019. The Ministry of Justice has drafted regulations (The Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018 (“2018 Regulations”)) to plug this potential gap. The 2018 Regulations require UK courts to give effect to Hague Convention provisions with respect to judgments granted pursuant to choice of court agreements concluded in favour of non-EU Contracting States before exit day, and those concluded in favour of any Contracting State on or after exit day but before the Hague Convention enters into force again in the UK, as if the UK had remained bound without interruption. The Explanatory Memorandum to the 2018 Regulations, however, acknowledges that this solution will only bind the UK courts, and that there is no guarantee that the courts of other Contracting States will reciprocate.
For judgments (and interim remedies) falling outside the scope of the Hague Convention:
- Enforceability of English judgments in EU Member States would depend on the national law of each EU Member State in which enforcement is being sought. This is likely to make enforcement of such judgments across the EU a slower, more expensive and uncertain process.
- Enforcement of EU Member State judgments in England and Wales would be undertaken in accordance with common law rules, which would generally require fresh proceedings to be commenced to enforce the judgment as a debt. Although this is less straightforward than the streamlined procedure currently available under the Brussels Regulation, it is generally a surmountable hurdle, and judgments from non-EU countries, such as the United States, are already regularly enforced in this way.
What you should do now
In light of the uncertainty regarding the enforceability of judgments and other remedies post-Brexit, it would be advisable for contracting parties to obtain local advice in any jurisdiction in which enforcement of interim protective measures or final judgments is likely to be sought. In order to cater for the possibility of a “no-deal” Brexit scenario, in which case (as set out above) the Hague Convention would apply, contracting parties should also where possible ensure that any choice of court agreements that they enter into provide for the exclusive jurisdiction of their chosen courts so that they can benefit where possible from the provisions of the Hague Convention. Parties may also want to consider reaffirming pre-existing choice of court agreements in favour of English courts to ensure that they continue to be given effect by other EU Member States post-1 April 2019.
Parties with existing or imminent litigation against EU parties may also wish to seek to accelerate any litigation or enforcement of any interim remedies or final judgments, so as to take advantage of the automatic recognition and enforcement mechanism currently available under the Recast Brussels Regulation.
Will Brexit make the English courts a less desirable forum?
It’s possible that the current uncertainty regarding the position with respect recognition and enforcement of judgments, and the potential difficulties that could arise if an equivalent regime to that currently in place is not agreed by the UK/EU, could make England a less desirable forum for litigation and discourage commercial parties from agreeing to confer jurisdiction on the English courts, in the short-to-medium term.
Ultimately, however, Brexit is unlikely to detract from the primary reasons commercial parties choose the English courts: their reputation for speed, fairness, impartiality, and reasoned judgments from high-quality, experienced judges.
What about arbitration?
The EU rules on recognition and enforcement of judgments under the Recast Brussels Regulation do not extend to arbitration, and the enforcement of arbitral awards in most jurisdictions is straightforward thanks to the New York Convention (to which the UK will remain a party post‑Brexit).
Brexit is therefore unlikely to have any adverse impact on arbitration, which could make arbitration an attractive option for contracting parties seeking to obtain certainty, at least until the post-Brexit position becomes clearer.