15 July 2016

International and European Litigation post-Brexit: enforcement of judgments

International and European litigation post-Brexit: enforcement of judgments

In addition to (and perhaps as a necessary result of) the free movement of goods, workers, companies and capital, the European integration has also led to a closely co-ordinated system of free movement of judgments in civil and commercial matters under the so-called “Brussels regime”. Put simply, this regime means that civil and commercial judgments handed down by courts in any of the (currently) 28 Member States or three of the four EFTA Member States can be executed with ease in any of the other Member States. This blog will discuss the significant repercussions that the British people’s Brexit decision could have for civil and commercial litigation in Europe, in particular with respect to the enforcement of judgments of English, Welsh, Scottish or Northern Irish courts.

“A judgment that cannot be executed is nothing more than a very, very expensive piece of paper”.

The Brussels regime

The so-called “Brussels regime” comprises two EU regulations (Brussels I bis Regulation and, in the case of Denmark, the original Brussels I Regulation) as well as the 2007 Lugano Convention. These three instruments on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters establish a regime of freedom of movement of judgments throughout all 28 EU Member States plus most of the European Free Trade Association (EFTA), namely Iceland, Norway and Switzerland. They harmonise the rules of jurisdiction in cross-border civil and commercial litigation and allow parties to execute European judgments against assets located anywhere in the EU, Switzerland Iceland or Norway.

Post-Brexit UK’s place within the Brussels regime

When the United Kingdom leaves the EU, the Brussels I and I bis Regulations will no longer have any effect within the UK and the UK courts will no longer be deemed to be courts of Member States for the purposes of the Regulations. Similarly, it is likely that the UK will cease to be a party to Lugano Convention.

In other words: the UK will become a third state for the purposes of the Brussels regime.

Consequences for the enforceability of UK judgments in the EU

The consequences of the UK becoming a third state for the purposes of the Brussels regime are serious and far-reaching.

While a successful plaintiff awarded an English, Welsh, Scottish or Northern Irish judgment in civil or commercial matters can currently proceed to have such a judgment enforced throughout any of the 30 other Brussels regime States under the harmonised and simplified Brussels regime rules of recognition and enforcement, this will no longer be the case post-Brexit. Once the UK is a third state for the purposes of the Brussels regime, the recognition and enforcement of UK civil and commercial judgments will have to be determined under the rules of private international law of the jurisdiction in which recognition is sought.

The national rules regarding the enforcement of foreign judgments vary from jurisdiction to jurisdiction. UK judgments will continue to be enforceable in countries such as France, Spain, the Netherlands and Germany, however their enforcement will not be as simple as under the Brussels regime. Instead, parties wishing to execute UK judgments will need to commence recognition proceedings in the jurisdiction in which they want to execute their judgment. National enforcement proceedings lead to additional costs, delays and uncertainty in the execution of judgments.

In some other Member States, such as Denmark and Sweden, UK judgments may no longer be enforceable. This will be a significant blow to parties who have successfully had a UK judgment awarded to them against a defendant whose assets are located in any of these countries.

Consequences for the enforceability of EU judgments in the UK

When the UK courts cease to be subject to the Brussels rules, the enforceability of EU judgments in the UK will depend on the applicability of any bilateral treaties or, in the absence of a treaty, domestic rules of recognition and enforcement of foreign judgments.

The good news for litigants awarded EU money judgments is that these will generally remain enforceable in the UK under the common law. Injunctions issued by EU courts will generally not be capable of execution in the UK.

Options for the UK post-Brexit

Should the UK wish to continue to be part of the Brussels regime and to avoid all of the uncertainty described in this blog, the most logical step for it would be to apply for accession to the Lugano Convention, however this would require an amendment to the Convention’s eligibility provisions, as well as the consent of the other parties to the Convention. Whether or not the EU and the other contracting States would be amenable to this remains to be seen.

Options for commercial parties

Given that nobody currently know what the Brexit will look like, businesses are faced with considerable uncertainty. What is, however, certain is that a judgment is only as good as its enforceability; a judgment that cannot be executed is nothing more than a very, very expensive piece of paper. As such, commercial parties should carefully assess where they choose to litigate.

London in particular has established itself as one of the preferred venues for parties with cross-border commercial disputes. In fact, in recent years as many as three quarters of the parties to disputes heard by the London Commercial Court were non-UK parties. Of these, roughly a third were European litigants from outside the UK. With so many non-UK commercial parties litigating in England, it is obvious that enforcement of English decisions abroad is going to be a significant issue in the post-Brexit fallout, as parties discover that they will no longer be able to rely on the virtually automatic enforcement of English judgments within the EU and EFTA.

To avoid the uncertainty, costs and delays surrounding the enforcement of UK judgments post-Brexit, commercial parties should consider alternatives to cross-border litigation in England such as international commercial arbitration or litigation in other forums.

One possible alternative forum to the London Commercial Court is the Netherlands Commercial Court (NCC) in Amsterdam which will open its doors on 1 January 2017. Parties to NCC proceedings will be able to litigate in English and even apply English law (if they wish). But most importantly, the resulting judgments will be enforceable throughout the entire EU, Norway, Switzerland and Iceland under the Brussels regime and, subject to common law enforcement proceedings, in the UK. Parties can do this by adopting a so-called choice of forum clause in their contracts to submit any disputes to the jurisdiction of the NCC.