After the recent House of Commons vote rejecting the governments Withdrawal Agreement a no-deal Brexit is now a real possibility. We consider what impact no-deal would have on those seeking to enforce a UK judgment in an EU Member State post-Brexit.

What is the current position regarding enforcement of UK judgments in EU Member States?

The UK currently benefits from being party to a framework of EU legislation that regulates jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. This EU regime provides a system where judgments are easily recognised and enforced in other EU Member States.

Details of key EU instruments and treaties governing jurisdiction, recognition and enforcement of judgments in civil and commercial matters are set out in table 1 below.

No-deal Brexit: how will things change?

There will be no agreed framework for the recognition and enforcement of judgments between the UK and EU Member States. The EU regime will cease to apply in the UK [1] . This means that the UK would be treated as a 'third' country, outside of the EU regime, and would rely upon existing common law and statutory rules, which currently apply in cross-border cases concerning the rest of the world.

In its no-deal technical notice [2] the government states that businesses, individuals and legal practitioners would need to consider:

'….. how these rules interact with the domestic rules of relevant EU countries to determine how jurisdiction in cross-border disputes should be established and whether any judgments should be recognised and enforced. In certain cases, the interaction between these rules may not be clear and certain countries may not recognise judgments from UK courts.'

At best enforcement between the UK and remaining EU Member States is likely to take longer, cost more and generally be more difficult. At worst enforcement of some judgments may not be possible in some EU Member States.

Will we see an increase in arbitration clauses?

Many view arbitration as a way of 'Brexit proofing' international agreements. Deal or no-deal Brexit will not impact upon arbitration or the enforcement of arbitration decisions. The popularity of arbitration may well increase with parties concerned about the 'perceived' Brexit litigation risk moving to arbitration as their preferred dispute mechanism. A key advantage is the agreed enforcement process for signatories to the New York Convention 1858. 150+ countries including the UK and all EU Member States are signatories.

Current EU framework – key regulation and treaties

Post-Brexit: No-Deal

Recast Brussels Regulation and 2001 Brussels Regulation - governing jurisdiction, recognition and enforcement of civil and commercial judgments between EU countries.

Repealed for all parts of the UK. Revert to existing domestic common law and statutory rules which apply in cross-border cases outside of the EU.

Lugano Convention 2007 – governs jurisdiction and enforcement between EU countries and Iceland, Norway and Switzerland.

Repealed for all parts of the UK. UK has indicated it will seek to re-join in its own right (rather than as EU member). Until then revert to existing domestic common law and statutory rules which apply in cross-border cases outside of the EU.

The EU/Denmark Agreement on jurisdiction and recognition of judgments in civil and commercial matters

Repealed for all parts of the UK. Revert to existing domestic common law and statutory rules.

Rome I & II Regulations - on law applicable in contractual and non-contractual matters.

UK to retain Rome I and Rome II. EU Member States will still be required to respect a choice of law even if that is not the law of a Member State.

2005 Hague Convention on Choice of Court Agreements (The Hague Convention) - respect for exclusive jurisdiction clauses and enforcement of related judgments.

Repealed for all parts of the UK. UK to re-join in its own right (rather than as an EU member). In force 1 April 2019. N.B. Exclusive jurisdiction clauses entered into by the UK before 1 April 2019 may not be recognised by other signatories to The Hague Convention.

Other regulations not considered in this note but included for the sake of completeness:

  • The Service Regulation
  • The European Enforcement Order Regulation
  • The European Order for Payment Regulation
  • The European Small Claims Regulation
  • The Mediation Directive
  • Majority of the Insolvency Regulation 2000 and Recast Insolvency Regulation

All repealed for all parts of the UK. N.B. The UK remains party to the Hague Service Convention and the Hague Taking of Evidence Convention.

Is there anything the UK Government can do improve the situation?

In an attempt to plug the gaps and maintain as much of the existing EU framework as possible the UK Government is taking the following steps:

1) To retain Rome I and Rome II rules on applicable law in contractual and non-contractual matters so that the same rules will apply pre and post-Brexit to determine which law would apply in cross-border disputes.

2) Re-join the 2005 Hague Convention on Choice of Court Agreements in our own right. The Hague Convention will enter into force for the UK on 1 April 2019. This means that courts in contracting states (EU, Mexico, Singapore and Montenegro) will be obliged to give effect to exclusive English choice of court agreements entered into after that date, and to enforce resulting judgments in accordance with the Hague Convention.

The UK has provided that the Hague Convention will continue to apply to:

  • existing exclusive jurisdiction agreements to which the Hague Convention would have applied but for the UK's withdrawal from the EU
  • exclusive jurisdiction agreements entered into during the 2 day gap between exit day and the Hague Convention entering into force for the UK (29 March - 1 April 2019).

It remains uncertain whether other contracting states will treat the Hague Convention as continuing to apply to the UK in the above circumstances. This means that enforcement of UK judgments in EU Member States under the Hague Convention may only be possible for proceedings commenced on/after 1 April 2019.

3) The UK Government has indicated that it will seek to join the 2007 Lugano Convention in its own right. This however will require the agreement of all signatories, including all 27 EU member states. Alternatively the UK would need to join the European Free Trade Association (EFTA).

Key areas of risk and uncertainty

  • Enforcement after 29 March 2019 for cases not covered by the Hague Convention (see above).
  • Whether the Hague Convention applies pre 1 April 2019 (see above)
  • Some EU Member States do not have rules allowing the recognition of judgments from non EU states. Enforcement not being possible in some Member States [3] 
  • Enforcement not being possible for some types of judgments eg) non money judgment, default judgment
  • Uncertainty about procedure for EU cross-border enforcement
  • Increased time and cost of enforcement
  • Increased risk of parallel proceedings and conflicting judgments.
  • The UK and EU taking different approaches to post-Brexit jurisdiction, recognition and enforcement where parties have already taken steps under the EU regime pre-exit day. The UK's position [4] is that where a case has commenced before exit day then it will continue to apply the EU regime on jurisdiction and enforcement. Whereas the EU position [5] is that the European regime will not apply to judgments of UK courts from exit day unless the UK judgment has a formal declaration of enforceability (exequatur) in another Member State before exit day.

How to reduce the impact of these changes?

  • Complete enforcement proceedings before 29 March 2019 to take advantage of the current European rules on recognition and enforcement of judgments. Alternatively (where available) obtain formal declaration of enforceability in the EU state where judgment will be enforced before exit date
  • As we would advise when entering any agreement, but now one to consider more carefully when enforcement is likely to be in an EU Member State or Lugano Convention 2007 signatory state, consider where you are likely to want to enforce and take local law advice on enforcement before committing to your jurisdiction clause
  • Carry out extensive due diligence on those you are doing business with, ensure the contract is tightly drafted and assess how much of an enforcement risk you are taking. Consider your enforcement risk as a percentage of your business and keep this under review.
  • Consider entering into an exclusive jurisdiction clause if concerned about enforcement within EU Member States so as to benefit from the Hague Convention. Although note uncertainty re: applicability of the Hague Convention prior to the UK joining the Hague Convention in its own right on 1 April 2019 (see above)
  • Consider entering into a non-exclusive jurisdiction clause – so the parties can decide whether to sue in the UK or a Member State when the dispute arises. N.B. this clause would not benefit from the Hague Convention and could lead to uncertainty over jurisdiction.
  • Where you have particular concerns about potential enforcement proceedings consider if the parties will agree to arbitration. This should also be considered for existing agreements – is it possible to re-negotiate?
  • Seek local law advice in the country you are seeking to enforce to ensure compliance with local laws
  • Parties doing business with non-English parties should make sure they appoint an agent for service in England where they have agreed to the jurisdiction of the English courts (as the EU Service Regulation will not apply post-Brexit)
  • Where judgments are for a low sum it will be worth considering the cost/benefit of enforcement if enforcement/legal costs increase significantly.

How to enforce in an EU Member State [6] in the event of no-deal?

Unless an enforcement treaty applies, such as the Hague Convention, the national law of each EU Member State will apply and determine whether a foreign UK judgment can be recognised and enforced in that jurisdiction [7] .

For example under English common law enforcement of foreign judgments in England requires the judgment creditor to commence a fresh cause of action in the English courts with the foreign judgment being the cause of action. This is often slower than enforcement of judgments from EU Member State courts.

Is it time to panic?

In our opinion the position is not as bleak as some commentators suggest. There is bound to be some disruption from these procedural changes. In the short term there is also likely to be an increase in conflict of law issues while parties seek to test and understand the changes. Enforcement of an English court judgment in an EU Member State (and vice –versa) after Brexit may well take longer and cost more. Enforcement certainly won't be as easy as it is now under the EU regime. Despite the increased risks around enforcement we should bear in mind that it is possible to enforce UK judgments in countries outside of the EU that do not have reciprocal arrangements with the UK, such as the United States.

In our view the UK and EU Member States would appear to benefit equally from providing commercial parties with a robust system of dispute resolution and enforcement. In the event of a no-deal Brexit there may yet be a post-Brexit deal to be done in these areas.

[1] the UK will retain provisions on jurisdiction in consumer and employee matters and the rules on domicile of corporations and associations as set out in The draft Civil Jurisdiction and Judgments (Amendments) (EU Exit) Regulations 2019: Brexit SI

[2] Handling civil legal cases that involve EU countries if there's no Brexit deal

[3] Also Lugano Convention 2007 signatories: Iceland, Switzerland and Norway

[4] The draft Civil Jurisdiction and Judgments (Amendments) EU Exit) Regulations 2019

[5] European Commission position – EC Notice to Stakeholders 18 January 2019

[6] The same would apply to Lugano Convention 2007 countries – Iceland, Switzerland and Norway

[7] Some commentators have suggested that enforcement could be possible under the Civil Jurisdiction and Judgments Act 1982/Brussels Convention – which was superseded by the EU regime – however the preferred view seems to be that this would not be possible. Reliance on bilateral treaties which pre-date the EU regime has also been raised as a technical argument - Foreign Judgments (Reciprocal Enforcement Act) 1933