Locations
Fieldfisher dispute resolution specialists Donna Goldsworthy, Nicola Sewell and Anastasiya Lutsenko look at the procedures in Italy, Germany and Spain.
Key Points:
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Each English court judgment will, unless it falls within the Hague Convention, have to be considered by the receiving state on a case-by-case basis under domestic law.
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Limited grounds for refusal of the judgment are built into most domestic legal systems.
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A common requirement is that the English judgment does not conflict with any judgment of the EU Member State.
Prior to 31 December 2020, individuals and businesses based in England and Wales benefited from the UK's membership of the EU through its reciprocal jurisdiction and enforcement regulations in civil litigation with EU counterparties.
This meant that, following potentially lengthy and expensive court proceedings, the claimant knew they could take their English court judgment and (fairly) quickly and easily enforce it in another EU Member State.
This article examines the rules that now apply in relation to the enforcement of English court judgments in the EU and considers, by reference to Italy, Germany and Spain, what this means for enforcement of judgments in practice.
We highlight that these are the rules that apply as at the date of this article (May 2021) but are potentially subject to change (for example, if the UK joins the Lugano Convention 2007, as discussed below).
The impact of Brexit on enforcement
The UK officially withdrew from the EU on 31 December 2020, having provisionally agreed terms for future trade and cooperation with the EU (the EU-UK Trade and Cooperation Agreement (TCA)). However, issues of cross-border judicial cooperation were not included.
A direct consequence of the UK's withdrawal from the EU in terms of dispute resolution is that the previous regime under the Brussels Regulation (EU) 1215/2012 (Recast Brussels Regulation) relating to automatic recognition and enforcement of English judgments in the EU did not apply from 1 January 2021.
The exception is where court proceedings have been initiated (instituted) in the UK before 31 December 2020, English court judgments that are subject to the Recast Brussels Regulation will continue to be directly enforceable within the EU, even if the judgment was issued after 31 December 2020.
Where court proceedings have been initiated on or after 1 January 2021, to enforce the judgement, the claimant must now rely upon either international conventions to which both the UK and the particular EU Member State are contracting parties, or the domestic law of the EU Member State in which the judgment is being enforced. There are also potentially "old" laws that may assist.
On 1 January 2021, the UK re-joined (having previously been a member by virtue of its EU membership) the Hague Convention on Choice of Court Agreements 2005.
The Hague Convention applies between the UK and the EU, Singapore, Mexico and Montenegro (as the only current non-EU signatories). It does not apply to the European Free Trade Association (EFTA) states.
The scope of the Hague Convention is more limited than the Recast Brussels Regulation, applying only to contractual disputes (relating to certain subject matter) where there is an exclusive jurisdiction clause.
The judgment needs to be recognised and a declaration of enforceability or registration obtained before enforcement can take place. The law of the enforcing state governs the process for this.
There is some uncertainty as to whether EU Member States will uphold exclusive jurisdiction clauses entered into after 1 October 2015 (when the Hague Convention came into force for the EU and, therefore the UK) but before 1 January 2021.
There are also potentially "old" laws and treaties, which may assist parties when enforcing judgments. For example, the UK and Norwegian governments have agreed upon the continuation (with certain amendments) of the bilateral convention signed on 12 June 1961, and Cyprus has in place the Reciprocal Enforcement of Certain Judgments issued by the Courts of the Commonwealth Countries (Reciprocal Enforcement Law), which applies to English court judgments.
Where no such treaties or old laws apply, for judgments arising from disputes in contracts with non-exclusive jurisdiction clauses, non-contractual disputes, and those disputes relating to matters excluded by the Hague Convention (such as consumer, employment, insurance, and company law matters), the claimant must rely on the domestic law of the receiving EU Member State.
Although there is no reason to expect EU Member States will not recognise and enforce English court judgments, the enforcing party must be aware of potentially increased costs and delays, not least because obtaining local legal advice is, in the majority of cases, going to be essential.
The Lugano Convention, which applies between the EU and EFTA states, seeks to facilitate direct recognition and enforcement of judgments in a similar way to the Recast Brussels Regulation.
The UK has applied to rejoin the Lugano Convention. However, the EU must consent to this and has not currently done so. This means that the issue of recognition and enforceability of judgments between the UK and EFTA states, such as Switzerland, is now also governed by domestic laws unless a bilateral treaty applies (such as with Norway).
Pending a decision on the Lugano Convention, the options are bilateral treaties; or the Hague Convention (if it applies); and otherwise, domestic law.
We consider below examples of procedures for recognition and enforcement of the English court judgments in the EU.
Enforcement under the Hague Convention
If the Hague Convention applies to the judgment, the rules for recognition and enforcement of judgments set out therein apply.
The receiving court is bound by the findings of the court where the judgment was issued (subject to limited grounds for refusal). New substantive proceedings do not need to be commenced in the receiving state.
Recognition means that the foreign judgment is recognised or is effective in the receiving legal system. Enforcement entails the meeting by the enforcing party of a set of requirements for the purposes of enforcement. No judgment can be enforced unless it is first recognised.
The process is governed by the domestic law of the state in which enforcement is sought.
To start the process, the enforcing party makes a formal application by filing documents, including:
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A complete, certified copy of the judgment;
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The agreement containing the exclusive jurisdiction clause;
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Any document(s) evidencing the validity of the court judgment for the purposes of enforcement domestically; and
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Any other documentation deemed necessary for the specific case.
Recognition and enforcement may be refused if:
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It contradicts, or is incompatible with, the public policy of the receiving state;
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The agreement is void or the party(ies) to the agreement lacked the capacity to execute it;
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The procedural rules were not adequately followed for the purposes of instituting the proceedings; or;
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The judgment was obtained by fraud.
Enforcement in Italy
Where the Hague Convention does not apply, the enforcing party must make an application for recognition.
A certified copy of the judgment, a court certificate confirming it is final and binding, and a certified translation will need to be filed.
The enforcement process requires an application to the Italian Court of Appeal in the district where enforcement is sought.
A judgment may only be refused on certain grounds, such as:
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Incompatibility with domestic public policy;
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The existence of pending proceedings commenced by the same parties in Italian courts; or
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A violation of due process.
The general principles of enforceability of domestic judgments in Italy is contained within the Italian Code of Civil Procedure (CCP).
To enforce an English court judgment in Italy, the enforcing party must comply with the Italian International Private Law (Law 218/1995), which also deals with the issue of recognition of foreign judgments in Italian courts.
The requirements under this law include that:
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The respondent was properly served with notice of proceedings; and
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The foreign judgment is final and binding, is not in breach of public policy or in conflict with an Italian judgment, and is validly legalised.
Once these conditions are satisfied, the case will be reviewed by the Italian Court of Appeal and a declaration of enforceability granted.
The judgment can then be enforced in the same way as a domestic judgment. The enforcing party will be required to issue a final payment notice on the respondent prior to commencing enforcement proceeding.
If this is not satisfied, the enforcing party must serve a further seizure notice, triggering the formal enforcement process.
This procedure can take up to one year. If the judgment of the Court of Appeal is appealed to the Italian Supreme Court, that can easily take another year to be resolved.
However, unlike with domestic judgments, which must be enforced within 10 years, no limitation period applies to enforcement of foreign judgments.
Enforcement in Germany
If the Hague Convention does not apply, the process for recognition and enforcement of an English court judgment will be governed by German domestic law, which starts with the 'exequatur' procedure, whereby the German court determines the admissibility of the enforcement of the court judgment.
A new set of proceedings before the German domestic court will be started.
The process starts with submitting a copy of the English court judgment and any other documents evidencing the requirements for recognition to the German court.
In addition to demonstrating that the English court judgment conforms to public policy, the court proceedings have been properly started, and there are no conflicting German judgments, the enforcing party must overcome two additional hurdles.
First, they must show that the judgment by the English court was issued within its competency.
Second, they need to show that recognition and enforcement of German court judgments can be enforced in the UK on a reciprocal basis.
The German court will examine whether grounds for refusal of enforceability apply. Recognition and enforcement can be refused by the German court if either the formal or substantive requirements set out above are not fulfilled.
The court will notify the respondent that an application for enforcement has been made. This is then followed by written submissions, and, sometimes, a court hearing.
Once a declaration of enforceability has been obtained, the enforcing party must serve it on the respondent, who may appeal against enforcement.
In the event of non-compliance by the respondent, the enforcing party can choose the appropriate means of enforcement, such as seizure of property by a bailiff, by way of foreclosure/compulsory administration, or under a court order.
The timeframe for obtaining a declaration of enforceability usually depends on the country of the judgment and the completeness of documents available. This could take anything from a few weeks to over 12 months.
German procedure rules state that court settlements, and those claims that have been declared final, become time-barred after 30 years.
Alternatively, the Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between Germany and the UK dated 14 July 1960 may apply where the judgment concerns the payment of a definite sum of money.
The process starts with an application for a declaration of execution to a German court.
The declaration may be denied on the same grounds described above. If there are any specific reasons for refusing recognition and enforcement, these will be considered during the exequatur procedure.
Enforcement proceedings in Germany can start only following the issue of a judgment for the declaration to execute by a German court and this can be a lengthy and costly process.
Enforcement in Spain
For English court judgments that do not fall under the Hague Convention, recognition and enforcement in Spain is regulated by the Spanish Act 29/2015 on International Legal Cooperation in civil matters dated 30 July 2015 (SAILC).
As in Germany, this is referred to as the "exequatur" process aimed to examine the concurrence of certain procedural and substantive requirements. Recognition and enforcement are treated as two distinct steps in a single exequatur proceeding.
The process starts with the enforcing party making a written request for exequatur (“solicitud de exequatur”) before the Spanish court under the requirements of the Spanish Civil Procedural Act (SCPA) (Article 399).
It must contain duly legalised documents, which include the original or certified copy of the English court judgment, proof of service of the proceedings on the respondent, and proof that the judgment is final. The documents must be accompanied with appropriately legalised translations.
Spanish law requires that the respondent be duly notified about application for exequatur to allow the possibility of opposition, which can be filed within 30 days of notice.
Whether it is filed or not, the Spanish court will deliver a final judgment either granting or dismissing the exequatur, which can be appealed under the general appeal rules of the SCPA.
The exequatur can be refused on one of the following grounds:
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There are proceedings following judgment that are subject to exclusive jurisdiction in favour of Spanish courts (i.e. ownership or lease of real property located in Spanish territory, incorporation, nullity or dissolution of companies domiciled in Spain, validity and nullity of its organs, etc.);
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The issuing court did not have jurisdiction;
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The proceedings have not been properly instituted (e.g. the respondent did not receive the summons);
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The decision was issued in breach of the rights of defence of any of the parties;
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Recognition is contrary to public policy;
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The decision is irreconcilable with a decision issued in Spain;
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There are proceedings in Spain between the same parties concerning the same subject matter.
The same courts that deal with the exequatur process (Courts of First Instance or Commercial Courts) have jurisdiction to deal with the enforcement.
The determination of jurisdiction and the recognition and enforcement of foreign judgments can be a complicated and lengthy process in Spain.
The general limitation period of five years from the date the exequatur is granted applies. Enforcement proceedings must be started in Spain during this period.
Arbitration
Given the additional requirements for the enforcement of English court judgments post-Brexit, arbitration may be seen as a more straightforward alternative.
The recognition and enforcement of arbitral awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards dated 10 June 1958, which has been ratified by 157 states, including the UK and all EU Member States. It is unaffected by Brexit.
Nonetheless, arbitration is not suitable for all disputes and should not be selected without proper consideration.
Brexit has encouraged many businesses to reflect on the suitability of their dispute resolution choices.
Recent trends show that businesses in the finance and banking sectors in particular are among those who are beginning to give preference to arbitration as a preferred mechanism for resolving disputes.
Due to the complex technical nature of disputes that arise, this predilection for arbitration is no surprise as the parties are unrestricted in their choice of experts to decide their dispute.
Stability and binding precedent when construing financial contracts have been the driving force behind choosing civil litigation over arbitration for these businesses in the past.
Further, there could be challenges with enforcement of asymmetric jurisdiction clauses, which feature in international finance agreements, requiring one party to sue in the courts of a specified jurisdiction only, while giving other party the freedom to sue in any court that has jurisdiction. Asymmetric jurisdiction clauses are unlikely to be enforceable under the Hague Convention.
Conclusion
Each English court judgment will, unless it falls within the Hague Convention, have to be considered by the receiving state on a case-by-case basis under its domestic law.
This is likely to result in uncertainty due to different legal systems in different EU Member States, and potential inconsistencies in outcome.
EU states, for example Italy, Germany and Spain, all approach this in different ways. Limited grounds for refusal are built in most domestic legal systems, and there will be increased time and costs involved.
However, there is no reason to think that EU Member States will suddenly stop recognising and enforcing English judgments as a system of mutual recognition and enforcement benefits everyone.
The benefits of the English court will still appeal to many claimants. However, boilerplate jurisdiction clauses should no longer be inserted into contracts without detailed consideration of the overall dispute resolution strategy and 'end-game'.
When drafting a dispute resolution clause in a contract, the parties will need to consider the location of the counterparties and their assets before choosing a preferred jurisdiction.
Domestic legal advice is critical when considering enforcement in a particular state. This will help to avoid problems with enforcement of English court judgements further down the line.
This article was authored by Donna Goldsworthy, partner; Nicola Sewell, director; and Anastasiya Lutsenko, solicitor, in the dispute resolution team and members of Dispute Resolution Brexit Task Force at Fieldfisher.
A version of this article was first published by LexisPSL.
