The Judgments Convention provides a new treaty-based mechanism for enforcing English judgments in other contracting states, including all EU member states other than Denmark, and for enforcing contracting state judgments in England.
The Judgments Convention is a sister instrument to the 2005 Hague Convention on Choice of Court Agreements (the 2005 Convention). The 2005 Convention requires contracting state courts to respect exclusive jurisdiction clauses designating other contracting state courts and to enforce related judgments. The UK and all EU member states (among others) are contracting states to the 2005 Convention.
The entry into force of the Judgments Convention for the UK is a welcome development. It should reduce enforcement risk for parties who have counterparties with assets in other contracting states and who choose to litigate in the English courts. This should in turn help facilitate cross-border trade.
Here we answer five key questions about the Judgments Convention and its practical implications for commercial parties, both when negotiating dispute resolution clauses and managing a dispute.
1. What does the Judgments Convention do?
The Judgments Convention requires contracting states to recognize and enforce civil and commercial judgments given in other contracting states, subject to limited exceptions. The UK will be the 29th contracting state to the Judgments Convention, alongside all EU member states (other than Denmark) as well as Ukraine and Uruguay.
The definition of “judgment” in the Judgments Convention is very wide. It covers almost any decision on the merits given by a contracting state court, provided the court hearing the dispute on the merits had jurisdiction to do so based on one of the eligibility criteria set out in Article 5 of the Judgments Convention.
Judgments must be recognized and enforced without any review of the merits, and there are only limited grounds on which recognition or enforcement can be refused.
2. Does the Judgments Convention apply to judgments given pursuant to jurisdiction clauses?
The Judgments Convention expressly contemplates the enforcement of judgments given pursuant to a jurisdiction agreement “other than an exclusive choice of court agreement.” Exclusive jurisdiction agreements are carved out because they are covered by the 2005 Convention. This means that judgments given pursuant to valid asymmetric or non-exclusive jurisdiction clauses should be eligible for enforcement under the Judgments Convention (in a way that they are not under the 2005 Convention).
As a reminder, asymmetric jurisdiction clauses restrict certain parties to a transaction (usually borrowers or debt issuers) to bringing proceedings in a specific forum (for example the English courts) whilst allowing other parties (usually the lenders or dealers) to bring proceedings in the chosen courts and also in other competent courts. Non-exclusive jurisdiction clauses allow all parties to bring proceedings either in the specified forum or in other competent courts.
Parties choosing valid asymmetric or non-exclusive English jurisdiction clauses should therefore be able to rely on the Judgments Convention to enforce judgments in 26 of the 27 EU member states, subject to limited exceptions. This includes cases where the clause was agreed before the Judgments Convention entered into force: what matters is whether the Judgments Convention was in force in the state hearing the proceedings and the enforcing state at the time the proceedings on the merits were commenced.
Whilst this has been the case for exclusive English jurisdiction clauses throughout the EU (including in Denmark) for many years under the EU regime and then—post-Brexit—the 2005 Convention, no multi-lateral treaty has been applicable post-Brexit between the UK and the EU in relation to asymmetric or non-exclusive English jurisdiction clauses until now.
Similar benefits should accrue in relation to deals with a nexus with Ukraine or Uruguay where an English asymmetric or non-exclusive jurisdiction clause has been agreed. And of course, parties to asymmetric or non-exclusive jurisdiction clauses designating the courts of EU member states (other than Denmark), Ukraine, or Uruguay will be able to rely on the Judgments Convention to facilitate the enforcement of judgments against parties in England.
3. Does this mean that asymmetric jurisdiction clauses are now a more attractive option?
In lending and capital markets transactions, lenders and dealers have historically preferred to include asymmetric jurisdiction clauses in their transaction documents. They value the flexibility of being able to bring proceedings in any competent court should the need arise, while knowing that proceedings can be brought against them only in the courts expressly chosen. However, whilst the English courts recognize and give effect to asymmetric jurisdiction clauses and enforce related judgments, the same is not true in all jurisdictions.
By way of example, the CJEU decision in Lastre has given rise to concerns that widely drafted asymmetric English jurisdiction clauses (i.e., clauses requiring borrowers/issuers to bring proceedings only in England but permitting lenders/dealers to bring proceedings anywhere around the world) might be invalid in EU member states (although clauses permitting lenders/dealers to bring proceedings only in EU member states or Lugano Convention contracting states (i.e., a narrowly drafted clause} might be valid). These and other similar concerns about the validity of asymmetric clauses and the enforcement of related judgments have led some parties to choose a different dispute resolution clause when negotiating deals with a nexus with potentially problematic jurisdictions.
The entry into force of the Judgments Convention may make asymmetric jurisdiction clauses more attractive in some cases, but the analysis is not straightforward. The Judgments Convention is, as its full title suggests, about the recognition and enforcement of judgments. It includes no requirements at all as to when contracting state courts should, or should not, take jurisdiction over a dispute. Moreover, it may not protect lenders and dealers, at the enforcement stage, from an argument that a widely drafted asymmetric jurisdiction clause was invalid for the reasons set out in Lastre.
Although the Judgments Convention does not necessarily resolve these jurisdictional issues, it should smooth the path to enforcing English judgments pursuant to asymmetric English jurisdiction clauses in other contracting states, at least where the enforcing court considers the relevant clause to be valid (the position is less clear in cases where the enforcing court considers the relevant asymmetric clause to be invalid).
In summary, therefore, the entry into force of the Judgments Convention for the UK may make asymmetric English jurisdiction clauses a more attractive proposition in some cases, but the analysis as to whether to include an asymmetric clause or an exclusive clause (or indeed an arbitration clause) on any given transaction is likely to continue to be a nuanced one that will need to be considered on a case by case basis.
4. Will the Judgments Convention affect decisions about where to bring claims or seek enforcement where there is no jurisdiction clause?
Judgments given by contracting state courts in cases where no jurisdiction clause has been agreed are potentially enforceable under the Judgments Convention, provided one of the eligibility criteria set out in Article 5 of the Judgments Convention is met. For example, a judgment may be enforceable under the Judgments Convention if the judgment debtor was habitually resident in the state of the court giving the judgment or if the judgment rules on a non-contractual obligation arising from damage to or loss of tangible property and the act or omission directly causing the harm occurred in the court giving the judgment.
Whether a state is a contracting state to the Judgments Convention may be something that potential claimants wish to consider when deciding where to bring proceedings in cases where no jurisdiction clause has been agreed and the potential defendant has assets in another contracting state. That is because bringing proceedings on the merits in a contracting state might improve enforcement prospects in relation to those assets. However, this is likely to be only one of the factors a potential claimant will consider when deciding where to bring a claim.
Parties will certainly wish to consider the Judgments Convention when developing any enforcement strategy after a judgment has been obtained in a contracting state. In particular, they may wish to prioritize bringing enforcement proceedings against assets in other contracting states.
5. When might a judgment not be enforced under the Judgments Convention?
There are various circumstances in which a judgment may not be enforced under the Judgments Convention. Among other things:
- Not all judgments are in scope. For example, judgments relating to insolvency, corporate capacity, intellectual property, and certain antitrust matters are not enforceable under the Judgments Convention. There are also special rules that apply to consumers, employees, and immovable property.
- There are various grounds on which enforcement may be refused. For example, enforcement may be refused where there was insufficient or improper notice of the proceedings, where the judgment was obtained by fraud or where recognition would be manifestly incompatible with public policy. It may also be refused in certain circumstances if related proceedings have been brought in the enforcing state or if inconsistent judgments exist. This opens up the prospect of parties engaging in a jurisdiction race as a tactic to block the enforcement of a judgment given in another contracting state court.
- Contracting states may disapply or limit the application of the Judgments Convention in certain circumstances and may take different approaches to how it is interpreted and applied. In addition, other treaties may take priority over the Judgments Convention in some cases. Although the Judgments Convention creates a broadly harmonized regime, local law advice will therefore still be necessary in cases where a detailed understanding of the likely enforcement position is required.
Overall, the UK’s ratification of the Judgments Convention is a helpful development for parties who wish to litigate cross-border disputes in the English courts or in other contracting states. It increases the likelihood that they will be able to obtain an effective remedy against parties with assets in contracting states.
In the short term, this benefit will accrue to parties to transactions and other legal relationships with an EU nexus (or a nexus with Ukraine or Uruguay), but the Judgments Convention is open to ratification by all states. Although it may take some time, as the number of signatories increase, the benefits of enforcement under the Judgments Convention will become more widely available and should simplify the enforcement picture for commercial parties involved in cross-border trade.
