26.03.2020

The Hague Convention on the Enforcement and Recognition of Foreign Judgments in Civil or Commercial Matters: game changer or non-starter?

Background

On 2 July 2019 the Hague Conference adopted the “Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters” ("the Convention"). The Convention was eagerly awaited and after it had been concluded was praised as a "game changer". But will the Convention really change international legal relations for good? Or will it just suffer the same fate as its predecessor convention from 1 February 1971?

1. Why is the Convention so important in practice?

The recognition and enforcement of a foreign judgment within the borders of the EU is normally unproblematic. The so-called “Brussels Ia Regulation” allows the prevailing party in court proceedings to have the judgment recognised and enforced in another EU Member State.

A much bigger challenge is getting a judgment recognised and enforced in a country outside of the EU. Whether and under what conditions a State recognises a foreign judgment, and declares it enforceable, varies depending on which States are involved. States often refuse to recognise foreign judgments and refuse to declare them enforceable. In such a case, the creditor has a judgment but this cannot be enforced. Therefore, the judgment is effectively worthless.

This is one of the reasons why it is common practice in international legal relations to resort to arbitration. As part of an arbitral agreement, the parties can agree that the dispute will be settled by an arbitral tribunal instead of the national courts. It is thanks to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards from 1958 that arbitral awards are now easily enforceable in 160 countries.

With this Convention, the Hague Conference sought to redress this imbalance in legal channels. The Convention is aimed at allowing international operators to choose state courts without the parties having to fear that claims may not be effectively enforced.

2. What can the Convention achieve?

The Convention covers all judgments in civil and commercial matters. Judgments in this context mean not only judgments in the strict sense, but also include, for example, decrees or orders and court settlements.

Which court actually delivered the judgment is not relevant. Instead, whether it is a civil or commercial matter depends exclusively on the claim that has been adjudicated. This means that, for example, judgments from criminal or administrative courts may also be covered by the Convention. However, the scope of the Convention does not cover company, family, inheritance and insolvency law and intellectual property rights.

Antitrust law is a special area: as a general rule, any agreements and any conduct that breach antitrust law and any claims arising from such fall within the scope of the Convention. This is remarkable because arbitral awards that deal with these types of claims often cannot be enforced if the claims arose outside of a contract. This is because prohibitions on anticompetitive practices are regarded as belonging to public policy (“ordre public”) and are, therefore, open to the control of the state courts, even if an arbitral tribunal has ruled on them. In this respect, the Convention can offer considerable added value for interested parties.

3. When is a foreign judgment enforceable?

If the State in which the judgment was made ("the First State") and the State in which enforcement is sought ("the Second State") are both Contracting States and neither State has any reservations, the Convention can apply if one of the following conditions is met:

(a) the debtor of the judgment’s habitual place of residence, seat or branch is in the First State and the judgment results from its activities there; or

(b) the parties have agreed that the court of the First State will have jurisdiction and make judgment, or the debtor of the judgment argued on the merits without contesting the jurisdiction; or

(c) the claim on which a decision has been made has a particular connection with the First State (e.g. place of performance in the case of contracts, location in the case of property or place of action in the case of non-contractual claims).

The Second State is not allowed to re-examine the judgment or make the recognition and enforcement subject to an examination (no “revision au fond”). The Second State is obliged to recognise the judgment. The Second State may only refuse recognition under strict conditions. For example, the Second State may refuse recognition if:

a) procedural pleadings were served late or unlawfully;

b) the judgement was fraudulently obtained;

c) the principles of a fair trial were breached during the proceedings;

d) there are conflicting agreements on jurisdiction; or

e) the subject matter of the judgment was previously pending or has already been adjudicated elsewhere (opposing legal validity).

In addition, States may refuse to recognise and enforce foreign judgments if they provide for so-called “punitive damages”. This type of punitive damages, which are known in particular under the law of the United States of America, do not have to be recognised.

4. Can the Convention meet expectations?

The Convention contains numerous regulations which can greatly facilitate the recognition and enforcement of foreign judgments within the Contracting States. Unlike the 1971 Hague Convention, this Convention contains specific rules and directly commits the Contracting States. Additional bilateral agreements, as provided for in the 1971 Hague Convention, are no longer necessary. Therefore, it is hoped that as many States as possible will sign and ratify the Convention.

Despite the sensible regulatory content and the specific structure of the Convention, it remains to be seen whether it really will be the hoped for “game changer”, in particular, for two reasons: firstly, whether the Convention is effective depends on as many States as possible signing and ratifying the Convention. Only five States ever signed the 1971 Hague Convention. If the Hague Conference States do not adopt the Convention, the impact on international legal relations will be minimal. Considering that to date, a good eight months after the conclusion of the Convention, only two countries (Uruguay on 2 July 2019 and Ukraine on 4 March 2020) have signed the Convention, scepticism is justifiable. Although the EU has announced that it will sign the Convention, even this will have little practical relevance unless other States accede to the Convention.

Secondly, the Contracting States retain the right to make reservations with regard to certain countries. If one Contracting State makes a reservation about another Contracting State, such State is not obliged to recognise judgments from that State. This far-reaching reservation right of the Contracting States contradicts the purpose of the Convention.

As a result, it is hoped that a large number of States will sign and ratify the Convention and that the Contracting States will declare as little reservations as possible. Because then and only then will the Convention have the potential to become a “game changer” and influence international practice.

Author
Dr Christoph von Burgsdorff, LL.M. (Essex)

Dr Christoph von Burgsdorff, LL.M. (Essex)
Partner
Hamburg
christoph.von.burgsdorff@luther-lawfirm.com
+49 40 18067 12179

Robert Burkert

Robert Burkert
Associate
Hamburg
robert.burkert@luther-lawfirm.com
+49 40 18067 14837