Hague 2019: Extending the Lifespan of Asymmetric Jurisdiction Clauses?

OVERVIEW

On 12 January 2024 the UK government signed the 2019 Hague Convention on Recognition and Enforcement of Foreign Judgments (Hague 2019) and announced it will work to ratify it in order to join the Convention “as soon as possible”. This announcement, which follows the UK's re-accession to the 2005 Hague Convention on Choice of Court Agreements (Hague 2005) on 1 January 2021,¹ signals that the UK has now entered a post-Brexit era of cross border enforcement of judgments in civil and commercial matters. With the European regimes on jurisdiction and enforcement² no longer applicable in the UK (save in legacy cases) and the UK's attempt to re-join the Lugano Convention seemingly on the backburner, a different multi-lateral landscape on cross border enforcement is nevertheless emerging under the auspices of instruments promoted by the Hague Conference on Private International Law.

This new legal order is, of course, more international than the European predecessor regimes in place (Singapore, Mexico, Ukraine, Montenegro, the EU and the UK have ratified Hague 2005 and the EU, Ukraine and Uruguay have ratified Hague 2019). However, it is also more piecemeal and arguably more complex. Furthermore, as Hague 2005 and Hague 2019 are new instruments, their respective provisions are relatively untested and with no supranational court having ultimate authority to interpret them (unlike the position where the Court of Justice of the European Union determines the meaning of the EU instruments), there is greater scope for divergence in their application (notwithstanding Hague 2019's plea regarding “the need to promote uniformity” in the interpretation of the Convention at Art 20).

Against this backdrop, Part One of this article seeks to assess the potential opportunities and risks for finance parties on the UK's accession to Hague 2019 and whether finance parties are likely to adapt their approach to drafting dispute resolution clauses as a result. Part Two of this article provides a high-level overview of key features of Hague 2019 and highlights areas for future dispute and debate.

PART ONE

Background

On 15 December 2022, the UK government published a consultation paper in which it sought views on whether or not the UK should accede to Hague 2019. Its consultation response was published on 23 November 2023. The Ministry of Justice noted that it had received a total of 39 responses to the consultation from across the UK's legal sector and the common view of respondents was that the UK should join Hague 2019 and that the potential benefits of joining the treaty outweighed any downsides. The Ministry of Justice announced that the UK would be signing up to Hague 2019 “as soon as practicable”. This announcement was welcomed in the legal and business communities.

Benefits to business of joining Hague 2019

In its response paper, the UK government listed the perceived benefits of joining Hague 2019. It noted Hague 2019 is designed to provide a global framework of common rules to facilitate the recognition and enforcement of judgments from one jurisdiction to another. It highlighted that Hague 2019 should benefit business by reducing transaction costs by providing greater legal certainty as to the mutual recognition and enforcement of judgments given in the UK and in other Contracting States. This policy justification is also found in the preamble to Hague 2019 itself, which declares this uniform approach on enforcement rules helps “promote effective access to justice for all and to facilitate rule based multilateral trade and investment, and mobility, through judicial co-operation”.

A post Brexit boost for the English courts?

Closer to home, the UK government also suggested in its response that joining Hague 2019 should in-crease the attractiveness of the UK for dispute resolution, given that Hague 2019 will facilitate recognition and enforcement of judgments from UK courts. This claim is dissected further below, with particular reference to finance parties.

To place this claim into context, it is first necessary to recap on some recent history in the private international law area. For decades, some would say centuries, finance parties have chosen to use the English courts as the preferred forum in which to resolve their disputes in contracts with an international element. The perceived benefits of this selection (and the selection of English law) for finance parties in their commercial contracts have been discussed elsewhere³ and are not considered in this article.

Following the end of the Brexit transition period however, English judgments were no longer “ judgments given in a Member State” for the purposes of Art 65 of the Brussels Recast (or “judgment[s] given in a State bound by this Convention” for the purposes of Art 33 of the Lugano Convention) and therefore could not benefit from the streamlined treaty-based enforcement process set out in those EU instruments in the EU/EEA. This gave rise to concerns about the increased costs and time involved in enforcement of English judgments under national law regimes, as well as concerns that enforcement might not be possible at all in certain jurisdictions (because of a lack of reciprocity). This, in turn, led to a debate (roughly in the period between 2016-2020) about whether or not finance parties should amend their standard English jurisdiction clauses to specify another EU court so that any resulting judgment could take advantage of the EU enforcement regime.⁴

The UK's re-accession to Hague 2005 on 1 January 2021⁵ alleviated some, but not all, of these enforcement concerns, as it provided a multilateral basis for the enforcement of certain English judgments in civil and commercial matters in other Contracting States. Importantly, this included the EU27. However, this treaty only provides an enforcement mechanism for judgments issued by a court in a Contracting State specified as an exclusive choice of court agreement in an underlying contract (assuming the judgment is otherwise within scope). Given this limitation, Hague 2005's impact was inevitably muted especially as it was generally considered⁶ that judgments issued pursuant to an asymmetric jurisdiction clause in an underlying contract (traditionally favoured by finance parties) were outside the scope of Hague 2005.

For over 20 years, asymmetric jurisdiction clauses have been regularly used by finance parties in their contracts. These clauses are included in many industry standard documents, including the LMA standard jurisdiction clause.⁷ Asymmetric dispute clauses generally require one party (in the finance context, the borrower) to bring proceedings in the specified court but where the other party or parties (in the finance context usually the lenders) can bring proceedings in the specified courts but also have the option to bring proceedings in any other court of competent jurisdiction. As discussed in my JIBFL article of January 2023 – ('Cross-border enforcement of judgments in the post-Brexit age: a glimmer of light on the horizon?' (2023) 1 JIBFL 15), the UK's re-accession to Hague 2005 caused some finance parties (and institutions) to update their jurisdiction clause precedents to provide for exclusive English jurisdiction clauses⁸ so as to achieve greater certainty regarding the enforcement of resulting English judgments in the EU.

With the UK government's decision to sign up to Hague 2019, the landscape is now changing again. As noted above, Hague 2019 significantly widens the type of judgments that can be enforced under such a multilateral regime and, importantly, includes judgments issued pursuant to non-exclusive English jurisdiction clauses (“a judgment is eligible for recognition and enforcement if … (m) the judgment was given by a court designated in an agreement concluded or documented in writing or by any other means of communication which renders information accessible so as to be usable for subsequent reference, other than an exclusive choice of court agreement” Art 5(1) (m)). The Explanatory Report accompanying Hague 2019, clarifies that this provision covers asymmetric jurisdiction clauses noting “asymmetrical clauses are not considered exclusive under the HCCH 2005 Choice of Court Convention and therefore fall within the scope of the [2019] Convention” (para 217).

The UK signing up to Hague 2019 therefore helps address a post-Brexit worry for finance parties about the enforceability of English judgments issued pursuant to asymmetric jurisdiction clauses in the EU. As a result, we may see a halt to the movement away from asymmetric clauses towards exclusive jurisdiction clauses, referred to above. This development is likely to mean asymmetric jurisdiction clauses have an extended life span. Finance parties may well be content to retain these clauses in their contracts, especially as they appear to have continuing appeal given the flexibility provided by the optionality in the clause.

Not quite the end of the story on asymmetric clauses?

There remains, however, some uncertainty about asymmetric clauses. First, although Hague 2019 includes asymmetric clauses within its regime, it will be interesting to see how enforcing courts assess whether or not a judgment is “eligible” for enforcement where the court of origin (assuming it is a Contracting State) takes jurisdiction as a result of a finance party exercising its option to initiate proceedings not in the court specified in the clause but in another court. Although not clear, it is anticipated that such an examination would proceed by reference to the jurisdictional grounds set out in Art 5 of Hague 2019.

Second, and entirely separate to Hague 2019, there remains ongoing uncertainty as to the enforceability of asymmetric clauses under the national laws of certain EU member states, in particular France, as well as potentially under EU law. Some of these matters were discussed in Gallagher and Jenner's article in the May 2017 edition of JIBFL ('Foreign company schemes: is an asymmetric jurisdiction clause for choice of English law enough for jurisdiction?' (2017) 5 JIBFL 274) and my January 2023 article 'Cross-border enforcement of judgments in the post-Brexit age: a glimmer of light on the horizon?' (2023) 1 JIBFL 15). By way of update, there is a pending reference by the French Cour de cassation to the Court of Justice as to whether or not such a clause is valid under Art 25 of the Brussels Recast and whether this is an EU law question.⁹ Given the EU is a signatory to Hague 2019, which provides for the enforcement of judgments where jurisdiction of the issuing court is founded on such clauses, this pending challenge throws up some fascinating issues. This remains a complex area and one for finance parties operating across the EU to continue to watch.

PART TWO: OVERVIEW OF HAGUE 2019

As noted above, Hague 2019 provides a treaty basis for the cross-border recognition and enforcement of Contracting States' court judgments. It does not provide a multilateral regime for the allocation of jurisdiction between Contracting States (unlike the Brussels Recast and Hague 2005). That said, as discussed below, there are jurisdictional eligibility requirements for the issuing court set out in the treaty at Art 5, which the enforcing court must consider and assess.

Hague 2019 requires that a judgment given by a court of a Contracting State (the court of origin or issuing state) shall be recognised and enforced in another Contracting State (the enforcing state) in accordance with the provisions of the treaty (Art 4(1)). Moreover, an enforcing state is not entitled to review the merits of the judgment and “There may only be such consideration as is necessary for the application of this Convention” (Art 4(2)). A foreign judgment from a Contracting State is “eligible” for recognition and enforcement by another Contracting State court provided the issuing court satisfies one or more of the jurisdictional requirements in Art 5. Once met, Hague 2019 requires the recognition and enforcement of the judgment in the courts of Contracting States, subject to the defences set out, in particular, in Art 7.

“Judgment” is widely defined and includes “any decision on the merits given by a court”. It includes both money and non-money judgments and also costs rulings (in respect of decisions falling within the scope of the Judgments Convention). It does not include interim measures of protection. Hague 2019 also makes clear at Art 5(1)(m) that it does not cover judgments issued pursuant to exclusive clauses, thereby pre-serving the utility of Hague 2005.

Judgments will only be enforced under Hague 2019 if they are enforceable in the issuing jurisdiction (the state of origin) (Art 4(3)). This means that if the judgment cannot be enforced in the issuing state, e.g. be-cause it has been satisfied, then it cannot be enforced under Hague 2019. If a judgment is subject to appeal or a stay, then the enforcing court may postpone or refuse enforcement of the judgment (Art 4(4)).

Scope

The treaty deals with judgments in the civil and commercial context but some matters are outside scope, including:

• certain subject matter exclusions relating to insolvency;
• company validity and decision-making;
• privacy and intellectual property;
• certain antitrust matters;
• arbitration and related proceedings;
• judgments for damages that do not compensate a party for actual loss (e.g. judgments for exemplary or punitive damages).

The scope of these exclusions will undoubtedly be tested in the courts of Contracting States over time. We know, for example, that the scope of the arbitration exclusion in the Brussels Regulation¹⁰ was extensively litigated (and in an effort to address this uncertainty revisions were made to the Brussels Recast).¹¹ It is anticipated the arbitration exclusion in Hague 2019 may also give rise to litigation. Further, the scope of the insolvency exclusion may also be tested in the courts.
Finally, Hague 2019 makes it clear that judgments against or in favour of state parties or government bodies are, in principle, within scope (Art 2(4)) but provides: “Nothing in this Convention shall affect privileges and immunities of States or of international organisations in respect of themselves and of their property” (Art 2(5)).

Grounds of refusal

There are limited grounds on which recognition or enforcement of a judgment otherwise within scope may be refused by a Contracting State under Hague 2019. These grounds include some familiar exceptions: a judgment obtained by fraud (Art 7(1)(b)), where recognition or enforcement would be manifestly incompatible with public policy of the enforcing state including “situations involving infringements of security or sovereignty of that State” (Art 7(1)(c)), where notice of proceedings was deficient (Art 7(1) (a)). Further, and importantly for finance parties, recognition and enforcement may be refused where the proceedings in the court of origin were in breach of a jurisdiction agreement which provided for disputes to be determined in another jurisdiction (Art 7(1) (d)). Enforcement may also be refused in certain cases if the judgment is in-consistent with another judgment (Art 7(1) (e) and (f)).

Temporal limitations

Hague 2019 will only apply to a judgment if, at the time the proceedings were instituted in the state of origin, Hague 2019 had effect between the state of origin and the Contracting State in which recognition or enforcement is sought. This means that, as between the UK and the EU (which has already ratified the Convention), assuming the UK signs the treaty in 2024, English judgments (within scope) will be enforceable in EU27 under this treaty if they are issued in proceedings initiated after its entry into force at some point in 2025.

Declarations and geopolitics

Hague 2019 allows Contracting States to make declarations limiting its application in a number of circum-stances. For example, a Contracting State can declare it will not apply the treaty to particular judgments with a subject matter. That carve out will be as between that State and other Contracting States. The UK government declined to make any declaration removing insurance from scope noting “making a declaration is likely to restrict the scope of Hague 2019, which could in turn solicit reciprocal declarations by other Contracting States, undermining the Convention's purpose and objectives”. A Contracting State can also refuse to have a reciprocal relationship with another Contracting State by notifying the depositary that ratification by another state should not have the effect of establishing relations between them. The UK government sought views on whether the UK should make such a declaration regarding Russia. Currently Russia has signed, but not ratified, Hague 2019. In its consultation response, the UK government declined to make such a declaration, noting this issue would be kept under review.

There are also provisions that make it clear that Hague 2019 will not affect the application of other treaties, for example, where the treaty in question was concluded before Hague 2019.

Implementation

Now the UK government has signed Hague 2019 it will need to be ratified and incorporated into domestic law under the Private International Law (Implementation of Agreements) Act 2020. Related to this, there will be consequential amendments to the Civil Procedure Rules to build in the procedural infrastructure for registration of foreign judgments under this treaty (the UK government decided to adopt a similar registration process for Hague 2019 judgments as with incoming foreign judgments under other treaties) and to provide the framework for making objections under Hague 2019.

CONCLUSION

The UK government's decision to sign up to Hague 2019 is a welcome development for finance parties. For the reasons discussed above, this development will provide greater legal certainty regarding the enforcement of English judgments in the EU (and elsewhere) where those judgments are issued pursuant to asymmetric English jurisdiction clauses which are routinely included in market standard financing documentation.

 

Further Reading

• Brexit and dispute resolution clauses: the options for finance parties (2021) 2 JIBFL 109.
• Cross-border enforcement of judgments in the post-Brexit age: a glimmer of light on the horizon? (2023) 1 JIBFL 15.
• Lexis+® UK: Dispute Resolution: Practice Note: Hague Judgments Convention.

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¹   Following the UK depositing an instrument of accession with the HCCH on 28 September 2020 the UK reacceded to Hague 2005 at the end of the Brexit Transition Period with this taking effect on 1 January 2021.

²   Regulation (EU) 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Recast) and The Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters 2007 (Lugano Convention).

³   'Why English law as the governing law of contracts?' (2019) 7 JIBFL 427 by Philip Wood CBE, KC (Hon).

⁴   There was some debate about a switch to arbitration to take advantage of the enforcement possibilities under the New York Convention 1958.

⁵   There was a difference in view between the UK government and the Commission as to whether or not Hague 2005 was in effect as between the UK and the EU prior to this period. See, the European Commission 'Questions and Answers on the United Kingdom's withdrawal from the European Union on 31 January 2020' which suggested that Hague 2005 would not be in effect between the UK and EU until the UK acceded in its own right.

⁶   The Explanatory Report by Francisco Garcimartín and Geneviève Saumier accompanying Hague 2019, provides that “asymmetrical clauses are not considered exclusive under the HCCH 2005 Choice of Court Convention and therefore fall within the scope of the [2019] Convention”. Also see Etihad Airways PJSC v Flöther [2020] EWCA Civ 1707 (18 December 2020) where the Court of Appeal also adopted this position.

⁷   LMA Senior Multicurrency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance Transactions.

⁸   Paragraph 1.17 and Appendix A, 2018 ISDA Choice of Court and Governing Law Guide which provides for a model exclu-sive jurisdiction clause (English courts).

⁹   13 April 2023 Judgment No 265 FS-b Appeal No X 22-12.965.

¹⁰  Brussels Regulation 44/2001. See also Case C-185/07 Allianz SpA and Generali Assicurazioni Generali SpA v West Tank-ers Inc.

¹¹  See report The Proposal for a Regulation of the European Parliament and of the Council on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Recast) (Brussels I bis Regulation) by Professor Andrew Dickinson.