New convention to help businesses enforce foreign judgments

Recognition and enforcement of foreign judgments remains the major impediment in cross-border litigation that drives international businesses to arbitration. The 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (Judgments Convention), adopted by delegates of the Hague Conference on Private International Law (HCCH) on 2 July, could be a game changer in this respect.

The new convention is the second multilateral treaty drafted under the auspices of the 'Judgments Project' of the HCCH and complements the Hague Convention on Choice of Court Agreements of 2005 (Choice of Court Convention).

The Judgments Convention is intended to create a single global framework for recognition and enforcement of judgments on civil and commercial matters across borders.

Increased certainty and predictability and shorter timeframes for the recognition and enforcement of a judgment in other jurisdictions have the potential to significantly reduce transactional and litigation costs and risks in cross-border dealings.

The essential elements of the Judgments Convention

The Judgments Convention regulates recognition and enforcement of judgments in civil and commercial matters, with some exceptions including in relation to the carriage of goods, defamation, intellectual property and certain antitrust matters. However, these limitations do not apply in cases where they concern only a preliminary question or in which the topics were raised as a defence.

The convention only applies to decisions on the merits, including judicial settlement, and determinations of costs. Interim measures of protection are not covered by the Judgments Convention.

Judgments are also only eligible for recognition and enforcement under the convention if it can be shown that there is a voluntary link between the person against whom enforcement is sought and the state or the court of origin.

The convention explains that this link can be established by, on the face of it:

• that person's habitual residence, principal place of business or branch, or the place of performance or concerned immovable property is located in the state of origin; or
• that person being the claimant or counterclaimant; or
• consent of that person to jurisdiction of the court of origin.

Recognition and enforcement of an eligible judgement may only be refused on the grounds specified in the convention and no review of the merits of the original judgment is permissible in the state of enforcement.

The grounds for refusal include:

• the defendant was not properly notified, unless the defendant participated in the proceedings without contesting notification;
• the defendant was notified in the state of enforcement in a manner that is incompatible with fundamental principles of service of documents in that state. In many states this ground might arguably be invoked in case of service through social media channels;
• manifest incompatibility with public policy. This includes incompatibility of the proceedings in the court of origin with fundamental principles of procedural fairness of the state of enforcement;
• the proceedings in the court of origin were contrary to a choice of court agreement;
• the judgment is inconsistent with other judgements between the same parties;
• the judgment awards damages that go beyond compensating a party for actual loss, for example through the award of exemplary or punitive damages. The court of enforcement must, however, take into account whether such damages serve to cover costs relating to the proceedings.

In terms of procedure, the Judgments Conventions specifies the documents that must be produced by the applicant – in essence a certified copy and a translation – and leaves the procedure to the law of the state of enforcement.

A potential game changer for litigation

It remains to be seen whether the Judgments Convention will have the same impact as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. If it does then it will be a game changer in international dispute resolution where, currently, there is no viable alternative to international arbitration.

The success of the Judgments Convention will be decided by whether states are willing to give up parts of their sovereignty in favour of an easier recognition and enforcement of judgments.

The Choice of Court Convention of 2005 failed to achieve the desired change. To date, beyond the member states of the EU, it is only in effect in Mexico, Montenegro and Singapore.

To encourage states to sign up to the Judgments Convention, the drafters, quite wisely, have provided them with the option to pick and choose which acceding states they will recognise and enforce judgments from under the convention. The downside to this approach is that it could potentially lead to a patchwork convention instead of a unified framework.

Dr. Alexander Shchavelev is a Munich-based expert in litigation and arbitration at Pinsent Masons, the law firm behind Out-Law.