Contracting with EU Parties? A step change is coming following the UK’s ratification of the Hague Convention 2019

There has been a welcome step to address cross-border enforcement following Brexit. On 27 June 2024, the UK Government ratified the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (Hague 2019). Hague 2019 will come into force on 1 July 2025.

This is a significant development and will help alleviate some of the issues faced by English and Welsh businesses dealing with EU counterparties and vice versa when they are considering how to enforce a judgment in respect of any commercial arrangement they have with EU counterparties.  

For the time being the ratification does not apply to Scotland and Northern Ireland but the government has said this may change in the future. 

We set out below what Hague 2019 is and how it will assist those contracting with EU counterparties, what issues it remedies following Brexit and what parties should be doing in the meantime.

The enforcement landscape before Brexit

Prior to Brexit, the UK was party to EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (commonly referred to as Brussels Recast). Brussels Recast regulated jurisdiction and the recognition and enforcement of judgments between EU member states.  In effect, it provided a simplified mechanism to allow judgments in one member state to be automatically recognised and enforced in another.

What was the position after Brexit?

Post Brexit, the UK ceased to be a party to the Brussels Recast regime and therefore businesses had to look at other avenues when looking to enforce UK judgments in the EU or EU judgments in the UK.  

The UK hoped to join the 2007 Lugano Convention which is a treaty between the EU and EFTA States (Denmark, Norway and Switzerland).  This operated on a similar basis to the first iteration of the Brussels Regulation before it was recast in 2012.  However, the EU blocked the UK joining on the basis that the UK was not a party to the single market.

What is Hague 2005?

Because the UK was not able to join the Lugano Convention, it proceeded to ratify the 2005 Hague Convention on the Choice of Court Agreements 2005 (Hague 2005). That provided some respite for UK businesses dealing with EU counterparties and vice versa.  However, as UK businesses will be aware, Hague 2005 does not provide a full alignment with the position under the Brussels Recast regime.  

For example, Hague 2005:

• only applies to contracts:
  • containing exclusive jurisdiction clauses; and
  • which are “international” in nature (eg between commercial businesses from different countries); and 
• importantly, does not apply to contracts containing non-exclusive jurisdiction or asymmetric jurisdiction clauses.

In many contractual relationships, particularly where there is an exchange of data, information or confidential material, a non-exclusive jurisdiction clause may be needed to enable effective recourse in the defendant’s home state. 

In the context of asymmetric clauses, no authoritative decision has been reached about whether they are enforceable under Hague 2005; a Dutch court has ruled that asymmetric clauses are not “exclusive” for the purposes of Hague 2005 but there have been conflicting positions from the UK courts.

In situations where parties do not have the benefit of Hague 2005, parties needing to enforce any UK judgment in an EU state and vice versa have to rely on local law procedures for registering and enforcing foreign judgments. Whilst some EU member states have a relatively simple procedure for registering and enforcing foreign judgments, it adds an extra layer of complexity which parties need to consider when entering into contractual agreements.

What will Hague 2019 do when it comes into force on 1 July 2025?  

The ratification of Hague 2019 will be a welcomed relief to UK based businesses contracting with EU counterparties who commonly adopt English court dispute resolution clauses and vice-versa. Hague 2019 provides a clear framework for the recognition and enforcement of judgments from one contracting state in the courts of another contracting state without review of its merits.  This will help facilitate international trade on the basis that it reduces time and costs associated with enforcement of foreign judgments in respect of proceedings issued on or after 1 July 2025.

Unlike Hague 2005, Hague 2019 does not require parties to have agreed an “exclusive jurisdiction” clause in their agreement in order to take advantage of the streamlined enforcement process.  That means parties can agree non-exclusive, asymmetric or unilateral dispute resolution clauses in their agreements (or bring an action before a court under procedural jurisdictional rules) and still take advantage of the streamlined enforcement process under Hague 2019.  It will also apply to a number of non-contract claims such as certain tort claims.

The UK Government cited in its announcement in November 2023   that one of its justifications for proposing to sign up to Hague 2019 was “evidence of the potential benefits of Hague 2019 for litigating parties dealing in international civil and commercial disputes, including the reduction in costs and increased efficiency of proceedings, and the increased attractiveness of the UK for dispute resolution if judgments from its courts are enforceable abroad under the Convention.”

Parties should note however that Hague 2019 only applies to civil and commercial judgments. Judgments arising from matters concerning issues such as defamation, intellectual property or family law disputes are excluded. Further, interim measures of protection are also excluded.

Recognition and enforcement can only be refused under Hague 2019 for specific examples such as:

• judgment is not final (ie it is subject of an appeal)
• the defendant was not notified of the proceedings
• judgment was obtained by fraud
• judgment is contrary to public policy in the enforcing state
• proceedings were brought in breach of an agreement that any dispute would be heard before another court
• judgment conflicts with another judgment on the same subject matter which has been made earlier
• judgment awards exemplary or punitive damages that do not compensate the judgment creditor for the harm or loss they have suffered

One point parties should note is that Hague 2019 does not address the situation where a claim has been commenced in the wrong court in breach of a jurisdiction agreement. This is unlikely to matter in the context of UK/EU contracts once Hague 2019 comes into force because if there is an exclusive jurisdiction clause, the protections under Hague 2005 will be engaged and the court in which the claim has been wrongly brought should refuse to hear the claim. Where there is a non-exclusive jurisdiction clause, a court will need to consider if there is a basis on which it has jurisdiction. Whilst these types of scenarios do occur, they are relatively few and far between. 

Hague 2019 is currently in force in: (1) EU jurisdictions (except Denmark) and Ukraine as of 1 September 2023; and (2) Uruguay as of 1 October 2024. Other jurisdictions such as Albania, Costa Rica, Israel, Kosovo, Montenegro, North Macedonia, Russian Federation and USA have signed Hague 2019 but have not ratified the convention. It is not clear when those states will ratify Hague 2019 so that it comes into force in those jurisdictions.

What should parties be doing now?

Given that the benefits of Hague 2019 will only apply to proceedings commenced on or after 1 July 2025, any UK parties considering whether they wish to bring proceedings before 1 July 2025 should consider if they have the benefit of Hague 2005 if they want a streamlined process of enforcing a UK judgment against an EU counterparty and vice-versa.  Absent having the benefit of Hague 2005, parties will need to rely upon local law procedures for registering and enforcing foreign judgments in respect of any proceedings issued prior to 1 July 2025.

For more information of what is required in a dispute resolution clause between the parties to obtain the streamlined enforcement and recognition benefits of Hague 2005, please see our article Is it a No to Lugano? The article also considers what parties should consider before commencing a claim in the UK courts which they need to enforce in the EU where Hague 2005 is not engaged. 

In the meantime, parties entering into commercial arrangements with EU counterparties should look at their dispute resolution clauses to see how they can structure the clauses to take full benefit of Hague 2019 in the event that disputes arise. Your usual Mills & Reeve contact would be delighted to assist in helping parties on how to structure their dispute resolution clauses to ensure they maximise their ability to enforce any judgment.