Brexit and Its Effects on Dispute Resolution – A How-to Guide on Civil Disputes Post-Brexit (Vol.2): Enforcement of judgments and arbitral awards

In the first part of our "Brexit-Series" we highlighted the influence of Brexit on the Choice of Law and Jurisdiction. This second part focuses on the consequences of Brexit on the recognition and enforcement of foreign judgments as well arbitral awards in the European Union and the United Kingdom.

Recognition and Enforcement of State Court Judgments after the Transitional Period

At the end of the transitional period on 31 December 2020, the final "hard" Brexit occurred. The Trade and Cooperation Agreement between the European Union and the United Kingdom does not include any regime for civil procedure law. This has far-reaching consequences for parties in civil proceedings. Once a decision has been rendered, the prevailing party must follow the route of enforcement, unless the losing party voluntarily performs. This phase is particularly critical in a cross-border context as a title can be worthless if it cannot be enforced where there are sufficient assets of the losing party.

Pre-Brexit the rules on recognition and enforcement of judgments from the United Kingdom in Germany and vice versa were regulated by EU's Brussels Ia Regulation on Jurisdiction and the Recognition and Enforcement of Judgments (EU No. 1215/2012). According to Art. 36 of the "Brussels Ia Regulation" a judgment rendered in a Member State shall be recognised in the other Member States without any special procedure being required.

Since the Brussels Ia Regulation does no longer apply post-Brexit and after the transitional period, a direct procedure for the recognition and enforcement of judgments is not regulated anymore. The United Kingdom could not accede the Lugano Convention, as the European Commission blocked its accession. It is in particular unclear whether the Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters dated 27 September 1968 (the "1968 Brussels Convention") will revive. This Convention has largely been superseded by the Brussels Ia Regulation by the European Union; therefore, it is unclear whether courts may apply this Convention. This question seems to be more of an academic approach, as there are no court decisions rendered regarding the application of this Convention The same situation applies for the Anglo-German Treaty on Legal Relations of 20 March 1928.

The 2005 Hague Convention on Choice of Court Agreements ("Hague Convention") is applicable as the United Kingdom acceded this Convention in 2021. The Hague Convention provides regulations regarding the recognition and enforcement of judgments given by a court in an exclusive choice of court agreement. However, as this Convention only applies to exclusive choice of court agreements, it does not cover the recognition or enforcement of rendered judgments based on non-exclusive jurisdiction clauses.

In the absence of any international agreement, national governing law on civil procedure is applicable. For instance, in Germany, judgments rendered in the UK will require an extra proceeding according to Sections 328, 722 of the Code of Civil Procedure.

Clearly there is no specific agreement between the European Union and the United Kingdom regarding the recognition and enforcement of judgments, therefore national procedural law must be applied. This is a huge challenge for cross-border civil proceedings, as it makes the recognition and enforcement of judgments more complex, costly and time-consuming. Consequently, when entering a British-German commercial contract, it should be considered to agree on an exclusive choice of court clause in order to make the Hague Convention applicable. This will secure a direct enforceability of judgments between the companies.

Recognition and Enforcement of Arbitral Awards

The paradox of the cross-border recognition and enforcement of national court judgments post-Brexit makes the conclusion of an arbitration agreement the more attractive: The enforcement of international arbitral awards is well regulated by international conventions.

More than 170 States have agreed to recognize and enforce arbitral awards issued in other contracting states in accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. The United Kingdom has been a member since 1975 and Germany even longer, namely since 1961. The Brexit left the legal situation regarding the enforcement of arbitral awards untouched.

In the United Kingdom, the relevant regulations for the recognition and enforcement of foreign arbitral awards are regulated in Sec. 99 et seqq. Arbitration Act 1996. The text of the New York Convention is adopted as the basis of these rules. The reasons to refuse the recognition and enforcement of a so called "New York Convention award" can be found in Sec. 103 Arbitration Act 1996. These reasons are very similar to the reasons in Art. V. of the New York Convention. The recognition and enforcement of a foreign arbitral award can be refused, inter alia, if the dispute is not governed by the arbitration clause or if there was a procedural issue with the composition of the arbitral tribunal. The Arbitration Act 1996 does also not include a general révision au fond. Sec. 103 Arbitration Act 1996 foresees merely a refusal if the award violates public policy.

Under German law, the recognition and enforcement of arbitral awards is covered by Sec. 1060 to 1061 of the German Code of Civil Procedure. According to Sec. 1061 ZPO, foreign awards can be recognized. These regulations also refer to the recognition and enforcement of the New Yorker Convention. The standards for recognition and enforcement of foreign arbitral awards are, therefore, comparable to those in the United Kingdom.

In contrast to the enforcement of judgments of state courts, the situation regarding recognition and enforcement of arbitral awards remains unchanged. The continuous member status to the New York Convention results in an unchanged initial situation regarding the recognition and enforcement of foreign arbitral awards in the United Kingdom and Germany. In the future, the procedural conditions for recognition and enforcement procedures in Germany might improve. According to the recently published first cornerstones for the reform of German arbitration law (see our Blog of 19 April 2023) commercial courts shall get the competence for these proceedings (see our Blog of 27 April 2023 thereto). There, proceedings can be continued in English if the language of the arbitration proceedings was English too.

To be continued.

Christina Weinzierl
Tobias Pörnbacher
Alexander Braun