December 08, 2016

Foreign Judgments: Solving the Mystery of International Recognition and Enforcement

In-house counsel often state that international arbitration is preferred to litigation for global disputes because it is easier to enforce arbitration awards than court judgments. This is thanks to the seminal Convention on the Recognition and Enforcement of Foreign Arbitral Awards in New York in 1958 (New York Convention).

So why, in this era of international connectedness and globalisation, isn’t there an equivalent treaty for litigation?

The Judgments Project

On 5 May 1992, the U.S. State Department submitted a proposal to the Hague Conference on Private International Law (Hague Conference) that they “resume work in the field of recognition and enforcement of judgments with a view to preparing a single convention to which Hague Conference Member States and other countries might become parties.” As a result, the so-called “Judgments Project” was formed to consider the international jurisdiction of courts and the recognition and enforcement of their judgments abroad.

Since then, there has been limited progress on a single convention on the recognition and enforcement of court judgments. But in June 2016, a special commission of the Hague Conference was convened to prepare a draft. This is due to be discussed in further detail in February 2017.

However, with Brexit and President-Elect Trump refocusing on borders, what does the future hold for the transnational enforcement of court judgments?

U.K. Perspective

Currently, the U.K. has a number of multilateral treaties and arrangements with jurisdictions that govern the recognition and enforcement of court judgments. But, where one of these regimes does not apply, typically you have to start new legal proceedings in that jurisdiction to obtain a court judgment. Needless to say, this can be an expensive and time consuming process.

The most prominent of the regimes for the enforcement of court judgments in the EU is Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation). The purpose of the Recast Brussels Regulation is to simplify and streamline the recognition and enforcement of court judgments in EU Member States.

In this regard, there has been much debate about what will happen when the U.K. formally resolves to leave the EU (currently forecast for 2019). The most obvious option would be for the U.K. to adopt the Recast Brussels Regulation. But some commentators suggest the U.K. will enter into an arrangement with the EU akin to that of the European Free Trade Association nations (the Lugano Convention — a dated alternative to the Recast Brussels Regulation); others seem to think that the U.K. will enter into bilateral treaties with each of the individual EU Member States (which would create a complex patchwork of treaties, procedures and conventions).

An alternative would be that the U.K. leads the vanguard in developing and promoting the Hague Conference’s single convention on the recognition and enforcement of court judgments. There would be many advantages to this new convention. A multilateral treaty of this nature, reaching more jurisdictions (82) than the Recast Brussels Regulation (27), would remove the practical and legal complexity of the various systems, procedures and bilateral treaties currently at large, replacing them with a single harmonised system. However, progress to date has been very slow, and it is critical that the U.K. is not left in limbo post-Brexit.

U.S. Perspective

Although an initial proponent of a single convention on the recognition and enforcement of court judgments, the United States’ foreign and business policy has shifted widely since that time. In fact, those policies are likely subject to further shift toward a more protectionist view under President-Elect Trump’s administration. Since 1992, U.S. attitudes toward foreign trade and business treaties have taken a downturn from a national and business perspective — for example, the current domestic views on the North American Free Trade Agreement (NAFTA), which was highly criticized and denounced by the President-Elect in the recent election. Simply put, the current climate in the United States would not suggest support for U.S. participation in the Hague Conference.   

However, perhaps the better question, from a U.S. company perspective, is whether U.S. participation in the Judgments Project is necessary or prudent to protect U.S. business interests? Assuredly, the reliance on the traditional judicial system to decide disputes between commercial partners has lessened somewhat over the past decade. For example, there is an ever growing trend in favour of arbitration as a faster and cheaper alternative to commercial disputes. 

However, use of and protection by the courts is still very necessary when a dispute involves personal or economic injury that is not the subject of a bargained-for exchange (like intellectual property and product liability disputes). In sum, however, the answer to the above threshold question, especially given the current and future political climate in the U.S., is likely a resounding “No.” 

There are several potential negatives for U.S. companies in being subject to the enforcement of foreign judgments in the U.S. under the Hague Conference. One threshold issue is what effect the Hague Conference might have on the concept of personal jurisdiction over U.S. companies (and their foreign subsidiaries). U.S. jurisprudence provides certain expectations and protections to companies from being subject to any random court’s judgment. 

From International Shoe to the more recent decision in Daimler AG vs. Bauman, the U.S. Supreme Court has created a framework wherein a company can expect to be properly hauled into court and made subject to that court’s judgment. This expectation allows companies to manage risk and expense from the perspective of whether an adverse judgment can be enforced. The Hague Conference has the potential to allow judgments obtained in foreign courts to be enforced in the U.S., against U.S. companies, where jurisdiction does not otherwise exist. This would undoubtedly mean exponentially higher operating expenses in areas like legal services and insurance, to name a couple.  

But notwithstanding the financial considerations, U.S. adoption of a single convention on the recognition and enforcement of court judgments may still be a ways off, especially given the more isolationist views the incoming administration appears to espouse. In fact, the other potential signatories may very well want to wait and see what changes to foreign trade and fiscal policy the U.S. adopts under the President-Elect’s new administration before committing to membership. In the end, it is likely that the U.S. will support the Hague Conference from afar, without committing to be a part of it — at least for the time being. 

Conclusion

With Brexit and the election of Mr Trump as President of the U.S. signalling a renewed focus on sovereignty, the question arises as to whether there is a place for a single convention on the recognition and enforcement of court judgments at this time.

But, whilst there are similarities in the national sentiment between the U.K. and the U.S., whether or not there will be meaningful advancements on this discrete area is a matter of what the U.K. needs, and what the U.S. wants.

Services and Industries

Related Topics

The Faegre Baker Daniels website uses cookies to make your browsing experience as useful as possible. In order to have the full site experience, keep cookies enabled on your web browser. By browsing our site with cookies enabled, you are agreeing to their use. Review Faegre Baker Daniels' cookies information for more details.