Automatic mutual recognition of judgments as between the UK and European Union under the Brussels Convention, and even more widely under the Lugano Convention, is a casualty of Brexit. Sarah Murray looks for workarounds.
London has long been proud of, and has jealously guarded, its reputation as the dispute resolution capital of the world. Legal practitioners wax lyrical about the quality of the judiciary and court system, the rigour with which the law is applied and the willingness of courts, particularly in matters of fraud and asset recovery, to develop the legal system to keep up with fast-moving fraudsters, who are constantly coming up with new schemes. It is against this backdrop that, regardless of their personal politics, fraud and asset recovery practitioners are, from a professional perspective, more nervous about the long-term implications of Brexit than their commercial litigation colleagues.
Prior to Brexit, and as part of the UK's EU membership, England and Wales enjoyed the benefits of the Brussels Convention. This provided extensive reciprocal benefits for litigants within the EU. A judgment obtained in England was automatically recognised in other EU member states and, accordingly, easy to enforce. Further, it did not matter whether such a judgment was final or interim (for example, an injunction freezing assets or requiring delivery-up of information); it was still automatically enforceable. In addition to the Brussels Convention, there is another, substantially similar, regime in place, governed by the Lugano Convention. This takes effect between the EU, Denmark, Iceland, Norway and Sweden and again provides for automatic recognition and enforcement of interim and final judgments.
The UK knew that the membership it enjoyed of both the Brussels and Lugano Conventions would be lost because of Brexit. However, it pinned its hopes on being able to re-join the Lugano Convention in its own right. It argued, persuasively, that this made commercial sense for all concerned. In particular, given the complex web of trading, contractual and other relationships that exist between EU countries and Britain, it made sense to continue with a system of reciprocal enforcement to allow parties to resolve their disputes in the most appropriate forum without concerns about the enforceability of any judgment ultimately obtained. While Denmark, Iceland, Norway and Sweden agreed, the EU has taken a different view. On 28 June 2021, the European Commission formally blocked the UK's admission to the Lugano "club". Its reasoning was that Lugano "characterises an essential feature of a common area of justice and is based on a high level of mutual trust among the Contracting Parties". Post Brexit, the UK is a "third country" and, in the view of the Commission, Lugano is therefore not the appropriate framework for judicial co-operation with the UK.
Some might say that this amounts to playing politics and punishing the UK for Brexit. On any view, it is fair to say that the relationship between some EU member states and the UK is, to put it mildly, slightly strained. When you combine this with moves by some EU countries to set up commercial courts with the express aim of undermining London's position as the dispute resolution capital, it does look a little cynical. In any event, for well-organised and properly advised commercial parties it should be no more than a minor inconvenience. Inclusion of contractual provisions granting one country exclusive jurisdiction over disputes will bring contracts within a further reciprocal enforcement regime, the Hague Convention. Even without such clauses, a UK judgment is likely to be enforceable in an EU member state in the same way as a US court judgment would be. It is just likely to take a little longer and perhaps cost more.
Fraud and Lugano
The real issue arises in cases where (a) there might not be a contractual relationship between the parties (meaning no exclusive jurisdiction clause); and/or (b) the matter is extremely urgent. The majority of fraud and asset recovery cases fit this description. There is rarely a beautifully drafted contract between the claimant victim and the defendant fraudster. Where there is a contract, it is unlikely to have been designed to make resolution of disputes straightforward. Further, as fraud and asset recovery professionals are acutely aware, time is of the essence when trying to track assets around the globe - delay is the fraudster's friend.
There have always been great advantages to victims of fraud in using the English courts as their starting point and seeking further relief from other countries around the world in support of the primary English proceedings. The English courts' flexibility means that they have been at the forefront of decisions that help victims of fraud. Examples of this are their willingness to recognise cryptoassets as "property" and the extension of the jurisdiction against "persons unknown" to freezing injunctions. This flexibility and willingness to embrace new concepts and bring them within the ambit of the court's jurisdiction has meant that, if a victim of complex cross-border fraud can establish a connection with England, the English courts are the logical place to start legal action.
So, how has Brexit and the refusal to let the UK into the Lugano club changed this? The most immediate issue relates to the recognition (and therefore enforcement) of English judgments abroad where there is no alternative reciprocal enforcement regime.
For claimants who have managed to obtain a final judgment in the English courts the position is complex, but capable of resolution:
- Some countries have treaties in place with the UK These treaties pre-date the EU and contain reciprocal enforcement obligations between the UK and the relevant country. Of the EU countries, UK has treaties with Austria, Belgium, France, Germany, the Netherlands and Norway. Norway has already agreed to revive this treaty following Brexit, which means that it should be straightforward to enforce English judgments through the Norwegian courts. However, the other countries have not followed suit. Commentators are divided as to whether, post Brexit, these treaties automatically apply once more. To determine this, the courts of the relevant country will need to consider the position. Whilst this will make for an interesting academic debate it will be of no use whatsoever to a claimant looking to the courts of, for example, France to enforce a judgment quickly.
- Where there is no treaty, or where there is a treaty but no appetite to debate its application, a claimant can still rely on local laws to enforce the judgment. This is common - the US has no reciprocal enforcement treaties with any other country and therefore a claimant with a US judgment will always be looking to local laws for enforcement.
As can be seen from the above, the problem with either of these approaches is that they can take significantly longer and be more expensive than was the case under the Brussels or Lugano convention. Despite this, where a claimant is enforcing against an overseas asset and has been able to take protective steps to prevent its transfer, they should achieve eventual enforcement of their judgment.
After Brexit, the real issue for claimants who have been the victims of fraud, trying to protect assets to enforce against in EU countries, is more fundamental. Without Brussels or Lugano they have no easy, quick and straightforward way to enforce interim remedies against assets in other jurisdictions. Typically, when faced with a fraud, a claimant applies for a worldwide freezing or proprietary injunction over assets from the English courts, usually without notice to the defendant. The claimant further seeks provisions in the order, which oblige the defendant to provide information about their assets. Armed with this order and the further information provided, the Claimant goes to the courts of other jurisdictions in which the assets are located and asks for their assistance in enforcing the order of the English courts and preserving the assets. In some jurisdictions (for example a lot of the offshore jurisdictions and, until recently, the EU countries) this is very straightforward and can be done extremely quickly, efficiently and relatively cheaply. In other jurisdictions, particularly where there are no reciprocal enforcement obligations, or where courts interpret the rule of law differently to the English courts, it can be virtually impossible. Where an asset is located in one of these jurisdictions, trying to recover or enforce against it is usually tantamount to throwing good money after bad.
The big question for English claimants now is in which camp do EU countries fall? For example, will the Spanish courts race to assist claimants with English interim injunctions and freeze relevant assets? Alternatively, will claimants find themselves locked in a court battle while defendants quietly move the relevant assets elsewhere? This question, once answered simply on an EU-wide basis, is now complex with the answer to be assessed on a country-by-country basis, looking at local law and the type of asset in question.
The only way to effectively deal with this conundrum is for claimants, and their legal teams, to work even smarter. Knowledge is power, and obtaining as clear a picture of a defendant's assets and their locations at the outset, using all the tools available, is more critical than ever. Once the legal team has a clear idea of where the assets are located, close partnerships with local lawyers, experienced in fraud and asset recovery work will be vital. It may also be necessary (hard as it will be for English practitioners) to accept that, in certain circumstances, England may not be the best first port of call for injunctive relief. Where the assets are located in an EU country and there is significant doubt about the ability, or will, of the relevant courts to enforce an English interim judgment, it may ultimately be more effective to start proceedings in the EU country.
These issues are still very new. Further, fraud and asset recovery professionals are nothing if not adaptable. Legal teams will pivot quickly to adjust to the new landscape. However, until we have built up some degree of cross-border jurisprudence on these issues it is inevitable that some claimants will not get the results that they would have done under the previous regime. In a world where the UK and EU should be working together to protect victims of fraud that is, at best, very unfortunate.
This article was first published in Fraud Intelligence and can be read online here.