Past, present and future of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters

The Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the Convention) concluded on 2 July 2019, entered into force on 1 September 2023.

The Convention has been signed and ratified by all EU Member States (except for Denmark), the EU and Ukraine. Uruguay has signed and ratified the Convention, and it will be bound by it as of 1 October 2024.

Costa Rica, Israel, Montenegro, North Macedonia, the Russian Federation, and the US have signed but not ratified the Convention.

At the end of November 2023, the UK government decided, after having considered feedback received from numerous stakeholders, “that the UK will sign the Hague 2019 as soon as practicable.” On 12 January 2024, as a result of these discussions, the UK signed the Convention.

The Convention now applies to the signatories of the EU Member States, the EU and Ukraine.

 

The aim of the Convention

The Convention aims to provide a global framework of common rules to facilitate the recognition and enforcement of civil and commercial judgments between jurisdictions. The final goal is to strengthen multilateral trade, investment, and mobility by reducing transactional costs for parties in cross-border matters and enhancing access to justice.

In the words of the Explanatory Report of the Convention,¹ “This Convention seeks to promote access to justice globally through enhanced judicial cooperation, which will reduce risks and costs associated with cross-border legal relations and dispute resolution.”

The Convention is a compromise between different and conflicting interests.

This is reflected in the structure and content of the Convention. Originally, the Hague Conference on Private International Law aimed at negotiating and finalizing a convention that would include both rules on the circulation of judgments and uniform provisions concerning state courts’ jurisdiction.

Eventually, after 15 years of negotiations, the Hague Conference enacted the Convention. It focuses only on provisions regulating the circulation of foreign civil and commercial judgments and does not include any provision on the criteria that state courts should have jurisdiction on.

The Convention is the result of long negotiations, which have reduced its initial scope. This is because of the polarised positions of the states involved, in particular the EU on one side (which already had an innovative instrument regulating the recognition and enforcement of decisions in the EU) and the US on the other.

 

The material scope of the Convention

The Convention applies to the recognition and enforcement of judgments in civil or commercial matters (Article 1). The notion of “civil or commercial matters” is not explicitly defined in Article 1 of the Convention. However, scholars interpret this definition in light of the exclusion provided for in the same provision (“it shall not extend in particular to revenue, customs or administrative matters”), as to differentiate these judgments from the ones where the state acts in its sovereign capacity (such as criminal matters).

The notion of “civil or commercial matters” included in Article 1 should be interpreted as to have an autonomous meaning, to ascertain and promote uniformity in the application of the Convention: this means that national courts should interpret the concept of “civil or commercial matters” not in light of their national laws, but only in light of the objectives and international character of the Convention.

This is not new in the international context: other international instruments contain autonomous definitions, such as the Brussels I bis Regulation (Brussels I bis). The European Court of Justice has in fact constantly ruled that the concept of “civil and commercial matters” in its Article 1 should be interpreted autonomously (C-302/13 – flyLAL-Lithuanian Airlines; C-641/18 – Rina).

This is not the only similarity among the two provisions: their structure is similar. Like the Convention, Brussels I bis provides for the exclusion of “revenue, customs or administrative matters” from the scope of the regulation, providing for the exclusion of “the liability of the State for acts and omissions in the exercise of State authority (acta iure imperii).”

Even if this exclusion provided for in Article 1 strongly limits the scope of the Convention, at the same time this is not unexpected, and it’s in line with Brussels I bis, which is the most integrated instrument for the mutual recognition and enforcement of foreign judgment currently in force. This is because even in most integrated systems, national states are reluctant to establish rules in case of proceedings concerning matters on which they exercise their sovereignty. And, if it happens in an integrated system like the EU, it’s even more understandable in the case of the Convention, where many more states, with different legal frameworks, were involved in the negotiations.

As evident from the above, the influence of Brussels I bis on the Convention (even with some differences) is particularly strong. The reason for this is rooted in the fact that this is the only multilateral instrument (with some peculiarities) that has been constantly applied (in all its versions through the years: 1968 Brussels Convention before and regulation 44/2001 (Brussels I) then) at an international level (even if restricted only to the EU) with successful results in the past almost 55 years. Brussels I bis represents in other words an instrument that inspired the drafters of the Convention.

There is a difference in the wording of the two provisions: Brussels I bis provides for “civil and commercial matters,” while the Convention provides for “civil or commercial matters.” But the two alternatives should be considered interchangeable.

As clear from the above, the Convention favours recognition and enforcement (Article 1), while setting the refusal of the recognition and enforcement as a mere exception, provided in limited hypothesis.

The Convention provides for some exclusion from the scope at its Article 2. These exclusions concern issues of personal rights and family matters, and other issues on which state courts have traditionally retained a certain “sovereignty” (ie antitrust matters, sovereign debt restructuring, activities of the armed forces, arbitration, and others).

These exceptions partly replicate the one provided for in Article 1 paragraph 2 Brussels I bis, in particular the ones concerning personal rights, bankruptcy and other related proceedings, social security, arbitration, family law.

Different from Brussels I bis, Article 2 paragraph 2 of the Convention explicitly states that preliminary issues do not impact on the exclusions from the scope of paragraph 1. In other words, if a preliminary issue falls within one of the matters excluded from the scope of the Convention, but the main issue concerns a matter which falls within its scope, the Convention will apply to the recognition of the judgment.

 

The grounds for refusal in the Convention

Article 7 of the Convention provides the grounds for refusal of the recognition and enforcement of a judgment by the court of the requested state. The Article provides for two different scenarios for refusal:

• The first scenario, provided for by paragraph 1, is that of when the judge is allowed(but it is not obliged) to refuse the recognition or enforcement of the decision. The list of grounds under paragraph 1 is exhaustive (among others, in case of: notification of the document which instituted proceedings not in sufficient time or in a matter incompatible with fundamental principles of the requested state; a judgment obtained by fraud; recognition or enforcement that would be manifestly incompatible with the public policy of the requested state).
• The second scenario, provided for by paragraph 2, occurs when the judge has to deal with international lis pendens. In this case, the recognition and enforcement of the judgment may be postponed or refused if two conditions are met: the court of the requested state was seized before the court of the state of origin; and there is a close connection between the dispute and the requested state. However, the refusal under these two conditions under paragraph 2 does not prevent a subsequent application for recognition and enforcement of the same judgment, for example when the state first seized declares its lack of jurisdiction.

 

The main and most innovative features of the Convention

• Article 6 of the Convention expressly provides for an “exclusive” basis for recognition and enforcement when immovable property is concerned. In particular, the provision states that when a judgment rules on rights in rem in immovable property, it will be recognized and enforced only if the property is situated in the state of origin. The provision’s rationales are proximity and, as consequence, to exclude the recognition and enforcement by judges which do not have jurisdiction. This provision follows the rationales of Article 45(e)(ii) Bruxelles I bis, which provide that the recognition of a judgment can be refused if it hasn’t been issued by the court of the Member State in which the immovable property is situated.
• Article 10 of the Convention deals with the interesting topic of awarding damages. Pending negotiations, HCCH states decided to follow the principle according to which damages should only compensate for the actual loss suffered. As a consequence, the Convention provides that the requested state can refuse the recognition or enforcement of a judgment that awards punitive damages. The portion of compensatory damages awarded is still enforceable.

This is an interesting innovative feature, since neither Brussels I bis nor the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) – the two other most relevant international instruments on the topic of recognition and enforcement – include any mention of punitive damages, or, more generally, on the possibility for a judge to refuse recognition or enforcement of a judgment if it awards punitive damages. Punitive damages have been dealt with at national level and solved through the “public policy” exception in Article V(2)(b) of the New York Convention and Articles 45(1)(a) and 58(1) of Brussels I bis.

The Italian Court of Cassation at Joint Sections (judgment no. 16601/2017) has recently admitted the possibility to recognize and enforce foreign judgments awarding punitive damages, but only if the amount of damages is foreseeable and the judgment is not contrary to the public policy of the forum.

In Germany, the Bundesgerichtshof (the German Supreme Court) in 1992 considered punitive damages contrary to the main principles of the German legal system so contrary to the public policy of the forum.

In France, punitive damages are unknown to the French Civil Code and to French legislation in general. Nevertheless, the Courts in France have been obliged to analyse the issue from an international perspective, in terms of recognition and enforcement of a foreign judgment awarding punitive damages. The Court de Cassation (the French Supreme Court) in 2010 changed its long-lasting practice, which considered punitive damages as contrary to the public policy of the forum per se, ruling that a judgment awarding punitive damages (in that case, an US judgment) is not contrary to public policy in principle, but only as long as the damages awarded are not disproportionated to the damages caused by the party by the breach of contract. This practice was confirmed in a very recent ruling of the Court de Cassation of 12 January 2022, in which the court denied the enforcement of a foreign judgment awarding punitive damages since the amount was disproportionated and, as a consequence (and not as such) violated the French public policy.

This provision is an innovation in the field. It explicitly addresses the issue of recognition and execution of judgments awarding punitive damages that has been for a long time been solved only through interpretation by national courts.

• Article 11 of the Convention extends its scope of application to judicial settlements that can also be recognised and enforced under the Convention. This provision is also in the Brussels I bis in Article 58. This provision is an innovation in the global context of international treaties and conventions: if this solution is foreseeable in an integrated regional system like the EU, this was not yet provided (until the Convention was enacted) at a more international level.

 

The Convention’s relationship with arbitration

The Convention “shall not apply to arbitration and related proceedings” (art. 2(3)).

According to the Explanatory Report, this provision should be interpreted “widely” to ensure the Convention does not interfere with the application of other instruments of international law (in particular, the New York Convention).

The provision is interesting because it excludes not only arbitral awards but also judgments concerning arbitration-related issues from the material scope of application of the Convention. These judgments could include ruling on the validity of an arbitration clause, appointing a new arbitrator, or fixing the seat of arbitration.²

According to the Explanatory Report, this provision also excludes from the scope of application of the Convention judgments ruling on the recognition or enforcement of arbitration awards, or judgments annulling, amending, or setting aside an arbitral award.

 

The Convention’s role in the future

The Convention is a huge success. It represents, after many years of negotiation, a landmark in approving an international instrument for the recognition and enforcement of judgments. Despite the obstacles during negotiations, the Convention is a comprehensive instrument with both traditional and innovative provisions. And it will certainly strengthen international commerce in the future: it in fact finally gives the creditor protection when there are pathological issues in executing an international contract.

But its approval is also a starting point. Its future implementation and success will depend on how states (and, as a consequence, national courts) will approach and apply this brand-new international instrument.

In particular, the Convention will need many ratifications and a small number of reservations by the states ratifying it. And these are huge challenges for this instrument for the following reasons:

• The Convention has been now signed and ratified only by the EU Member States and Ukraine. This is unfortunately in line with other instruments enacted by the Hague Conference, like the Convention of 30 June 2005 on Choice of Court Agreements (HCCH 2005 Choice of Court Convention), which did not reach wide application due to the small number of ratifications.
• The Convention, not containing any provision prohibiting reservations, indirectly admits reservations subjects to customary international law. By contrast, a successful international instrument, the New York Convention, only permits Contracting States to make reservations as to reciprocity and commerciality. This provision may lead to a fragmented and incoherent application of the Convention.
• The Convention contains a bilateralisation clause in Article 29. The provision allows a Contracting State to “pick and choose” the other Contracting States with which it wishes to establish treaty relations. This means that the Convention allows states to establish a more integrated judicial system for the recognition and enforcement of judgments with another state (by concluding an international treaty with the latter) and, consequently, to exclude the applicability of the Convention in their relations. This provision, which cannot be found in other successful international conventions, like the New York Convention, may promote a greater acceptance of the Convention in respect to other international instruments (such as the HCCH 2005 Choice of Court Convention), but it might also potentially lead to a more fragmented patchwork of selective recognition and enforcement, defeating the purpose of the Convention to provide a uniform framework.

To summarize, the two potential risks are that the Convention will not be ratified by a large number of states; or that the Convention will be ratified, but states will make large number of reservations or will opt for bilateralisation.

If the goals of ratifications and small number of reservations are reached, the Convention will face another challenge: its practical application before national courts.

The Convention is much more complicated in its recognition and enforcement process than other international instruments, such as the New York Convention, which provides for less grounds for refusal and for less requirements for recognition and enforcement and has a wider material scope of application (while the material scope of application of the Convention is limited, since it does not extend to many issues that are common in international commerce and civil litigation nowadays – ie carriage of goods, antitrust matters, family law).

If the Convention successfully faces these challenges, it will undoubtedly revive and increase the role of ordinary judgments before national courts also in transnational proceedings, now deferred to arbitration (due, among other reasons, to the simplicity of the recognition of arbitral awards due to the widespread application of the New York Convention).

This will not undermine arbitration (since the latter will still be an appealing instrument because of its main features, such as confidentiality, specialization of arbitrators and the possibility for the parties to reach a decision quickly) but it will certainty increase the tendency to include choice-of-court clauses in even significant international commercial transactions.

We’ll just have to wait and see how the Convention meets these challenges in the short and long term.

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¹ F. Garcimartìn and G. Saumier, “Explanatory Report to the 2019 Hague Judgment Convention” (Explanatory Report), p. 48, paragraph 12.
² Explanatory Report, p. 70, paragraph 78.