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The New Hague Convention on the Recognition and Enforcement of Foreign Judgments: A New Competition to the New York Convention?

On 2 July 2019, the delegates of the 22nd Diplomatic Session of the Hague Conference on Private International Law (“Hague Conference”) adopted the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Convention”).

The discussions about potential ratification of the Convention by various countries (including the US and Russia) are becoming more and more frequent and the commentators suggest that the Convention might impact various aspects of dispute resolution in Russia such as corporate disputes, insolvency actions, etc.

According to the recent reports, the Convention may also become a prospective enforcement tool for the UK jurisdiction (a popular forum for the CIS-related disputes) once the UK is no longer covered by the Brussels regime (see further below).

Will the Convention be widely ratified? Will the adoption of the Convention create an advantage of litigation in comparison to international arbitration? Did the Convention on the Recognition and Enforcement of Foreign Arbitral Awards signed on 10 June 1958 (“New York Convention”) get itself a new rival? A brief overview of the key provisions of the Convention may assist to answer these questions.

A 27-Year Long Journey

The drafting of the Convention was part of the so-called “Judgments Project”, the work undertaken by the Hague Conference since 1992 at the proposal of the USA. The issues of the international jurisdiction of state courts reflected in the Hague Convention of 30 June 2005 on the “Choice of Court Agreements”, as well as the recognition and enforcement of foreign judgments, which culminated in the adoption of the Convention, are the key aspects of the “Judgments Project”. This is the second attempt to introduce a universal instrument for the recognition of foreign judgments, after the 1971 Hague Convention which came into force only between five State Parties.

The proper work on the document commenced only in 2012. The first draft of the Convention was published four years later, and after that, the draft was discussed and negotiated by a Special Commission. The delegates from various countries (e.g., Australia, United Kingdom, Israel, China, Russia, USA, Japan) and international organizations (UNCITRAL, the International Law Association and the International Bar Association) were involved as members of the Special Commission.

Key provisions

Entering into Force

For the Convention to enter into force, it is required that two States sign it and notify the depository of its ratification, acceptance, approval or accession (Article 28(1)). At the time of this publication, only one State – Uruguay – has signed the Convention. However, Uruguay has not yet ratified, accepted, approved or acceded to it.

It should also be noted that the Convention will not enter into force immediately but after a 12-months period during which the States that have earlier ratified the Convention are entitled to declare that they do not wish to establish relations pursuant to the Convention with the new Contracting State.

Scope of the Convention

The Convention sets up the rules of mutual recognition and enforcement of foreign judgments that already exists in the practice of various countries in the form of bilateral and multilateral international treaties. However, the Convention does not apply to judgments if the core matters resolved therein are excluded from the scope of the Convention (the list of excluded matters is provided in Article 2(1)).

Nevertheless, if an excluded matter is merely part of the context and is not the subject matter of the proceedings, the relevant judgment should be capable of enforcement pursuant to the Convention (Article 2(2)). Further, each Contracting State may declare judgments on certain additional matters to be excluded from the scope of the Convention (Articles 18 and 19).

It is noteworthy that the Convention shall only apply to the judgments rendered in the proceedings that were instituted after both the State of origin and the requested State deposited their instruments of ratification, acceptance, approval or accession (Article 30(5)). Therefore, if the judgment is handed down in the proceedings that were initiated before such instruments are deposited by both States, it cannot be enforced, even if both states are contracting parties to the Convention.

Requirements for Recognition and Enforcement

A judgment shall be recognised only if it has an effect in the State of origin, and shall be enforced only if it is enforceable in the State of origin (Article 4(3)). Among other things, it is possible to recognise and enforce a judgment approving a judicial settlement (Article 11). Further, recognition and enforcement of a part of judgment are also allowed by the Convention (Article 9).

The Convention provides an exhaustive list of the grounds for refusing to recognize or enforce a foreign judgment (Article 7), similar to the list included in the New York Convention. In addition, the Convention expressly provides that there shall be no review of the merits of the judgment in the course of recognition and enforcement procedures in the requested State (Article 4(2)).

The procedure for recognition and enforcement of a foreign judgment is governed by the procedural law of the requested State (Article 13). The list of documents to be produced in order to have the judgment recognised and enforced in the territory of the requested State is worded vaguely, and it appears that, in practice, the enforcing party would have to study the approach of the courts in the requested State.

Potential Prospects                        

The Convention is aimed at reducing transactional and litigation costs, ensuring effective access to justice, and promoting better management of transaction and litigation risks. If widely ratified and implemented, the Convention can ensure certain advantages for the litigation of cross-border disputes in state courts as opposed to international arbitration. For this reason, the strong competition to international arbitration is possible in the near future.

In the absence of a universal instrument for recognition and enforcement of foreign judgments, the parties anticipating the need to enforce should predict approach to the recognition and enforcement of foreign judgments taken by each particular state that rendered the prospects of recognition and enforcement of such judgments indefinite. In this situation, international arbitration remained a valuable alternative due to the wide enforceability of arbitral awards under the New York Convention.

At the same time, countries have already developed other mechanisms of mutual recognition and enforcement of foreign judgments. For example, Russia is a party to a number of bilateral treaties and a number of regional multilateral treaties providing for the mutual recognition and enforcement of court judgments.

Despite the fact that Russia has not entered into such treaties with some of the world’s largest economies (for example, with the USA, Germany, France, and the UK), judgments handed down by the UK, German and French courts are enforceable in Russia based on the principles of mutuality and international comity, or with reference to the lack of grounds for the refusal of recognition and enforcement. Russian court judgments are also recognised and enforced by foreign courts, specifically, in the UK (see: JSC VTB Bank v. G. Skurikhin, Alfa-Bank v. G. Trefilov), Germany (see: LG Augsburg, Urteil vom 09.07.2013 – 081 O 3956/12), and France (Cour de cassation, civile, Chambre civile 1, 30 janvier 2013, 11-10.588, Publié au bulletin).

However, the above-mentioned court practice is not uniform. There are cases in which Russian courts refused to recognise and enforce foreign judgments due to the lack of an international treaty allowing such recognition and enforcement – in particular, judgments of the courts of France, as well as Belgium, UAE (see: Ruling of Moscow city Court dated 21 February 2019 in case No. 3m-0138/2019), USA (see: Ruling of Moscow city Court dated 28 January 2019 in case No. 3m-0136/2019) were refused enforcement.

In the same context, German courts sometimes refuse to recognise and enforce Russian judgments (see: OLG Hamburg, Urteil vom 13.07.2016 – 6 U 152/11).  Thus, the situation with recognition and enforcement of foreign judgments is far from ideal and the Convention could serve to much improvement.

Nevertheless, the success of the Convention will depend on a number of factors, above all, on the uptake of the Convention by most of the developed states (the USA, the UK, Germany, etc.) and by such famous litigation fora as the UK, Cyprus, etc.

A part of the legal community is sceptical about the prospects of the Convention, and admittedly, there is a strong case for such scepticism. For instance, at the time of this publication, there have not been declarations by any country about the intention to ratify the Convention.

However, there is a certain interest in the Convention in the international arena. The European Commission made a public announcement on its website that the EU will begin the process of preparing for the accession of the EU to the Convention. The accession of the EU itself might not mean the accession of its member states. However, if the EU joins the Convention, this may in the future motivate the member states as well. It is also said that joining the Convention might be of interest for the UK, provided that the Convention is ratified by other European countries.

Conclusions

If widely ratified and implemented, the Convention will be of substantial interest for the business community. As stated above, the Convention provides for a clear and unified mechanism for recognition and enforcement of foreign court judgments. Implementation of the Convention could make the recognition/enforcement procedure in many countries more straightforward, efficient and predictable.

That development may drive many disputing parties to choose litigation over arbitration. However, the Convention has still a long journey in front of it, before such fundamental changes actually take place. At this point, the future of the Convention remains uncertain.

Yan Kalish Ph.D.

Counsel at Rybalkin Gortsunyan & Partners

Danil Karimov

Junior Associate at Rybalkin Gortsunyan & Partners

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