Recognition and enforcement of Irish money judgments in the UK post Brexit - some key considerationsFriday, 31 March 2017
As outlined in our previous bulletin, the UK triggered Article 50 of the Lisbon Treaty on 29 March 2017. (Click here to read this bulletin which includes detailed analysis and an outline of the wider implications).
One specific area that anyone with business dealings in the UK (or UK based counter parties) should be aware of is the extent to which the recognition and enforcement of money judgments between Ireland and the UK may be affected when the UK leaves the EU.
What is the current position?
As matters stand, through a relatively straightforward, predictable and cost effective system, a money judgment handed down by an Irish court is capable of being recognised and then enforced by the courts of any other Member State to which EU Regulation 1215/2012 (the Brussels I Regulation recast or “BIR”) applies.
BIR sets out a uniform set of rules and guidelines on jurisdiction and enforcement in civil matters that apply across the participating EU Member States. There are very limited grounds of refusal1. In very simple terms, under BIR a party in whose favour judgment has been granted by a court in Ireland/ the UK can currently go to a court in the UK/ Ireland and seek have that judgment automatically recognised and enforced in that jurisdiction.
European Enforcement Orders (“EEO”) are another useful method of automatically enforcing a judgment of one Member State in another, however EEO's only relate to uncontested judgments.
What will change?
Once the UK leaves the EU BIR will no longer apply. As BIR relies on reciprocity between the Member States, the ‘Great Repeal Bill’ solution being proposed in the UK2 will not assist – in simple terms nothing that the UK does in its domestic law can force the court of any other EU Member State to recognise and enforce judgments of the UK courts.
What impact will the loss of BIR have on the enforcement of Irish money judgments in the UK (or vice versa)?
The answer depends to a large extent on what the UK does to fill the lacuna that will be created once BIR ceases to apply under UK law.
The 'base case' scenario, whereby there is no interim measure agreed between 29 March 2017 and 29 March 2019 (for example a bilateral agreement between Ireland and the UK, or the UK acceding to the Lugano Convention – see below) is that the recognition and enforcement of Irish judgments in the UK (and conversely all judgments of UK courts in Ireland) will be dealt with under common law rules3, as is currently the case for example for judgments from all non EU member states.
The common law system is rife with difficulty, and it is widely acknowledged that reverting to the common law system would be less predictable, more time consuming, more expensive and accordingly bad for business4.
Alternatives to the common law cliff face?
The most likely solution is that the UK will become a signatory to the Lugano Convention, which designates common rules regarding jurisdiction and the enforcement and recognition of judgments across a single legal space consisting of the EU Member States (including Denmark) and Iceland, Norway and Switzerland. However this is not an ideal solution, since BIR is a substantially enhanced version of its predecessor (the Brussels Regulation) which the Lugano Convention is modelled on5.
The following worked example seeks to demonstrate in real terms the potential difficulties ahead.
Take an Irish company exporting dairy to an English supermarket chain. The commercial relationship is governed by Irish law under a specific clause in the contract between the parties, and when the supermarket chain defaults on its repayment obligations the Irish company seeks and obtains a money judgment for €100,000 in the High Court in Dublin. In seeking to enforce upon the judgment, the Irish company conducts searches and discovers that the only assets that the UK counterparty has are properties situated in London. Under the BIR regime, within a matter of weeks the judgment can be recognised by the court in London, and then enforcement steps taken (for example registration of a judgment mortgage against the property in question in the UK Land Registry).
However, absent BIR and under the common law system, the Irish company would have to initiate fresh proceedings before the court in London, and sue on the Irish judgment there subject to the English common law rules on recognition and enforcement (assuming no alternative arrangements are made over the next two years as discussed above). The difficulty with this is that it takes more time, is more expensive, less predictable given the judicial intervention, and the defendant to those new proceedings can feasibly seek to defend and tactically draw out proceedings before the court in London.
The more likely scenario, whereby the UK accedes to Lugano is also a ‘second best’ scenario to the present regime since enforcement is not as straightforward as it would be under BIR.
In the current environment of uncertainty, we would advise all clients who hold money judgments against judgment debtors who are domiciled in the UK, or have any assets there to take steps now to enforce those judgments before the BIR regime falls away.
For further information, contact James Morrin or John Fitzgerald from the ByrneWallace Restructuring & Insolvency team.
ByrneWallace has established a dedicated multi-disciplinary team to advise and represent both Irish and international businesses on the possible legal and regulatory implications of Brexit.
For advice and support preparing your business for Brexit, contact a member of our Brexit team.
1 Article 45 of BIR.
2 Which the UK government has stated will “ensure that all EU laws which are directly applicable in the UK (such as Regulations) … remain part of domestic law on the day we leave the EU”.
3 For example, an application to enforce a English judgment in Ireland will be subject to Irish common law rules and vice versa.
4 The House of Lords Select Committee report – “Brexit: justice for families, individuals and businesses” which was published on 20 March 2017 having heard extensive evidence from various stakeholders concluded (in relation to the application of the common law in the UK) that “The balance of the evidence was overwhelmingly against returning to the common law rules, which have not been applied in the European context for over 30 years, as a means of addressing the loss of the Brussels I Regulation (recast).”….and that it would “be a recipe for confusion, expense and uncertainty”. It is arguable that a similar conclusion can be reached in terms of a proposed reversion the common law in Ireland, which of course is heavily influenced by the persuasive authority of the common law of the UK.
5 For example, the “Italian Torpedo” problem (the practise of issuing proceedings first in Italy’s infamously slow legal system to create a technical lis pendens, which was rigidly enforced under the original Brussels Regulation) which has been addressed by BIR can still arise under the Lugano Convention.