On 12 January 2024, following a government consultation and recommendations arising from it, the UK signed the Hague Convention of 2 July 2019 on Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the 2019 Hague Convention).
The 2019 Hague Convention should assist in simplifying the enforcement of judgments handed down by the courts of other signatories to it, and avoiding some of the drafting consequences which have arisen from our reliance on the Hague Convention on Choice of Court Agreements (the 2005 Hague Convention). Post Brexit we are subject to the 2005 Hague Convention in matters of jurisdiction and enforcement between the UK and other contracting states, and in particular limited by the type of jurisdiction clauses it may apply to.
What is the 2019 Hague Convention?
The 2019 Hague Convention sets out a common framework to recognise and enforce foreign judgments in civil and commercial cases between its signatory states, which currently include the 27 members of the EU, the US and the Ukraine. Our colleagues in the Disputes & Investigations team have previously provided a helpful summary of the 2019 Hague Convention and the more general advantages and limitations of the UK joining this convention - please refer to this linked article for some further background.
When will it come into force?
The 2019 Hague Convention is expected to come into force in the UK 12 months after ratification and to apply to judgments given in proceedings commenced after that date. It will therefore not be in force until 2025.
What impact does our current reliance on the 2005 Hague Convention have on lenders?
The UK is currently subject to the 2005 Hague Convention which provides that the courts of each subscribing state agree to recognise and uphold agreements containing exclusive jurisdiction clauses provided that the designated court is one of those subscribing states. Our reliance on the 2005 Hague Convention has had an impact on the drafting of the jurisdiction clause within English law facility agreements as it is understood, in accordance with the explanatory note to the 2005 Hague Convention, that asymmetric (also known as unilateral or hybrid) jurisdiction clauses are not recognised as 'exclusive' for the purpose of the 2005 Hague Convention and at risk of falling outside its scope.
Asymmetric jurisdiction clauses typically provide that the borrower can only bring proceedings in the courts of a specified jurisdiction, while the lender has flexibility to choose and may bring proceedings in any court that has jurisdiction. Traditionally, prior to Brexit, facility agreements were drafted to contain an asymmetric jurisdiction clause and the lender would benefit from not being limited in terms of where it is able to bring proceedings. This was of particular assistance to lenders where the borrower's assets were not located in solely one jurisdiction and they wish to provide themselves with the option of bringing proceedings and seeking summary judgment in any jurisdiction where the assets were located.
To avoid any uncertainty around ensuring a dispute, and English court judgment arising from it, will fall within the scope of the 2005 Hague Convention, lenders have opted to make amendments to their English law facility agreements with EU borrowers to include only mutual (also referred to as symmetrical or 2 way) exclusive English court jurisdiction clauses. Mutual exclusive jurisdiction clauses provide that both borrower and lender can only choose to bring proceedings in the courts of a specified jurisdiction consequently narrowing the lenders' scope to sue in another jurisdiction.
What could change under the 2019 Hague Convention and why is this important to lenders?
Unlike the 2005 Hague Convention, the application of the 2019 Hague Convention is not restricted to judgments that stem from an exclusive choice of court agreement and it recognises judgments that derive from a non-exclusive choice of court agreement, which will include asymmetric jurisdiction clauses.
Following the coming into force of the 2019 Hague Convention, parties should be able to agree non-exclusive or asymmetric jurisdiction clauses in the knowledge that any judgments from courts chosen by these clauses should be enforceable under the 2019 Hague Convention (where the contracting parties are both in jurisdictions that are signatories to the 2019 Hague Convention), thereby widening the scope for choice of court clauses.
Signing up to the 2019 Hague Convention should be a welcome step forward both in terms of making the enforcement of foreign judgments more straightforward and in allowing lenders more flexibility to include asymmetric jurisdiction clauses in facility agreements in the future, providing them with greater flexibility and easier access to assets on enforcement.
Find out more
To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team.
