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Ucraina
Ukraine: new hope for the creditors as the debtors’ concern grows
17 Gennaio 2022
- Bancario
- Fallimentare
- Contenzioso
Riassunto
In tutto il mondo i tribunali emettono sentenze contro soggetti che possiedono beni negli Stati Uniti. Ad esempio, alcune sentenze possono riguardare società americane che svolgono attività commerciali all’estero o cittadini che detengono conti bancari presso banche americane. Dopo avere vinto la causa all’estero, chi ha promosso l’azione giudiziaria (“attore”) potrebbe dover avviare un procedimento negli Stati Uniti per utilizzare la sentenza per aggredire i beni americani della controparte (“convenuto”). Questo processo, chiamato “domestication”, prevede alcune regole specifiche che può essere utile conoscere prima di procedere.
Il debitore è soggetto alla giurisdizione personale negli USA?
Ai sensi dell’Uniform Foreign Money Judgments Recognition Act, i tribunali americani possono chiedere la prova della legittimità di una sentenza straniera prima di eseguirla. Una questione che i tribunali spesso esaminano è se il debitore era soggetto alla giurisdizione personale nel paese straniero. Se il tribunale USA ritiene che il debitore non fosse soggetto alla giurisdizione all’estero, non può eseguire la sentenza negli Stati Uniti. Per determinare l’esistenza di una giurisdizione personale all’estero, i tribunali americani possono esaminare sia la legge della giurisdizione straniera sia quella americana, come ha fatto il tribunale in questo caso.
Inoltre, i tribunali americani possono anche richiedere che il debitore sia soggetto alla giurisdizione personale secondo le leggi negli Stati Uniti. A seguito di una decisione della corte d’appello di New York, alcuni avvocati hanno sostenuto che il processo di riconoscimento ed esecuzione di una sentenza negli Stati Uniti non implicassero una vera e propria causa che richiedesse la giurisdizione personale sul debitore della sentenza. Tuttavia, la corte d’appello di New York ha chiarito in un’altra decisione che la giurisdizione personale è richiesta per i debitori quando si riconoscono ed eseguono sentenze straniere.
La regola dell’entità separata
Le parti in causa cercano spesso di far riconoscere ed eseguire le sentenze straniere negli Stati Uniti perché i convenuti hanno conti presso banche americane. Gli Stati Uniti possono anche sembrare un luogo attraente per la domestication di una sentenza, perché quasi tutte le principali banche del mondo hanno un ufficio o svolgono attività commerciali negli Stati Uniti. Tuttavia, il fatto che una banca sia soggetta alla giurisdizione degli Stati Uniti non significa che i tribunali daranno sicuramente esecuzione alle sentenze straniere contro i beni in loro possesso.
Al contrario, giurisdizioni come New York applicano la “Separate Entity Rule“. Questa regola tratta ogni filiale di un istituto finanziario come se fosse un’entità separata. Ciò significa che, ad esempio, una sentenza di New York può essere utilizzata solo per aggredire i beni di una banca svizzera detenuti presso una sua filiale di New York. La sentenza non può invece essere utilizzata per aggredire crediti presso le filiali svizzere.
Secondo la Corte Suprema di New York, lo scopo della Separate Entity Rule è quello di incoraggiare le banche a operare in una giurisdizione senza temere di sottoporre tutti i loro beni internazionali a giudizi domestici. Inoltre, si vuole evitare che altre giurisdizioni espongano le banche americane a sentenze straniere. Inoltre, si rende più facile per le filiali bancarie rispettare le leggi di un solo Paese, evitando conflitti tra le leggi o sentenze di Paesi diversi, ed eseguire ricerche solo sui beni nazionali e non su quelli di tutto il mondo.
A causa di questa regola, i creditori, tali in virtù di sentenze provenienti da fuori gli Stati Uniti, dovrebbero far riconoscere ed eseguire le sentenze nello stesso luogo in cui si trovano i beni dei debitori, non solo dove si trovano le loro banche.
Trasferire i beni nella giurisdizione
Sebbene le parti in causa abbiano spesso bisogno di far riconoscere ed eseguire una sentenza all’estero per aggredire i beni in tale giurisdizione, vi sono alcuni casi in cui un tribunale può ordinare a una parte di trasferire i beni nella giurisdizione in cui ha sede l’attore.
Questo problema è emerso in un caso importante a New York. In quel caso, il tribunale ha stabilito che a un convenuto soggetto alla giurisdizione personale di New York poteva essere ordinato di trasferire a New York i beni fisici in suo possesso in esecuzione di una sentenza. In un caso successivo, il tribunale ha stabilito che ciò non era in conflitto con la Separate Entity Rule, in quanto tale norma si applica solo ai conti bancari presso le filiali delle banche.
Questo principio può essere utile per le parti in causa che desiderino la domestication di una sentenza contro un convenuto soggetto a giurisdizione personale negli Stati Uniti, e che possieda tuttavia beni fisici al di fuori del Paese. In questo modo si possono applicare le procedure del sistema giuridico americano per l’esecuzione delle sentenze, consentendo al contempo al creditore di riscuotere i beni esteri.
Conclusioni:
- gli attori devono assicurarsi che esista la giurisdizione personale sui convenuti non solo in base alle leggi della giurisdizione in cui intentano la causa, ma anche in base alle leggi della giurisdizione in cui intendono eseguire le sentenze;
- gli attori devono assicurarsi che le giurisdizioni in cui eseguono le sentenze consentano di aggredire effettivamente i beni dei convenuti, poiché alcune potrebbero non farlo in base a norme come la Separate Entity Rule.
On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.
In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.
The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.
As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.
Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.
With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.
As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.
In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.
The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as “competence-competence”, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427).
The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).
It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.
The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643).
The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the “weak” party.
Summary
The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.
Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.
The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.
Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause
If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.
Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.
On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.
Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?
What happened?
The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.
So where do we look for law on those matters?
We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.
Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.
The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.
The problem is that the EU has not agreed to the UK joining the Lugano Convention
The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.
While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.
Where are we now?
If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.
If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.
The Hague Convention 2005 applies if:
- The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
- There is an exclusive jurisdiction clause within the meaning of Article 3; and
- The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.
There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.
If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.
The Norwegian exception
The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.
How should your business act now?
The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.
Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in Charlivari v. Sté Equivalanza, n°17/03703.
It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices; the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).
Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.
Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.
Brexit had surprised nations all over the world. It is now confusing lawyers all over the world whose clients are engaged in contracts or disputes with English choice of law or jurisdiction clauses.
Should they advise their clients to continue to choose English law, jurisdiction or arbitral seats in new contracts? Should they litigate or arbitrate under choices they made in existing contracts before anyone dreamed of Brexit; or does Brexit mean the recognition and enforcement of judgments or awards may be problematic?
The United Kingdom finally left the European Union on 31 January 2020. Little in the world of enforcement and recognition has changed to date. However, the UK is due to drop out of the EU regimes with which European lawyers are familiar on 31 December 2020. From then, we will enter unchartered territory.
This first blog explores the legal framework the UK and EU politicians agreed in 2019 to carry us through to the end of 2020 and what that framework tells us about the changes to enforcement and recognition of judgments from the beginning of 2021.
What is the Withdrawal Agreement and the Withdrawal Agreement Act?
The Withdrawal Agreement is a treaty between the EU and the UK which was agreed on 17 October 2019 as a result of Brexit negotiations. The purpose of the Withdrawal Agreement is to establish the terms of the UK’s withdrawal from the EU, including what happens to jurisdiction and enforcement of judgments as between the UK and the EU.
The European (Withdrawal Agreement) Act 2020 is an Act of UK Parliament. The purpose of the Withdrawal Agreement Act is to enshrine and implement the provisions of the Withdrawal Agreement into the domestic law of the UK. Having been given Royal Assent on 23 January 2020 and ratified by the Council of the European Union on 30 January 2020, the Withdrawal Agreement Act came into force on 31 January 2020.
What is the transition period?
The Withdrawal Agreement provides for a transition period to give businesses time to adjust to the new situation and time for the UK and EU governments to negotiate new trade, travel, business and legal arrangements.
How then does the Withdrawal Agreement affect the jurisdiction and enforcement of judgments between the UK and EU during the transition period and when is the transition period to and from?
The transition period commenced on 31 January 2020 and will end on 31 December 2020, as provided for by Article 126 of the Withdrawal Agreement.
Article 132 of the Withdrawal Agreement also provides that the transition period may be extended for up to one or two years by a one-off decision made before 1 July 2020 by the joint UK-EU Committee. Although, such an extension is effectively ruled out by section 33 of the Withdrawal Agreement Act. This prohibition could be overridden by further legislation; the possibility of which is perhaps more real given the global effects of the coronavirus pandemic. However, as it stands, the default position is that the transition period will end on 31 December 2020.
What is the effect on jurisdiction and enforcement of judgments during the transition period?
There are four key provisions of the Withdrawal Agreement which affect jurisdiction and enforcement of judgments:
- Article 127 provides that EU law will apply to and in the UK during the transition period, unless otherwise provided in the Withdrawal Agreement, and any reference to Member States in EU law will be understood as including the UK.
- Article 129 provides that the UK will also continue to comply and be bound by obligations stemming from international agreements to which the EU is party during the transition period.
- Article 67(1) provides that in the UK, as well as in the Member States in situations involving the UK, the Brussels (Recast) Regulation (No. 1215/2012) (“Brussels Recast”) will apply to:
- “legal proceedings instituted before the end of the transition period”; and
- “legal proceedings or actions” which although themselves are not instituted before the end of the transition period “are related to such legal proceedings pursuant to Articles 29 to 31 of the Brussels Recast Regulation”. Articles 29 to 31 of Brussels Recast concern the rules on lis pendens and related actions.
- Article 67(2) provides that in the UK, as well as in the Member States in situations involving the UK, Brussels Recast will apply to “to the recognition and enforcement of judgments given in legal proceedings instituted before the end of the transition period.”
Practically, the effect of these provisions is as follows:
- The rules on jurisdiction and recognition and enforcement of judgments between the UK and other EU Member States will continue to be governed by Brussels Recast during the transition period.
- The courts in the UK and EU Member States in situations involving the UK will continue to apply Brussels Recast to determine jurisdiction, provided the proceedings are issued before 31 December 2020 or they are related to such proceedings.
- The courts in the UK and EU Members States in situations involving the UK will also continue to apply Brussels Recast to recognise and enforce their respective judgments, provided proceedings are issued before 31 December 2020.
- The UK will continue to comply and be bound by obligations stemming from international agreements relating to jurisdiction and enforcement of judgments to which the EU is party during the transition period. This includes the Hague Convention on Choice of Court Agreements 2005 and the Lugano Convention 2007.
- The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The UK is currently party to the Hague Convention by virtue of its EU membership, however, that will cease at the end of the transition period. Whether the Hague Convention will continue to apply as between the UK and other Contracting states after the end of the transition period is covered in my next Brexit blog post – ultimately, it depends on whether the UK joins the Hague Convention in its own right.
- The Lugano Convention 2007 applies between EU Member States and EFTA countries Iceland, Norway and Switzerland. Again, the UK is currently party to the Lugano Convention by virtue of its EU membership, however, that will cease at the end of the transition period. The applicability of the Lugano Convention between the UK and other Contracting States after the end of the transition period is also covered in my next Brexit blog post.
Before the end of the transition period, commercial parties should review dispute resolution clauses in their contracts to assess whether the clause’s intended utility will be affected by Brexit. If parties are engaged in current disputes, they should consider whether it is appropriate to issue proceedings before 31 December 2020 in order to benefit from the ongoing application of the existing framework of the rules governing jurisdiction and enforcement, in particular, Brussels Recast.
Summary – The company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfeiter enforceable in different, or even all, Countries of the European Union.
Italian companies are famous all over the world thanks to their creative abilities regarding both industrial inventions and design: in fact, they often make important economic investments in order to develop innovative solutions for the products released on the market.
Such investments, however, must be effectively protected against cases of counterfeiting that, unfortunately, are widely spread and ever more realizable thanks to the new technologies such as the e-commerce. Companies must be very careful in protecting their own products, at least in the whole territory of the European Union, since counterfeiting inevitably undermines the efforts made for the research of an original product.
In this respect the content of a recent judgement issued by the Court of Milan, section specialized in business matters, No. 2420/2020, appears very significant since it shows that it is possible and necessary, in case of counterfeiting (in this case the matter is the counterfeiting of a Community design) to promptly take a legal action, that is to start a lawsuit to the competent Court specialized in business matters.
The Court, by virtue of the EU Regulation No. 6/2002, will issue an order (an urgent and protective remedy ante causam or a judgement at the end of the case) effective in the whole European territory so preventing any extra UE counterfeiter from marketing, promoting and advertising a counterfeited product.
The Court of Milan, in this specific case, had to solve a dispute aroused between an Italian company producing a digital flowmeter, being the subject of a Community registration, and a competitor based in Hong Kong. The Italian company alleged that the latter had put on the European market some flow meters in infringement of a Community design held by the first.
First of all, the panel of judges effected a comparison between the Community design held by the Italian company (plaintiff) and the flow meter manufactured and distributed by the Hong Kong company (defendant). The judges noticed that the latter actually coincided both for dimensions and proportions with the first so that even an expert in the field (the so-called informed user) could mistake the product of the defendant company with that of the plaintiff company owner of the Community design.
The Court of Milan, in its capacity as Community designs court, after ascertaining the counterfeiting, in the whole European territory, carried out by the defendant at the expense of the plaintiff, with judgement No. 2420/2020 prohibited, by virtue of articles 82, 83 and 89 of the EU Regulation No. 6/2002, the Hong Kong company to publicize, offer for sale, import and market, by any means and methods, throughout the European Union, even through third parties, the flow meter subject to the present judgement, with any name if presenting similar characteristics.
The importance of this judgement lies in its effects spread all over the territory of the European Union. This is not a small thing since the company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient for this company to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfactor who makes an illicit in different, or even all, Countries of the European Union.
Said judgement will be even more effective if we consider that, by virtue of the UE Customs Regulation No. 608/2013, the company will be able to communicate the existence of a counterfeited product to the customs of the whole European territory (through a single request filed with the customs with the territorial jurisdiction) in order to have said products blocked and, in case, destroyed.
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France | Arbitration clauses in international contracts with consumers are not enforceable
16 Febbraio 2021
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Francia
- Arbitrato
- Contratti
- Contenzioso
Riassunto
In tutto il mondo i tribunali emettono sentenze contro soggetti che possiedono beni negli Stati Uniti. Ad esempio, alcune sentenze possono riguardare società americane che svolgono attività commerciali all’estero o cittadini che detengono conti bancari presso banche americane. Dopo avere vinto la causa all’estero, chi ha promosso l’azione giudiziaria (“attore”) potrebbe dover avviare un procedimento negli Stati Uniti per utilizzare la sentenza per aggredire i beni americani della controparte (“convenuto”). Questo processo, chiamato “domestication”, prevede alcune regole specifiche che può essere utile conoscere prima di procedere.
Il debitore è soggetto alla giurisdizione personale negli USA?
Ai sensi dell’Uniform Foreign Money Judgments Recognition Act, i tribunali americani possono chiedere la prova della legittimità di una sentenza straniera prima di eseguirla. Una questione che i tribunali spesso esaminano è se il debitore era soggetto alla giurisdizione personale nel paese straniero. Se il tribunale USA ritiene che il debitore non fosse soggetto alla giurisdizione all’estero, non può eseguire la sentenza negli Stati Uniti. Per determinare l’esistenza di una giurisdizione personale all’estero, i tribunali americani possono esaminare sia la legge della giurisdizione straniera sia quella americana, come ha fatto il tribunale in questo caso.
Inoltre, i tribunali americani possono anche richiedere che il debitore sia soggetto alla giurisdizione personale secondo le leggi negli Stati Uniti. A seguito di una decisione della corte d’appello di New York, alcuni avvocati hanno sostenuto che il processo di riconoscimento ed esecuzione di una sentenza negli Stati Uniti non implicassero una vera e propria causa che richiedesse la giurisdizione personale sul debitore della sentenza. Tuttavia, la corte d’appello di New York ha chiarito in un’altra decisione che la giurisdizione personale è richiesta per i debitori quando si riconoscono ed eseguono sentenze straniere.
La regola dell’entità separata
Le parti in causa cercano spesso di far riconoscere ed eseguire le sentenze straniere negli Stati Uniti perché i convenuti hanno conti presso banche americane. Gli Stati Uniti possono anche sembrare un luogo attraente per la domestication di una sentenza, perché quasi tutte le principali banche del mondo hanno un ufficio o svolgono attività commerciali negli Stati Uniti. Tuttavia, il fatto che una banca sia soggetta alla giurisdizione degli Stati Uniti non significa che i tribunali daranno sicuramente esecuzione alle sentenze straniere contro i beni in loro possesso.
Al contrario, giurisdizioni come New York applicano la “Separate Entity Rule“. Questa regola tratta ogni filiale di un istituto finanziario come se fosse un’entità separata. Ciò significa che, ad esempio, una sentenza di New York può essere utilizzata solo per aggredire i beni di una banca svizzera detenuti presso una sua filiale di New York. La sentenza non può invece essere utilizzata per aggredire crediti presso le filiali svizzere.
Secondo la Corte Suprema di New York, lo scopo della Separate Entity Rule è quello di incoraggiare le banche a operare in una giurisdizione senza temere di sottoporre tutti i loro beni internazionali a giudizi domestici. Inoltre, si vuole evitare che altre giurisdizioni espongano le banche americane a sentenze straniere. Inoltre, si rende più facile per le filiali bancarie rispettare le leggi di un solo Paese, evitando conflitti tra le leggi o sentenze di Paesi diversi, ed eseguire ricerche solo sui beni nazionali e non su quelli di tutto il mondo.
A causa di questa regola, i creditori, tali in virtù di sentenze provenienti da fuori gli Stati Uniti, dovrebbero far riconoscere ed eseguire le sentenze nello stesso luogo in cui si trovano i beni dei debitori, non solo dove si trovano le loro banche.
Trasferire i beni nella giurisdizione
Sebbene le parti in causa abbiano spesso bisogno di far riconoscere ed eseguire una sentenza all’estero per aggredire i beni in tale giurisdizione, vi sono alcuni casi in cui un tribunale può ordinare a una parte di trasferire i beni nella giurisdizione in cui ha sede l’attore.
Questo problema è emerso in un caso importante a New York. In quel caso, il tribunale ha stabilito che a un convenuto soggetto alla giurisdizione personale di New York poteva essere ordinato di trasferire a New York i beni fisici in suo possesso in esecuzione di una sentenza. In un caso successivo, il tribunale ha stabilito che ciò non era in conflitto con la Separate Entity Rule, in quanto tale norma si applica solo ai conti bancari presso le filiali delle banche.
Questo principio può essere utile per le parti in causa che desiderino la domestication di una sentenza contro un convenuto soggetto a giurisdizione personale negli Stati Uniti, e che possieda tuttavia beni fisici al di fuori del Paese. In questo modo si possono applicare le procedure del sistema giuridico americano per l’esecuzione delle sentenze, consentendo al contempo al creditore di riscuotere i beni esteri.
Conclusioni:
- gli attori devono assicurarsi che esista la giurisdizione personale sui convenuti non solo in base alle leggi della giurisdizione in cui intentano la causa, ma anche in base alle leggi della giurisdizione in cui intendono eseguire le sentenze;
- gli attori devono assicurarsi che le giurisdizioni in cui eseguono le sentenze consentano di aggredire effettivamente i beni dei convenuti, poiché alcune potrebbero non farlo in base a norme come la Separate Entity Rule.
On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.
In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.
The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.
As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.
Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.
With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.
As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.
In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.
The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as “competence-competence”, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427).
The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).
It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.
The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643).
The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the “weak” party.
Summary
The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.
Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.
The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.
Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause
If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.
Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.
On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.
Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?
What happened?
The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.
So where do we look for law on those matters?
We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.
Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.
The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.
The problem is that the EU has not agreed to the UK joining the Lugano Convention
The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.
While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.
Where are we now?
If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.
If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.
The Hague Convention 2005 applies if:
- The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
- There is an exclusive jurisdiction clause within the meaning of Article 3; and
- The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.
There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.
If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.
The Norwegian exception
The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.
How should your business act now?
The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.
International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.
The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.
What are the best practices to manage international receivables?
The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.
The following main points were mentioned as worth considering at an early status of the negotiations and business development.
Verification of the identity of the company
Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.
Request of financial information
What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.
Use the right contract
What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…
Write down your agreements
Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?
Follow your contract
If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.
Document all transactions
From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.
Has the debtor risen objections?
Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.
Be clear on the accrual of interests for late payments
In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.
Seek guarantees for your credits
This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.
Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.
Check out our webinar on debt collection
On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.
You can watch the recording of the webinar here.
Legalmondo’s helpdesk on international credit collection
If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.
Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.
Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in Charlivari v. Sté Equivalanza, n°17/03703.
It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices; the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).
Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.
Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.
Brexit had surprised nations all over the world. It is now confusing lawyers all over the world whose clients are engaged in contracts or disputes with English choice of law or jurisdiction clauses.
Should they advise their clients to continue to choose English law, jurisdiction or arbitral seats in new contracts? Should they litigate or arbitrate under choices they made in existing contracts before anyone dreamed of Brexit; or does Brexit mean the recognition and enforcement of judgments or awards may be problematic?
The United Kingdom finally left the European Union on 31 January 2020. Little in the world of enforcement and recognition has changed to date. However, the UK is due to drop out of the EU regimes with which European lawyers are familiar on 31 December 2020. From then, we will enter unchartered territory.
This first blog explores the legal framework the UK and EU politicians agreed in 2019 to carry us through to the end of 2020 and what that framework tells us about the changes to enforcement and recognition of judgments from the beginning of 2021.
What is the Withdrawal Agreement and the Withdrawal Agreement Act?
The Withdrawal Agreement is a treaty between the EU and the UK which was agreed on 17 October 2019 as a result of Brexit negotiations. The purpose of the Withdrawal Agreement is to establish the terms of the UK’s withdrawal from the EU, including what happens to jurisdiction and enforcement of judgments as between the UK and the EU.
The European (Withdrawal Agreement) Act 2020 is an Act of UK Parliament. The purpose of the Withdrawal Agreement Act is to enshrine and implement the provisions of the Withdrawal Agreement into the domestic law of the UK. Having been given Royal Assent on 23 January 2020 and ratified by the Council of the European Union on 30 January 2020, the Withdrawal Agreement Act came into force on 31 January 2020.
What is the transition period?
The Withdrawal Agreement provides for a transition period to give businesses time to adjust to the new situation and time for the UK and EU governments to negotiate new trade, travel, business and legal arrangements.
How then does the Withdrawal Agreement affect the jurisdiction and enforcement of judgments between the UK and EU during the transition period and when is the transition period to and from?
The transition period commenced on 31 January 2020 and will end on 31 December 2020, as provided for by Article 126 of the Withdrawal Agreement.
Article 132 of the Withdrawal Agreement also provides that the transition period may be extended for up to one or two years by a one-off decision made before 1 July 2020 by the joint UK-EU Committee. Although, such an extension is effectively ruled out by section 33 of the Withdrawal Agreement Act. This prohibition could be overridden by further legislation; the possibility of which is perhaps more real given the global effects of the coronavirus pandemic. However, as it stands, the default position is that the transition period will end on 31 December 2020.
What is the effect on jurisdiction and enforcement of judgments during the transition period?
There are four key provisions of the Withdrawal Agreement which affect jurisdiction and enforcement of judgments:
- Article 127 provides that EU law will apply to and in the UK during the transition period, unless otherwise provided in the Withdrawal Agreement, and any reference to Member States in EU law will be understood as including the UK.
- Article 129 provides that the UK will also continue to comply and be bound by obligations stemming from international agreements to which the EU is party during the transition period.
- Article 67(1) provides that in the UK, as well as in the Member States in situations involving the UK, the Brussels (Recast) Regulation (No. 1215/2012) (“Brussels Recast”) will apply to:
- “legal proceedings instituted before the end of the transition period”; and
- “legal proceedings or actions” which although themselves are not instituted before the end of the transition period “are related to such legal proceedings pursuant to Articles 29 to 31 of the Brussels Recast Regulation”. Articles 29 to 31 of Brussels Recast concern the rules on lis pendens and related actions.
- Article 67(2) provides that in the UK, as well as in the Member States in situations involving the UK, Brussels Recast will apply to “to the recognition and enforcement of judgments given in legal proceedings instituted before the end of the transition period.”
Practically, the effect of these provisions is as follows:
- The rules on jurisdiction and recognition and enforcement of judgments between the UK and other EU Member States will continue to be governed by Brussels Recast during the transition period.
- The courts in the UK and EU Member States in situations involving the UK will continue to apply Brussels Recast to determine jurisdiction, provided the proceedings are issued before 31 December 2020 or they are related to such proceedings.
- The courts in the UK and EU Members States in situations involving the UK will also continue to apply Brussels Recast to recognise and enforce their respective judgments, provided proceedings are issued before 31 December 2020.
- The UK will continue to comply and be bound by obligations stemming from international agreements relating to jurisdiction and enforcement of judgments to which the EU is party during the transition period. This includes the Hague Convention on Choice of Court Agreements 2005 and the Lugano Convention 2007.
- The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The UK is currently party to the Hague Convention by virtue of its EU membership, however, that will cease at the end of the transition period. Whether the Hague Convention will continue to apply as between the UK and other Contracting states after the end of the transition period is covered in my next Brexit blog post – ultimately, it depends on whether the UK joins the Hague Convention in its own right.
- The Lugano Convention 2007 applies between EU Member States and EFTA countries Iceland, Norway and Switzerland. Again, the UK is currently party to the Lugano Convention by virtue of its EU membership, however, that will cease at the end of the transition period. The applicability of the Lugano Convention between the UK and other Contracting States after the end of the transition period is also covered in my next Brexit blog post.
Before the end of the transition period, commercial parties should review dispute resolution clauses in their contracts to assess whether the clause’s intended utility will be affected by Brexit. If parties are engaged in current disputes, they should consider whether it is appropriate to issue proceedings before 31 December 2020 in order to benefit from the ongoing application of the existing framework of the rules governing jurisdiction and enforcement, in particular, Brussels Recast.
Summary – The company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfeiter enforceable in different, or even all, Countries of the European Union.
Italian companies are famous all over the world thanks to their creative abilities regarding both industrial inventions and design: in fact, they often make important economic investments in order to develop innovative solutions for the products released on the market.
Such investments, however, must be effectively protected against cases of counterfeiting that, unfortunately, are widely spread and ever more realizable thanks to the new technologies such as the e-commerce. Companies must be very careful in protecting their own products, at least in the whole territory of the European Union, since counterfeiting inevitably undermines the efforts made for the research of an original product.
In this respect the content of a recent judgement issued by the Court of Milan, section specialized in business matters, No. 2420/2020, appears very significant since it shows that it is possible and necessary, in case of counterfeiting (in this case the matter is the counterfeiting of a Community design) to promptly take a legal action, that is to start a lawsuit to the competent Court specialized in business matters.
The Court, by virtue of the EU Regulation No. 6/2002, will issue an order (an urgent and protective remedy ante causam or a judgement at the end of the case) effective in the whole European territory so preventing any extra UE counterfeiter from marketing, promoting and advertising a counterfeited product.
The Court of Milan, in this specific case, had to solve a dispute aroused between an Italian company producing a digital flowmeter, being the subject of a Community registration, and a competitor based in Hong Kong. The Italian company alleged that the latter had put on the European market some flow meters in infringement of a Community design held by the first.
First of all, the panel of judges effected a comparison between the Community design held by the Italian company (plaintiff) and the flow meter manufactured and distributed by the Hong Kong company (defendant). The judges noticed that the latter actually coincided both for dimensions and proportions with the first so that even an expert in the field (the so-called informed user) could mistake the product of the defendant company with that of the plaintiff company owner of the Community design.
The Court of Milan, in its capacity as Community designs court, after ascertaining the counterfeiting, in the whole European territory, carried out by the defendant at the expense of the plaintiff, with judgement No. 2420/2020 prohibited, by virtue of articles 82, 83 and 89 of the EU Regulation No. 6/2002, the Hong Kong company to publicize, offer for sale, import and market, by any means and methods, throughout the European Union, even through third parties, the flow meter subject to the present judgement, with any name if presenting similar characteristics.
The importance of this judgement lies in its effects spread all over the territory of the European Union. This is not a small thing since the company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient for this company to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfactor who makes an illicit in different, or even all, Countries of the European Union.
Said judgement will be even more effective if we consider that, by virtue of the UE Customs Regulation No. 608/2013, the company will be able to communicate the existence of a counterfeited product to the customs of the whole European territory (through a single request filed with the customs with the territorial jurisdiction) in order to have said products blocked and, in case, destroyed.
