INTRODUCTION
If you are a foreign entrepreneur interested in doing business in Italy, or an Italian wishing to expand your commercial activities abroad, this article could be useful to you. Let’s consider, for example, an Italian creditor who supplied machinery to a French debtor. After the delivery of the machinery, the debtor may delay or refuse payment. In such circumstances, if the contract is subject to Italian law, the Italian creditor can obtain an enforceable title from an Italian court, and then enforce it in France in order to recover the debt. Similarly, in the event of disputes, a favorable decision issued by a EU court may be recognized and enforced by Italian authorities to ensure the rights of the foreign party.
An effective system for the recognition and enforcement of foreign judgments plays a crucial role in reducing the time and uncertainties associated with cross-border disputes both within and outside the EU. This article analyzes the importance of legal mechanisms for the recognition and enforcement of foreign judgments in international business relations. Firstly, the article discusses the functioning of these mechanisms within the European Union, highlighting the role of the “Brussels I bis” EU Regulation. Subsequently, it examines Italy’s position regarding the recognition and enforcement of judgments from countries outside the EU, as well as the specific impact of Brexit on such procedures, with a focus on Italy-UK relations.
Recognition and Enforcement of Judgments in the European Union (Brussels I Bis)
Recognition of Judgments
Recognition of judgments is the process by which a judicial decision issued in the country of origin is recognized as legally valid in another country, with all its legal effects as determined in the country of origin. Italy, being a member of the European Union, benefits from the provisions of European Regulation No. 1215/2012, known as Brussels I bis, on the recognition and enforcement of decisions in civil and commercial matters. Article 36 (1) of this regulation provides that judgments issued in a Member State enjoy automatic recognition (“full-fledged recognition“) in all other Member States without any required formalities. It is important to note that the substance of a foreign judgment cannot be altered in any way by the authorities of the country where recognition is sought.
Enforcement of Judgments
However, in most cases, mere recognition of a judgment is not sufficient; its enforcement is equally crucial. Once a court has issued a judgment on a dispute, enforcement involves ensuring compliance with that decision, typically by compelling the non-compliant party to adhere to the terms of the judgment, such as payment of damages and interests. Similar to the automatic recognition procedure for judgments in the EU, Article 39 of Regulation No. 1215/2012 establishes the automatic enforcement of decisions, meaning that a decision which is already enforceable in the originating EU Member State will be directly enforceable in other EU Member States without any special procedures required. Regulation “Brussels I bis” No. 1215/2012, which applies to all EU Member States except Denmark, replacing Regulation 44/2001, has thus eliminated the exequatur procedure, through which the judge in the State of the enforcement should authorize and confer authority to a foreign judicial decision. Regulation 44/2001 still applies to Denmark.
Refusal of Recognition and Enforcement of Judgments in the European Union (Brussels I Bis)
Exceptions to Recognition and Enforcement
However, there are still some limited exceptions to the principle of mutual recognition and immediate enforcement. Article 45 of Regulation No. 1215/2012 establishes that the recognition of a decision may be refused in various cases:
- If such recognition is manifestly contrary to the public policy of the requested Member State
- If the decision was rendered in default, and the defendant did not have the opportunity to defend himself properly.
- If the decision conflicts with a previous decision involving the same parties in the same dispute
- And if the decision conflicts with a previous decision issued in another Member State or in a third State between the same parties in a similar dispute.
European Court of Justice on Public Policy
The European Court of Justice, in case C-681/13 (Diageo Brands BV v Simiramida-04 EOOD), establishes that the exception to the recognition of a decision for conflict with public policy must be interpreted strictly: only if the decision represents “a manifest breach of a rule of law regarded as essential in the EU legal order and therefore in the legal order of the Member State in which recognition is sought or of a right recognized as being fundamental in those legal orders.” Consequently, the Court considers that a mere error of law made by a Member State regarding Union law does not justify the use of this exception, since the remedies available in each Member State are generally sufficient to prevent such a breach.
Enforcement of Default Judgments
Regarding the execution of default judgments, the court expressed itself in case C-283/05 (ASML Netherlands BV v Semiconductor Industry Services GmbH (SEMIS)). The Court clarified that a defendant would be in condition to challenge a decision rendered in its default in another Member State, if he had knowledge of its content early enough to assert his rights effectively before the court of State where said decision was issued. If a party is only informed of the existence of a civil judgment rendered in another Member State, against that party in its absence, this is a reason for refusing enforcement in other EU Member States because the defaulting party should have been at least informed of the content of the judgment to potentially challenge it.
Practical Application in the EU
In practice, there are few cases of refusal of recognition and enforcement in the EU.
Beyond Europe: Recognition and Enforcement of Judgments at the International Level
International Conventions on Judgment Recognition
Italy is a signatory to several international conventions that facilitate the recognition of foreign judgments, such as the Lugano Convention and the Hague Convention. Although these conventions share similar objectives in facilitating the recognition and enforcement of judgments in international contexts, they differ in geographical scope, covered sectors, procedures, and relationships with other legal instruments.
The Lugano Convention
The Lugano Convention, adopted in 2007 to replace the 1988 version, was established among Switzerland, the European Community, Denmark, Norway, and Iceland as a parallel agreement to EU Regulation No. 44/2001 (Brussels I Regulation), later replaced by Regulation No. 1215/2012 (“Brussels I bis“). Just like Brussels I bis, the Lugano Convention (2007) establishes that judgments issued in one member state enjoy recognition in all other member states without the need for specific formalities. However, there is a difference between these conventions: the Lugano Convention still requires the exequatur procedure, meaning that the enforcement of decisions is not automatic among convention members. So far, no effort has been made to align the Lugano Convention (2007) with the Brussels I bis Regulation (2012). The main reason lies in the need for some convergence of legal systems to eliminate the exequatur procedure, which proves challenging outside of Europe.
The Hague Convention on Recognition and Enforcement
Regarding the Hague Convention (2019) on the recognition and enforcement of foreign judgments in civil or commercial matters, it entered into force on September 1, 2023, in Ukraine and the European Union. Costa Rica, Israel, Russia, the United States, and Uruguay have not yet ratified the convention despite their signatures. The Hague Convention, inspired by Brussels I bis and the Lugano Convention, could achieve a long-awaited goal, if ratified by many States: establishing common rules for the recognition and enforcement of foreign judgments globally. These common rules concern the criteria for validation and refusal of foreign judgments. Although automatic recognition and enforcement are lacking, the time, costs, and legal risks associated with cross-border disputes are significantly reduced.
Application of Italian Law
In the case of decisions from non-EU member states and in the absence of existing conventions between Italy and such a state regarding their recognition and enforcement, Italian Law No. 218 of May 31, 1995, applies. Articles 64 to 71 provide for the recognition of foreign judgments in Italy without formalities under certain conditions. As for enforcement, it does not occur automatically, and obtaining an enforceable title in Italy is necessary.
After Brexit: Recognition and Enforcement of Judgments Between Italy and the United Kingdom
On January 31, 2020, at midnight, the United Kingdom officially left the European Union after lengthy negotiations to reach a withdrawal agreement. Before Brexit, the process of recognizing and enforcing judgments between the United Kingdom and Italy was governed by Regulation No. 1215/2012, Brussels I bis, which allowed for automatic recognition and enforcement of decisions between countries.
However, as of January 1, 2021, foreign judgments no longer benefit from this European mechanism in the United Kingdom. They are now subject to British national rules on recognition and enforcement, unless conventions exist between the countries involved. Unlike European law, British law, known as “Common Law,” makes recognition and enforcement of foreign judgments more complicated. The United Kingdom requires foreign judgments to be final, issued by a competent jurisdiction, and concerning a specific debt. Unlike the generous provisions of Brussels I bis, which allow for the enforcement of non-monetary judgments, interim orders, or first-instance judgments subject to appeal in other member states.
Before joining the European Union, the United Kingdom signed a bilateral agreement with Italy, established by the Law of May 18, 1971. This agreement, titled “Ratification and enforcement of the convention between Italy and Great Britain on the recognition and enforcement of judicial decisions in civil and commercial matters and the amending protocol, concluded in Rome respectively on February 7, 1964, and July 14, 1970,” is still in force in cases where the 2005 Hague Convention (ratified by the EU, Mexico, Singapore, Montenegro, Denmark, the United Kingdom) does not apply.
The 2005 Hague Convention, to which both the European Union and the United Kingdom are parties, establishes rules on determining competent jurisdiction and mutual recognition and enforcement of judgments in civil and commercial matters by the courts of the signatory countries. However, for these principles to apply, it is essential that the parties have clearly designated, through an agreement, a specific court as the sole competent authority to resolve any disputes.
The same applies to the arbitration option: the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), signed by all European countries and the United Kingdom, also requires mutual consent of the parties in the agreement regarding the competence of the arbitral tribunal.
To align with the uniform and simplified European mechanism for recognizing decisions, the United Kingdom has suggested joining the Lugano Convention (2007), which, as previously mentioned, is a parallel regulation to Brussels I. However, it requires consent from all signatories of the Lugano Convention (Denmark, Iceland, Norway, Switzerland, EU), and Europe’s consent is still pending.
Conclusion
Business activities within Europe are facilitated by the procedures for the recognition and enforcement of judgments. Thanks to the Brussels I bis Regulation, the automatic recognition and enforcement of judicial decisions among member countries provide better protection of commercial interests in case of disputes. This makes the recovery of credits abroad more straightforward.
In the international context outside of Europe, the mechanism established between signatory countries of the 2007 Lugano Convention and the 2019 Hague Convention is also simplified, although the exequatur procedure may still be necessary. These agreements offer practical solutions that reduce obstacles and uncertainties related to cross-border disputes.
Regarding the United Kingdom, the situation is slightly more complex. Until the UK ratifies the 2007 Lugano Convention, it is always advisable to include in contracts a clause choosing either English or Italian jurisdiction exclusively competent to resolve any disputes between the parties. This is because both Italy and the UK are parties to the 2005 Hague Convention, which requires this formality.
Alternatively, parties may include an arbitration clause in contracts, benefiting from the effects of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). This measure will ensure smoother resolution of disputes and avoid the complexity of national rules of private international law, pending a potential agreement between the UK and the European Union on the matter.
Marie Vanswevelt
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