written by NITA guest bloggers Massimo Reboa and Michael J. Dale
In international commercial disputes, a major concern American lawyers can have is the collection of contractual debts. To avoid this problem, companies often use what is known as a bank demand guarantee, where a bank in the role of guarantor will pay the beneficiary a fixed amount of money upon the request for payment from the beneficiary. This system is used to ensure that the debts are paid without going through the unfamiliar judicial system of another country. A second solution is to insert an arbitration clause in the contract. An arbitration clause appoints a private court to hear the case when a dispute over the contract arises.
However, both approaches have shortcomings. Bank demand guarantees are expensive, while the validity and the enforceability of arbitration clauses are often contested. A third collection option for collection of a commercial debt in third countries is to reduce it to a court judgment and then have cross-jurisdictional enforcement.
An example may be helpful to understand the process. Suppose one’s client, Company P, has sued Company D in a United States court for breach of contract. Company P had a good claim and obtained a judgment, but Company D does not own significant assets in the United States and further thinks it can avoid or delay paying the judgment in the United States. However the client, Company P, has knowledge that Company D has substantial assets in a European Union state and has asked counsel to enforce its American judgment there.
This article examines the obstacles to and the limitations in domesticating and enforcing an American judgment in civil matters in European Union states, as each of them has different rules of domestication and enforcement. The following section will focus on the domestication in Italy, Spain, and the Czech Republic as representative of the approach. The same section will then consider the effects of domestication of an American judgment under the “Brussels Regime” in the European Union system. The next section will propose as an alternative approach initially filing the case directly in a court of one of the European Union states, rather than commencing the case in an American court, obtaining the judgment, and then enforcing the judgment in the European Union system. Finally, the conclusion will analyze the advantages and the disadvantages of the two approaches.
Domestication and enforcing American judgments in European Union countries
To domesticate any foreign judgment in the European Union countries, one should first consider bilateral and multilateral treaties. For example, France and Uruguay have established paths to the judicial systems of each other under a treaty they signed in 1991. Articles 18 to 22 of that treaty regulate domestication and enforcement of judicial decisions and arbitral awards. Unfortunately, the United States signed neither bilateral nor multilateral treaties of this kind with any nation. Therefore, the applicable law for domestication of an American judgment will be the default law of domestication of foreign judgments in each nation of the European Union.
A review of each of the 28 European Union states’ domestication procedure is beyond the scope of this article. In addition, some states in the European Union are federally structured themselves, and their federated entities govern the domesticating procedure. Therefore, the number of domestication procedures is even higher than the number of the European Union states.
For the purpose of this article, three European Union states—Italy, Spain, and Czech Republic—have been selected to provide insight into the requirements to enforce an American judgment in the European Union. This section will also consider whether domestication in one European Union state facilitates further domestication in other European Union states.
Domestication in Italy
Italy has a very liberal system of domestication. Law 218/1995 reformed Italian international private law and provides for automatic domestication without the need for a domesticating procedure. However law 218/1995 still provides a safeguard of a jurisdictional check when jurisdictional enforcement is necessary or when the validity of the foreign judgment is contested.
When a jurisdictional check is required, venue lies in the Italian Court of Appeal district where the petitioner seeks to enforce the American judgment. The Court of Appeal shall verify that all the formal prerequisites to enforce the foreign judgment have been met, with the exclusion of a review of the case on the merits.
The first of these prerequisites is the existence of jurisdiction under Italian law by the court that entered the judgment. Second is the compliance with an Italian version of due process in the form of service of the summons in accordance with the law applicable where the proceeding has taken place (procedural due process) and in the form of an absence of violations of the essential rights of the defendant (substantive due process). Third is the appearance of the parties before the court that entered the judgment according to the law applicable to that proceeding or, as an alternative, the entry of a default judgment under such law. The fourth prerequisite is that the judgment was res judicata under the law of the jurisdiction where it was entered. Under Italian law, a judgment is res judicata when it has the capacity of creating claim preclusion. Fifth is the absence of conflicts between the judgment to be domesticated and other Italian judgments that are res judicata. Sixth is the absence of a proceeding pending before an Italian judge on the same claim and between the same parties (lis alibi pendens) commenced before the proceeding was commenced in the American court. The last prerequisite is the absence of conflicts of the judgment with Italian public policy. This is the case when an American court awards punitive damages, which are not permitted under Italian law.
Every party who has an interest in domesticating an American judgment can petition the Court of Appeal to ascertain the existence of these prerequisites. At the end of this proceeding, the opinion of the Court of Appeal grants or denies domestication. If the Court of Appeal confirms, both the foreign judgment and the judgment of the Italian Court of Appeal should be deposited at the enforcement division of the Tribunal where the assets of the debtor are located to commence the enforcement action.
Domestication in Spain
The Spanish law 29/2015 reformed the Spanish system of international cooperation in civil matters. The most noticeable change has been the abolition of the requirement of reciprocity in enforcing the judgments with the nation where the judgment had been issued, also known as comity, which was a fundamental principle under the Spanish Civil Procedure Act of 1881.
Under the new law, domestication is available for final judgments, and a review of the merits of the case is expressly banned. However, certain circumstances impede the Spanish tribunal from domesticating a foreign judgment.
The first is the incompatibility of the foreign judgment with Spanish public policy, which corresponds to Spanish constitutional principles, rights, and guarantees. Second is a clear violation of the defendant’s rights. In a case of default judgment, a violation occurs if the defendant did not receive the summons or an equivalent document sufficiently in advance to permit him to defend himself. The third circumstance is the existence of exclusive jurisdiction in Spanish courts or, with reference to other matters wherein Spanish courts do not have exclusive jurisdiction, the absence of a reasonable connection between the case and the state where the judgment was entered to support its jurisdiction. A presumption of existence of a reasonable connection exists if jurisdiction is established by criteria similar to those used to establish Spanish jurisdiction. The goal of the provision is to avoid possible conflicts of judgments. The fourth circumstance is the incompatibility of the foreign judgment with other judgments issued in Spain. Fifth is the incompatibility of the foreign judgment with other previous judgments from other nations that could have been domesticated in Spain or that were actually domesticated. Finally, the tribunal should not domesticate the judgment if there is a proceeding pending on the same claim between the same parties in Spain (lis alibi pendens) that started before the foreign proceeding.
Venue is proper in the judicial district of the Tribunal of First Instance (or in the judicial district of the Mercantile Tribunal, if it has jurisdiction) where the debtor or the garnishee is domiciled. In the absence of such a domicile, venue is proper in the judicial district where the judgment should be executed. Every party interested can petition for domestication in the procedure enforcing the judgment or in a separate procedure.
To domesticate the judgment, the party seeking enforcement has five years from the day the foreign court has entered its judgment to present it to the court clerk, who checks its prima facie formal requirements and serves the debtor or the garnishee. The debtor or the garnishee then has thirty days to oppose domestication. After the term expires or opposition has been presented, the court has ten days to grant or deny a decree of execution. The resisting party can appeal the decree under the ordinary Spanish rules of civil procedure.
Domestication in the Czech Republic
Upon petition of any party with a legitimate legal interest in the judgment to be domesticated, Czech courts shall examine it, provided that it is final Czech law defines certain circumstances in which the judgment, although final, cannot be domesticated and, thus, cannot be enforced.
The first exception is where Czech courts have exclusive jurisdiction or, if they do not have exclusive jurisdiction, where the foreign court would not have had jurisdiction if the Czech rules of jurisdiction had been applied. Exceptions to this provision exist when the judgment has been issued against a foreign defendant, and the defendant has consented to jurisdiction in the foreign court. The second exception is when a proceeding, which was commenced before the proceeding whose domestication is sought, is pending before a Czech court on the same legal relationship (lis alibi pendens). The third exception is when a Czech court has already entered a final judgment on the same legal relationship or when another judgment on the same legal relationship has been domesticated in the Czech Republic, thus creating claim preclusion (res judicata). Fourth is when the defendant has been prevented from participating to the original proceeding—for example, in a case in which defendant has not been served with the summons to appear or the motion to commence the proceeding. The fifth exception is when the domestication would clearly contravene Czech public policy. Finally, Czech courts shall verify the existence of comity with the foreign state on a case-by-case basis. However, comity is required only if the judgment is to be enforced against a Czech citizen or a Czech legal entity.
The court should consider these circumstances in a different proceeding from the enforcing one, except when the case regulates property matters. In property matters, the Czech authorities take the judgment into account as if it were their own decision and without a domestication proceeding.
The effects of domestication by a European Union state court: Owen Bank v. Bracco
Once a judgment is domesticated in a European Union state, the contractual creditor can enforce the American judgment against the contractual debtor in that state. However, it may be the case that the assets of the contractual debtor in the state in which the American judgment is domesticated are not sufficient to satisfy the claim, and there are other assets located in other European Union states. For example, if the assets are personal property, they can easily move across the European continent, as the European Union has created an open border area, known as the Schengen Area, that permits free movement across almost the entire continent. The question thus becomes whether the American judgment, once domesticated in one European Union state, could be enforced in another European Union state.
To address this question, one must consider the Brussels I bis Regulation, which governs the Brussels Regime. It is a European version of the Full Faith and Credit Clause of the United States Constitution in matters of civil and commercial judgments. The Regulation permits automatic domestication of a judicial order in civil and commercial matters inside the European Union when a court of one of the European Union states has issued it. In fact, the Regulation has abolished every additional formality for the enforcement of judgments entered in other European Union states, except for a certificate of enforceability from the court that entered the judgment to be enforced.
Article 36 of the Brussels I bis Regulation states: “A judgment given in a Member State shall be [domesticated] in the other Member States without any special procedure being required.” Article 39 of the same Regulation uses corresponding words for enforceability: “A judgment given in a Member State which is enforceable in that Member State shall be enforceable in the other Member States without any declaration of enforceability being required.” The consequence is that the Regulation is applicable even if a judgment is not final.
One would think that the Brussels Regime would be applicable to an American judgment in civil and commercial matters once the American judgment has been domesticated and made enforceable in one of European Union states, as the respective domesticating procedure ends with a local judgment. Unfortunately, the Court of Justice of the European Union has interpreted the Brussels Regime differently. In Owen Bank v. Bracco, decided in 1994, the issue was whether the concept of “civil and commercial matters” governed by the Regulation extends to domesticated judgments. In Owen Bank v. Bracco, the Court reasoned that “[t]he rules of procedure governing the [domestication] and enforcement of judgments given in a non-contracting State differ accordingly to the Contracting State in which [domestication] and enforcement are sought.” According to the Court, the fact that each European Union state can establish its own standard for domestication of non-European Union judgments implies that judgments originally entered by a non-European Union state fall outside the definition of “civil and commercial matters,” as evidenced by the absence of a provision to determine venue for judgments previously domesticated in another European Union state. The Court was probably concerned about the possibility that a different decision would have created forum shopping among European Union states for domestication of judgments entered by courts outside the European Union.
Therefore, the Brussels Regime is applicable only to judgments originally issued by a European Union state and not to judgments domesticated in a European Union state. The opinion remains good law, as the European Union legislature has not intervened on the point when it replaced the Brussels Convention with the Brussels I Regulation and then with Brussels I bis Regulation.
Therefore, the enforcement of a foreign judgment, including a judgment from the United States, requires a domestication procedure in every European Union state in which the contractual debtor has assets even when the judgment has already been domesticated in another European Union state.
An alternative approach through the Brussels Regime
According to Owen Bank v. Bracco, the effects of domestication in one state cannot be extended throughout the European Union. Thus, a contractual creditor would likely look for a more immediate path to collect the money owed by its contractual debtor. To avoid the long and expensive domestication of the American judgment in each of the European Union states where assets of the contractual debtor are located, and in consideration of the ability of the contractual debtor to move assets to another European Union state, a contractual creditor should consider other options. In fact, when the dispute is first commenced in a trial court of a European Union state, no domestication procedure is required and the resulting judgment benefits from the Brussels Regime.
Standards under Brussels I bis Regulation
Article 1 § 1 of the Brussels I bis Regulation limits its application of the Brussels Regime to civil and commercial judgments “whatever [is] the nature of the court or tribunal.” Provisional or protective measures are expressly considered judgments for the purposes of this Regulation. However, Article 1 § 2 then excludes a number of matters from application of the Regulation. The exclusions include revenue and customs or administrative matters, liability of the State for acts by right of dominion (known as acts of state doctrine in American law); status or legal capacity of natural persons; rights in property arising from a matrimonial or equivalent relationship; and obligations arising from a family relationship, parentage, marriage or affinity, wills and succession, bankruptcy and analogous proceedings, social security, and arbitration.
Article 4 of the Regulation defines jurisdiction and rules that the domicile of the defendant is sufficient to establish jurisdiction even when the defendant is not a citizen. In a case where the plaintiff sues the defendant in the court of a European Union state where the defendant is not domiciled, Article 7 through Article 26 of the Regulation set forth how to establish jurisdiction. These rules preempt state law. Finally, if the defendant is not domiciled in a European Union state, the law of that state in which the action is commenced determines jurisdiction.
The Regulation provides for automatic domestication and enforceability of judgments originally entered by a court of a European Union state. Thus, the party who desire to enforce the judgment need only produce a copy of the judgment, which satisfies the conditions necessary to establish its authenticity, and a certificate of enforceability from the court that originally issued the judgment. The certificate is a form that contains a statement from the court that entered the judgment to be enforced. In this certificate, the court declares that the judgment is enforceable, provides relevant information on recoverable costs and interest, and reproduces an extract of the judgment. The certificate should “be served on the person against whom the enforcement is sought prior to the first enforcement measure,” together with the judgment itself, if it was not already served.
However, the provisions of Brussels I bis Regulation is applicable only to actions commenced after January 10, 2015. For actions commenced before such date, Brussels | Regulation is applicable, the examination of which is beyond the scope of this article.
Exceptions to domestication and enforceability through the Brussels Regime
Even under the Brussels I bis Regulation, the debtor has defenses to domestication and enforceability of judgments originally issued by a European Union state. The debtor should introduce his objections before the Court designated by the state where enforcement will take place.
The defenses to domestication and enforceability, listed in Article 45 of the Regulation, include the following:
Therefore, every judicial order originally issued by a Court of a European Union state is enforceable without further proceeding within the boundaries of the European Union even if it is not final, provided that the matter falls in the definition of civil and commercial matters and that the court of origin has issued a certificate of enforceability. However, the defendant can still challenge such enforceability by introducing one of the defenses mentioned above before the court designated in advance by the European Union state where the judgment has to be executed.
Territorial extension of the Brussels Regime and domestication of American judgments to some non-European Union states
A version of the Brussels Regime is applicable also in Switzerland, Norway, and Iceland,, all non-European Union states. In fact, in 1988 these states signed the Lugano Convention with the European Union, which extended the then Brussels Convention to them without substantial modifications., A New Lugano Convention was adopted in 2007 to adapt the modification of the Brussels Regime to the Brussels I Regulation of 2000, but an update to the Convention to the Brussels I bis Regulation, issued in 2012, still has to be made. Thus, Switzerland, Norway, and Iceland still apply the Brussels Regime as defined in the Brussels I Regulation.
The main difference from the law applicable in the European Union is that under the New Lugano Convention, the court that should enforce the judgment executes a jurisdictional check on the judgment and issues a certificate of enforceability, while under Brussels I bis Regulation, the court that entered the judgment also issues the certificate of enforceability. However, the Court of Justice of the European Union, appointed to interpret the New Lugano Convention and the Brussels I bis Regulation, gives a uniform interpretation to both the instruments.
Once an American judgment is domesticated in one of the European Union states, it can be enforced in that state. However, the effect of such domestication does not extend to other European Union states, as the Court of Justice of the European Union has held in Owen Bank v. Bracco. Thus, the American judgment should be domesticated in each European Union state according to the domesticating procedures established in each state.
In the alternative, to benefit from the Brussels Regime, the American contractual creditor might consider commencing litigation against the contractual debtor before the trial court of one of the European Union states, which permit easier cross border enforcement inside the European Union. Otherwise the contractual creditor risks losing assets on which to execute the judgment by evasion of enforcement by movement from one European Union state to another.
Massimo Reboa is a graduate in law from Roma Tre University in Rome, Italy, and Nova Southeastern University College of Law. He is member of the Florida Bar practicing law in South Florida. He can be reached at firstname.lastname@example.org].
Michael J. Dale has been a member of the faculty at Nova Southeastern University Shepard Broad College of Law since 1985. He teaches regularly for the National Institute for Trial Advocacy. He can be reached at email@example.com]. If you’d like to know more Professor Dale, please read his “Asked and Answered” interview with The Legal Advocate here].
To read more articles by Professor Dale’s research assistants at Nova Southeastern, click here.
. Convention on judicial assistance in civil and commercial matters between the French Republic and the Eastern Republic of Uruguay, 16 Sep 1991 (I-36556).
. Ronal A. Brand, Federal Judicial Center International Litigation Guide: Recognition and Enforcement of Foreign Judgments, 74 U. Pitt. L. Rev. 491, 496 (2013).
. See generally United States § 21, 1 Enforcement of Foreign Judgments (Wolker Kluwer) (December 2014).
. Cfr. 3 Crisanto Mandrioli & Antonio Carratta, Diritto Processuale Civile [Civil Procedure Law] 366 (Giappichelli Editore, 21st ed. 2011).
. L. n. 218/1995.
. Id., Art. 64 L. n. 218/1995.
. Id. at Art. 67.
. Crisanto Mandrioli & Antonio Carratta, Diritto Processuale Civile [Civil Procedure Law] 374 (Giappichelli Editore, 21st ed. 2011).
. Id., at Art. 64. Cfr. Cass., 6 dicembre 2002, n. 17349, Giust. Civ. Mass. 2002, 2133.
. Cass., sez. III, 19 gennaio 2007, n. 1183, Giur. it. 2008, 395 (defining public policy as the fundamental and distinguishable juridical-ethical principles of a judicial system in a certain historical period).
. Art. 67 L. n. 218/1995; 3 Crisanto Mandrioli & Antonio Carratta, Diritto Processuale Civile [Civil Procedure Law] 373, 374 (Giappichelli Editore, 21st ed. 2011).
. Ley de cooperacio´n juri´dica internacional en materia civil [Law of international cooperation in civil matters] (B.O.E. 2015, 29).
. Id., Preámbulo II.
. Ley de Enjuiciamiento Civil [Civil Procedure Law] Artículo 953 (BOE 1881, 813). This law is still applicable today.
. Ley de cooperacio´n juri´dica internacional en materia civil [Law of international cooperation in civil matters] Artículo 48 (B.O.E. 2015, 29).
. Id., Artículo 46 § 1.
. Carlos Esplugues Mota, Recognition and Enforcement of Foreign Arbitration Awards in Spain and Public Policy 6 (November 1, 2011), http://ssrn.com/abstract=1952770.
. See supra, p. 3.
. Id., Artículo 52 § 1, 52 § 2.
. Id., Artículo 54 §1.
. Ley de Enjuiciamiento Civil [Civil Procedure Law] Artículo 518 (BOE 1881, 813); Tribunal Supremo, October 16, 2014, n. 573, STS 4838/2014.
. Id., Artículo 54 § 5-7.
. Id., Artículo 55.
. Internationales Privatrecht [Private International Law], Gesetz c. 91/2012 Coll, § 14.
. Id., § 15.
. See supra, p. 3.
. Id., § 16.
. The Schengen Area is a policy of the European Union to create an open-border area in which almost all the European Union states participate. The Area is regulated by multiple legislative acts of the European Union.
. Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, 2012 O.J. (L 351) 1 [hereinafter Brussels I bis Regulation].
. See infra p. 8; Olivia Lopes Pegna, Il Regime di Circolazione delle Decisioni nel Regolamento (Ue) N. 1215/2012 («Bruxelles I-Bis») [The Regime of Circulation of Opinions in Reg. (EU) n. 1215/2012 («Bruxelles I-Bis»)], 4/2013 Rivista di Diritto Internazionale [Periodical of International Law] 1206, 1212 (2013) (It.).
. Id. at Article 36.
. Id. at Article 39.
. The Court of Justice of the European Union hears cases in direct proceedings against Member States or European Union institutions not fulfilling their obligations under European Union law or in indirect proceedings, when an issue of interpretation of European Union law exists. Competences of the Court of Justice of the European Union, http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_1.3.10.html.
Therefore, in most of the cases the Court hears private persons and entities through indirect proceeding. This is called preliminary ruling. If an issue of interpretation of European Union law is raised, the court of the European Union Member State before which the case is pending may refer (or should seek, when the case is pending before a court of last instance) the matter to the Court of Justice of the European Union. A preliminary ruling is comparable to a certified question in the American court system.
. Case C-129/92, Owens Bank Ltd. v. Fulvio Bracco and Bracco Industria Chimica SpA, 1994 E.C.R. I-146, I-155.
. As evidence of this, the Court highlighted the absence of a provision to determine venue for judgments previously domesticated in another European Union state. Owens Bank Ltd. v. Fulvio Bracco and Bracco Industria Chimica SpA, 1994 E.C.R. I-146, I-153.
. Convention 72/454/CEE, J.O. (L 299) 32.
. Council Regulation 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, 2001 O.J. (L 12) (EC) [hereinafter Brussels I Regulation].
. See Adrian Briggs, Civil Jurisdiction and Judgments 347 (Informa Law ed., 6th ed. 2015) (recalling the value of Owens Bank Ltd. v. Fulvio Bracco and Bracco Industria Chimica SpA case).
. Owens Bank Ltd. v. Fulvio Bracco and Bracco Industria Chimica SpA, 1994 E.C.R. I-146.
. See supra, note 27.
. Brussels I bis Regulation, supra note 29, Article 1 § 1.
. Id. at Article 2 § 1 (a).
. The domestication of judgments on family law matters is governed by Brussels II bis Regulation, Council Regulation (EC) 2201/2003, 2003 O.J. (L 338) 1 (on jurisdiction and the domestication and enforcement of judgments in matrimonial matters and the matters of parental responsibility), and Maintenance Regulation, Council Regulation (EU) 1259/2010, 2010 O.J. (L 343) 10 (implementing enhanced cooperation in the area of separation).
. Brussels I bis Regulation, supra note 29, Article 1 § 2.
. Id. at Article 4 § 1.
. Id. at Article 5 §§ 1, 2.
. Id. at Article 6 § 1.
. Brussels I bis Regulation, supra note 29, Articles 37 § 1, 53.
. Id. at Article 42 § 1.
. Id. at Article 43 § 1.
. Council Regulation (CE) 44/2001, 2012 O.J. (L 351) 1 [hereinafter Brussels I Regulation].
. Brussels I bis Regulation, supra note 29, Article 66.
. Id. at Articles 46, 47 § 1.
. Id. at Article 45.
. Switzerland, Norway, and Iceland are all EFTA states. EFTA is an association of European states to promote free trades among their members. Liechtenstein is a state member of EFTA, but is not part of the Lugano Convention.
. Even Denmark signed the Lugano Convention; therefore, in Denmark, both the Brussels I bis Regulation and the New Lugano Convention are applicable, but the Brussels I bis Regulation prevails over the New Lugano Convention. Cfr. Brussels I bis Regulation, supra note 29, Recital 41.
. Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Sept. 16, 1988, 1988 O.J. (L 319) 9 [hereinafter Lugano Convention].
. Id., Protocol 2.
. Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Oct. 30, 2007, 2007 O.J. (L 339) 3 [hereinafter New Lugano Convention]. The Convention is open for accession by:
. Id., Preamble (“Taking into account […] Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, which has replaced the abovementioned Brussels Convention”).
. Id. at Article 38 § 1.
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