Disputes with an international dimension

January 18, 2021

Mediation: When the law encourages litigants to take the law into their own hands! By Abigail Holt

We all intuitively understand the laws of nature, sods law and the law of the jungle, but the reason that lawyers, judges and the complex, expensive infrastructure that accompanies them exists, is that individuals, organisations, companies, and even countries, get very stuck when disputes arise; or, when anticipating problems, are poor at planning to avoid legal pitfalls.    

COVID-19 is going to generate all sorts of long-term change, once the pandemic’s acute problems lessen, including a plethora of national and international business disputes. Individuals and organisations entering into contacts and negotiating terms would never have envisioned this time last year where we are now. At the same time, backlogs of hearings are mounting in the Courts in relation to cases that cannot be heard due to COVID-related reasons, and, post-pandemic, the problems due to contracts breached through part or non-performance are going to cause a major additional challenge for legal systems all over the world. Against thebackground of global suffering, aggressive and adversarial litigation looks increasingly counter-productive, irresponsible and unwise. Is there a viable alternative?

Whatever happens as the consequences of the Christmas Eve Brexit deal beds down, and however one appraises the practical consequences of the UK diverging from EU law, the essential wisdom of the European Union’s approach to mediation as a technique surmounts all politics and will continue to apply to any international dispute, involving citizens of any county, European or not. Imaginative legal problem-solving through mediation, rather than litigationlooks increasingly like the smart way of avoiding or short-circuiting costly litigation.  

Rather than (potential) litigants-in-conflict firmly and in black and white (literally) marking out the borders of their dispute and fighting for their territory in front of a Judge who is given State authority to decide who wins and who loses, a skilled mediator sets very different boundaries; creates a safe space or bubble of respect, confidentiality and opportunity, thereby facilitating those distressed by their dispute to see if they can solve their own energy-sapping predicament by finding a mutually-acceptable result. Such resolution frequently includes solutions which would never be available to a Judge, limited as s/he is to a crude set of remedies (compensation, injunctions and legal costs consequences for litigation decisions).

Those involved in disputes with an international element know the additional challenges of language issues and the problems when different legal systems rub up against each other, creating massive headaches of different laws and enforcement of judge-made decisions. The bad news is that, as a result of the ending of the Brexit transition period, mutual recognition of Court Judgements has got a whole lot more complicated for cases which commence after 1 January 2021. However, the good news is that the techniques and value of mediation are not going to be affected by the vagaries of Brexit.

Mediation still is an opportunity to “take back control”.      

The problem with enforcement of Judgments

There is a significant wrinkle, though, in relation to mediations with a UK-EU cross-border element for the foreseeable future because the UK Government has repealed the European Directive on Mediation 2008/52/EC (through The Cross-Border Mediation (EU Directive) (EU Exit) Regulations 2019) at the same time that Brexit has caused the UK to drop out of the (very successful) Pan-European “Brussels Recast” Regulations 1215/2012 on jurisdiction and enforcement of judgments in civil and commercial matters”. (This happened when The Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 (SI 2019/47) came into force at 11pm on 31.12.20).

By way of important background about why another potential route is not open, is that Brexit and the UK’s Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 also revoked the Lugano Convention because the UK was automatically a signatory to the Lugano Convention as an EU member and therefore now needs to accede to the Lugano Treaty in its own right. A significant reason for the delay in the UK acceding to the Lugano Treaty is that the Lugano Treaty itself states that signatory States have to take due account of rulings of the Court of Justice of the European Union (CJEU) in Luxembourg (also known in the UK as the European Court of Justice – ECJ) and one of the stated objectives of Brexit was that the UK with untrammelled sovereignty did not want to be bound by the CJEU/ECJ.

What follows is a deep dive into the weeds of what the way forwards to recognise and enforce judgments (and un-respected mediation settlements) now that the very useful Brussels Recast regime has been stripped away from UK parties by Brexit. The overall message is that it is possible to track a route through the legal complexity, although you may wish to skip the next bit. For those who are up for the challenge, put on the wetsuit, goggles and oxygen tank and dive in!

Peering into the gloom, a summary of the situation from now on is:

(1) Enforcement of mediated settlements between UK parties remains the same (ie where there is no cross-border element);

(2) Any mediation settlement is potentially enforceable in the UK if it lodged at Court under a Court-approved “Tomlin Order” with the UK Courts, including cross-border cases; however,

(3) If the mediation has resulted in a party to the settlement agreeing to pay monies and the party’s assets are in another EU member state (note that the principles also apply to parties in non-EU countries), AND the paying party fails to comply with the spirit of the mediated agreement by failing to pay up, THEN there are likely to be a series of problems in enforcing the judgement in a UK Court.

Before anyone panics, though, note that parties to mediation usually approach mediations in “good faith” and settle fully intending to honour their agreements, so the problems identified below only apply to the minority of “rogue” mediation settlers who are not good to their word, (but noting if there were no rogues, then there would be no need for mediators and lawyers…). The problems summarised below are in fact far more likely to be encountered parties who have not found a mutually-acceptable mediated solution in good faith and, instead, have gone all the way to getting a final judicial decision/judgment.

It should also be noted that The Civil Jurisdiction and Judgments (Amendment) (EU Exit) Regulations 2019 (SI 2019/47) allows for recourse to the Lugano Convention (and the 1968 Brussels Convention) for cases that had been started and were ongoing during the Brexit Transition Period ie before 31.12.20.

Problems recognising and enforcing judgments and the approach to take (now that Brussels re-cast no longer applies):

The first International Convention to consider on enforcement of judgments is The Hague Convention” (The Hague Convention on Choice of Court Agreements 2005). (This has been given force by UK domestic law by the Private International Law (Implementation of Agreements) Act 2020;
However, regrettably, there is currently a stand-off between the EU and the UK on the applicability of The Hague Convention to the UK. According to the EU, The Hague Convention only applies to the UK from 01.01.21, (although the UK argues that the Hague Convention applies from 2015so there is a gap of uncertainty for cases commenced, or contracts made between 2015 and 01.01.21, with the gap between “exit day” on 31.01.20 and 01.01.21 being particularly problematic);
For a claim initiated after 31.01.20 and a Judgment (including a mediation agreement under a Tomlin Order) which arises from an exclusive choice of court agreement (which specified the UK courts as being the relevant courts) entered into after 01.10.15, then the UK courts will only be recognised if parties to the dispute or the contract specified the UK court as the court of choice. (And also note that the Hague Convention does not apply globally, only to Denmark, EU, Mexico, Montenegro & Singapore as well as the UK);  
But if a case was initiated after Exit Day on 31.01.20 AND if a party has put a non-exclusive choice of UK court, then The Hague Convention does not apply.

, what if the Hague convention does not apply? (ie if there is a non-exclusive jurisdiction clause or the case involves a party in a country that has not signed up to the Hague convention) and it is a new cross-border case that has arisen in England/Wales?

The parties have to look back to the pre-Brussels Convention situation!

Is there a bilateral agreement or relevant convention between the UK and the relevant country on reciprocal recognition or enforcement of Judgments (eg there are agreements between UK/Germany and UK/France). This means that there has to be a trade agreement in force with the relevant country that includes an agreement on reciprocal recognition or enforcement of Judgments. (ie it is not a simple Pan-Convention approach as per Brussels Recast).
If there is no bilateral agreement, then consideration should be given to whether the judgment is enforceable in accordance with the local law of the State in which the enforcement is sought. Local legal advice will be necessary, especially if the party has assets in more than one country. Most States (including England) do enforce such judgments, (although it is not as efficient and streamlined as under the “old” EU Brussels Recast regime).

Notwithstanding the complex situation outlined above
, in practice, if there is an enforcement problem, even if it is possible to identify a route to enforcement, it is still necessary to bear in mind that it is likely to be advantageous to be on top of issues such as: familiarity with the workings of the enforcing court; are costs awards made in that court? What are the enforcing court’s procedures? Are there assets to enforce against? What is the governing law? Are there any overriding laws, eg Sharia law forbids interest awards? Also, will formal enforcement by necessary (eg will a local regulator enforce?)

Parties would be advised to address potential enforcement issues from the outset!

Hope on the horizon – Lugano?

The UK applied to re-join the Lugano Convention (on 08.04.2020). The UK is awaiting confirmation as to whether the UK is going to be allowed to re-join the Lugano Convention. If the UK is able to re-join Lugano, then the situation is likely to revert to being similar to the advantageous situation under the Brussels Convention.

Mediation as the way to avoid potentially pyrrhic victories

It is therefore crucial that a skilled mediator needs to be aware of these potential enforcement problems and reality test any mediated settlement to explore the intention and likelihood that a cross-border mediated settlement will be respected.

Given that the parties to a mediated settlement should (hopefully) be doing so in a spirit of “good faith”, then the problem of lack of enforcement should not arise. But it is wise and necessary to be alert to the possibility.

Nonetheless, as (the no longer relevant-to-the-UK) European Directive on Mediation 2008/52/EC says, when mediation is seen as a voluntary process in the sense that the parties are themselves in charge of the process and may organise it as they wish and terminate it at any time, it is an invitation to take the law into their own hands!

Resolving cross-border cases without travelling

Finally, mediation lends itself readily to electronic communication platforms such as Zoom because of mediations relative informality as compared to court proceedings. The cost-savings involved in “virtual” mediations (time, travelling, inconvenience) is particularly attractive when disputes and (potential) litigants are based in different countries.    

In contrast to the expense, delay, business interruption and uncertainty of litigation, mediation represents the smart way of resolving all disputes, including the most complex of cross-border problems, particularly if the nettle of potential enforcement issues are grasped at the outset. The mediator and parties might need to squeeze into the metaphorical wetsuit to “get their head round” the enforcement issues, but they do not have to pack a real travel bag nor get on a flight.

Overall, deciding to mediate is an active decision to intervene in one’s own dispute with the intention of resolving it. Mediation starts with a proactive state of mind in deciding to take-on the legal problem, rather than being taken to Court; a decision to commit to constructive bridge-building and the amicable resolution of disputes, with a view to freeing up energy, time and money.        

Garden Court Mediation

Garden Court Mediation