English courts: back in the game for foreign law and judgment recognition

February 2024 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

February 2024 Issue

The UK’s announcement in late 2023 of an intention to sign and ratify the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (Judgments Convention) will improve the powers of courts in the UK to recognise and enforce civil and commercial judgments between the UK and other contracting states – most closely those in the European Union (EU) (other than Denmark) and future ratifying states of this relatively recent convention. Potential future states include, for example, the US, which has signed but not yet ratified the Judgments Convention.

While the UK already has rules in place allowing for recognition and enforcement of foreign judgments, the common rules set out in the Judgments Convention provide a clearer and more uniform approach, particularly following the UK’s loss of the simplicity of the Recast Brussels Convention and Lugano Convention with EU and European Economic Area countries providing for mutual judgment recognition within the bloc from which the UK withdrew.

This occurs amid a growing trend of courts in England enforcing and setting aside foreign decisions, assessing whether to take a regulatory role in the business decisions of international companies, as well as seizing jurisdiction over claims where events took place abroad. Even in just the past six months, the following handful of cases highlight this movement, with parties aiming to broaden the remit and discretion of English courts in international matters, which, in many cases, the English courts have been willing to entertain.

Clarification of ‘revenue rule’

The UK’s Supreme Court held in November 2023 that the Danish tax authority was able to claim against UK companies which had received fraudulently induced tax refunds of £1.44bn in the Skatteforvaltningen decision, which reflects the name of the Danish tax administration.

The Commercial Court at first instance had originally found that the defendants were protected by the ‘Revenue Rule’, perhaps unintuitively (to most) known as Dicey Rule 3, being so-named after the Conflict of Laws treatise in England which summarises the position of precedent and, in respect of the relevant Revenue Rule, stipulates that English courts have no jurisdiction to enforce a penal, revenue or other public law of a foreign state. This was despite the fact that UK parties had never paid any tax to Denmark, nor been liable to do so, but had nonetheless claimed and received dividend tax refunds.

The Supreme Court agreed with the Court of Appeal (which had already overturned the decision at first instance), finding that because the UK parties in question had never been liable to pay the tax on which the refunds were wrongly paid, the Revenue Rule did not apply. Lord Lloyd-Jones said unequivocally the “essential requirement for the application of the revenue rule is missing”.

The Supreme Court also rejected the argument that the tax agency was barred from bringing a claim by the ‘sovereign authority rule’ which prevents English courts from enforcing the public law of a foreign state. This was because its claim to recover money out of which it had been defrauded would be open to any private individual.

By clarifying the Revenue Rule, Skatteforvaltningen has confirmed the jurisdiction of English courts to hear claims from revenue authorities that rely on private law principles, and such claims are therefore likely to increase.

Anti-suit injunctions

English courts have also reaffirmed their willingness to limit foreign entities breaching arbitration agreements by granting anti-suit injunctions (ASI) against such foreign parties.

In Renaissance Securities (Cyprus) Limited v Chlodwig Enterprises Limited, an investment services agreement providing for London as the arbitral seat broke down after international sanctions were placed on the Russian counterparties following Russia’s unlawful invasion of Ukraine. The claimant applied to the English court for an ASI to restrain Russian proceedings against it in favour of an English-seated arbitration, and an anti-anti-suit injunction (AASI) was also sought to prevent Russian parties from doing the same in return. Both were granted in November 2023 on the basis that any proceeding elsewhere would be in breach of the arbitration agreement and there were no strong reasons not to grant the injunctions.

In Deutsche Bank v Ruschemalliance LLC, the Court of Appeal was even willing in October 2023 to allow an ASI where the agreed arbitral seat was in France, rather than England. The first instance court had denied this relief, but the appellate court emphasised the international reach of English courts, determining that “although a French court does not have the ability to grant an ASI as part of its domestic toolkit, it will recognise the grant of an ASI by a court which does have that as part of its own toolkit, provided that in doing so it does not cut across international public policy”. While the seat of arbitration was Paris, the underlying contract was governed by English law and there was therefore a connection to England.

Limiting board directors’ discretion

In the case of ClientEarth, a non-profit environmental law organisation of the same name holding shares in Shell plc attempted to issue a derivative claim against the company’s directors under the English Companies Act. Such claims are designed to allow shareholders to challenge the acts or proposals of directors on the grounds that they involve negligence, default, breach of duty or breach of trust. In particular, ClientEarth alleged that directors had breached their duty to promote the success of the company and to exercise reasonable care, skill and diligence.

A July 2023 hearing considered whether ClientEarth had a prima facie case to plead such a claim. ClientEarth pleaded that Shell’s climate change risk management strategy, as described in corporate documentation, was relevantly in breach of “a duty to implement reasonable measures to mitigate the risks to the long-term financial profitability and resilience of Shell in the transition to a global energy system and economy aligned with the global temperature objective of 1.5°c under the Paris Agreement on Climate Change 2015”.

A claim of this kind was described by ClientEarth as “the first derivative action worldwide to seek to hold directors personally liable for climate risk mismanagement” and sought to increase the ability of courts to regulate the business decisions of boards of directors on account of environmental considerations. However, the English High Court and Court of Appeal (in November 2023) were not willing to allow this, dismissing ClientEarth’s claim as without a prima facie case and rejecting its subsequent appeal.

$11bn international investment arbitration award set aside

In October 2023, the Commercial Court set aside an arbitral award of $11bn in the case of Nigeria v P&ID Ltd. Nigeria had been ordered to pay the sums (which included interest) by a tribunal owing to its assessed breach of a contract with the respondent, P&ID, concerning supply of gas, completion of a gas pipeline and construction of associated facilities.

The court determined fraud occurred during the arbitral process and set aside the award. The court also questioned the arbitral process, adding that the case was “an opportunity to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved”.

Taking jurisdiction and using English law as a barometer

In Commercial Bank of Dubai v Al Sari, the Commercial Court determined England was the appropriate forum for a dispute with multiple defendants based in the United Arab Emirates (UAE) that were alleged to have colluded to avoid the enforcement of decisions across multiple jurisdictions.

The July 2023 judgment relied on the 2021 decision of the UK Supreme Court in FS Cairo LLC v Lady Brownlie, specifically the application of the ‘similarity presumption’. This presumption applies where expert evidence on foreign law is insufficient to determine its content, and the parties have departed in pleaded terms from the default rule that English law applies.

Accordingly, where it is specifically pleaded in court proceedings that the applicable law of a dispute is not English law, the similarity presumption applies. Clarifying this, however, the Supreme Court in Brownlie confirmed that expert evidence (for example a lawyer or similar person) would not need to be introduced to prove all aspects of foreign law, particularly where the parties disagreed on a relatively simple element of the foreign law. In the absence of better evidence, the court may assume the law is sufficiently similar to English law, although only if it is fair and reasonable to do so.

The court in Commercial Bank of Dubai therefore found it would be “reasonable to presume that the factual allegations made under [an English economic claim] heading would, if made out, give rise to liability under the [separate] law of the UAE” because at its core the English claims concerned allegations associated with forgery and fraud likely to be unlawful elsewhere, including in the UAE.

In so doing the court used English law as a barometer for the content of foreign law in accordance with the similarity presumption and also found that the English court would be a suitable forum to hear the claim, despite most of the parties being based abroad. Among the reasons for doing so was that the claims concerned property in England and other factors weighed in favour of the case being decided there.

Adam McWilliams is a partner and Miles McCollum is a legal assistant at Quinn Emanuel Urquhart & Sullivan UK LLP. Mr McWilliams can be contacted on +44 (0)20 7653 2052 or by email: adammcwilliams@quinnemanuel.com.

Adam McWilliams and Miles McCollum

Quinn Emanuel Urquhart & Sullivan UK LLP