knowledge 25 March 2021 |

Disputes: Backdrop of Alleged Fraud no Bar to Recognition of EU Member State Judgment

Background

The Brussels I Recast Regulation (“Brussels I Recast”) enables the recognition and enforcement of civil and commercial judgments given by the courts of one EU Member State in another EU Member State.  Recognition or enforcement can only be refused on certain limited grounds. 

One ground for refusal of recognition is that to do so would be manifestly contrary to public policy (ordre public) in the Member State addressed.  This is set out in Article 45(1)(a) of Brussels I Recast.  However, this deviation from the general rule can only be relied upon in exceptional cases.  The infringement must amount to a manifest breach of a rule of law regarded as essential in the legal order of the state in which enforcement is sought, or of a right recognised as being fundamental within that legal order.¹  The application of this rule was considered in a recent High Court decision.

Case before the court

In Brompton Gwyn-Jones v McDonald,² the respondent had obtained final judgment against the applicant in Bulgaria in respect of certain loan agreements concluded between those parties personally.  The applicant had assets in Ireland.  The Bulgarian judgment could potentially be enforced against those assets.

The applicant sought to prevent this and asked the Irish courts to refuse recognition or enforcement of the Bulgarian judgment on the grounds that to do so would be contrary to public policy in Ireland because the loan agreements were part of a much larger transaction involving the same parties that was tainted by fraud. 

Alternatively, the applicant sought to stay the recognition or enforcement of the Bulgarian judgment, pending the outcome of arbitration proceedings pending before the International Court of Arbitration related to that larger transaction.  A clear allegation of fraud had been made in those proceedings. 

In addition, the Isle of Man courts had granted a worldwide Mareva injunction (freezing order) against a corporate entity associated with the respondent pending the outcome of those arbitration proceedings.  The court had been satisfied that the claimant there had a good arguable case that it had been the victim of deceit and misrepresentation in relation to the larger transaction.  The applicant indicated that he intended to bring a similar application against the respondent personally.

For his part, the respondent denied all allegations of fraud and said he would contest the jurisdiction of the arbitral tribunal.  He pointed out that he had a final and conclusive judgment from the Bulgarian courts pursuant to an exclusive jurisdiction clause.  The applicant had been legally represented in the Bulgarian proceedings and had exercised his full rights of appeal.

Decision of the court

Barr J denied the application and pointed to the very limited circumstances in which the Irish courts could refuse to recognise and enforce a judgment of another EU Member State court. 

He said that the Bulgarian courts had jurisdiction to deal with the matter.  The Irish court could not review in the correctness of a decision of the Bulgarian court rejecting the applicant’s submission that the loan agreements had to be seen in the context of a complex series of contracts entered into between companies controlled by the parties.  Article 52 of Brussels I Recast made it clear that under no circumstances could the Irish court review the substance of the Bulgarian judgment.

The net issue was whether the Irish court should refuse recognition or enforcement of the Bulgarian judgment as being contrary to public policy in Ireland, because it would perpetuate, or permit the respondent to perpetrate a fraud on the applicant.  Barr J was not satisfied to do so.  He said that for Article 45(1)(a) of Brussels I Recast to apply, there must be a manifest conflict between enforcement of the foreign judgment and the dictates of public policy in Ireland.

He said that while allegations of fraud had been raised, there was no finding by any court or arbitral tribunal that a fraud had been perpetrated by or on any of the various parties concerned.  The existence of an allegation was not sufficient to enable the Irish court to conclude that it would be contrary to public policy to refuse recognition or enforcement of the Bulgarian judgment.

He added that at most, in the Mareva proceedings, the Isle of Man court only had to be satisfied that a “good arguable case” of fraud had been made out.  In any event, he said that the existence of the worldwide Mareva injunction was irrelevant to the current application.  The Isle of Man proceedings concerned corporate entities, whereas the Irish High Court was concerned with a judgment between the applicant and the respondent personally.

He added that even if the injunction was extended to cover the respondent personally, that would not prevent him acquiring assets by the enforcement of Bulgarian judgment.  Rather, the Mareva injunction would prevent him from dissipating his assets below a certain level.

In relation to placing a stay on the recognition or enforcement of the Bulgarian judgment pending the outcome of the arbitration proceedings, Barr J said that this was not a valid ground for refusing enforcement of the judgment and was not provided for under Article 45 of Brussels I Recast.

Barr J acknowledged that while Article 51 of that regulation did provide for the possibility of a stay where an ordinary appeal could still be or had been lodged against a judgment in the Member State of origin, this did not apply to an “extraordinary appeal” to set aside a judgment as was proposed here if the arbitration was resolved in the applicant’s favour.  In any event, no such appeal had yet been lodged.

Finally, Barr J pointed out that it would defeat the purpose of Brussels I Recast, if a judgment debtor could avoid enforcement in one Member State, by initiating arbitration proceedings on the same matter in another Member State. 

Comment

Free circulation of judgments within the EU is a key objective of the Brussels regime and is seen as supporting the EU single market.  Indeed, Brussels I Recast simplified the enforcement procedure for judgment creditors when compared with its predecessor, the Brussels Regulation.  Potential impediments to this policy imperative will face detailed scrutiny and exceptions to the general rule will be narrowly construed.