Collecting foreign debts in the Covid era
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Introduction
The novel coronavirus has spread around the world rapidly and while in recent months, lockdown measures and associated health restrictions have stunted the spread of Covid-19 and many businesses have reopened, subject to Department of Health guidelines, the past few months of lockdown have taken a significant toll on businesses and financial markets.
Covid-19 has had a drastic impact on all sectors of the economy but in particular travel, hospitality and retail. Businesses in all sectors are unable to operate as they did before and income streams have been partially or completely diminished. As businesses naturally slip into financial difficulties, a glut of payment defaults and insolvencies are anticipated in the coming weeks and months ahead. With the increase of cross border trade, a significant amount of these bad debts are likely to arise not just domestically but also internationally, both within the European Union (EU) and outside the EU.
Judgment creditors can use the system of recognition and enforcement under the”Brussels I Recast" Regulation or the European Enforcement Order Regulation (805/2004) for enforcement in the EU. In the following article, we will look at both of these options.
For other claimants, there are many different procedures which may apply. The type of procedure used will depend on the amount and the nature of claim and whether it is defended.
Before an individual or business can commence legal action to recover a claim in the EU or outside the EU, the correct procedure must be identified. This will depend largely upon the individual circumstances of the case.
Creditors who have obtained judgment
Brussels I Recast
A judgment creditor may wish to use the system of recognition and enforcement of judgments provided for under EU Regulations. The Brussels I Recast Regulation (1215/2012) (“BIR”) applies to court proceedings in all EU Member States commenced on or after January 10, 2015. The Lugano Convention 1988, (“the Lugano Convention”) which created a similar system, applies between the EU Member States and the members of the European Free Trade Association, namely Switzerland, Iceland, Norway and Liechtenstein. The BIR and the Conventions do not apply to judgments originating from non-convention countries such as the United States of America.
This Regulation provides a simplified mechanism for recognition and enforcement of Member State judgments.
Procedure
The judgment creditor is simply required to present to the enforcing court a copy of the judgment, and a standard certificate delivered by the court that rendered the judgment, which contains certain formal details of the judgment.
Although not required by BIR, it is good practice for the judgment creditor to provide a translation of these documents, as the party resisting enforcement may request it. In accordance with the local law, the judgment creditor can then request enforcement measures.
A declaration of enforceability will be issued and a notice of enforcement will be served on the defendant.
The grounds for resisting enforcement are set out in Article 45, which states that enforceability will be refused if the judgment is:
- contrary to public policy;
- given in default of appearance;
- irreconcilable with a judgment given between the same parties in the member state where enforcement is sought
- irreconcilable with an earlier judgment given in another member state or in a non-EU State involving the same cause of action and between the same parties; or
- in conflict with BIR in relation to jurisdiction in matters of insurance, consumer contracts, or individual contracts of employment; or
- in conflict with BIR in relation to exclusive jurisdiction.
Under Article 49 of BIR, either party may appeal against the decision on the application for refusal of enforcement.
BIR’s uniform set of rules and guidelines on jurisdiction and enforcement in civil matters provides judgment creditors with an efficient method of enforcing judgment against debtors situated in the EU.
In simple terms, under BIR a party in whose favour judgment has been granted by a court in Ireland can currently apply to the courts of any EU Member State for the enforcement of an Irish judgment. The courts of that Member State will be limited to assessing whether the application is in accordance with BIR. As illustrated above, an application will be refused in very limited circumstances.
Where multilateral or bilateral conventions cover reciprocal recognition and enforcement, the process would be quite similar to the route provided for under BIR.
European Enforcement Order (EEO)
Regulation 805/2004 created the European Enforcement Order, which is another useful method of enforcing a judgment of one Member State in another. EEO's only relate to uncontested judgments.
It is applicable in all EU Member States with the exception of Denmark.
In Ireland, an application to certify a judgment of a judge of the High Court as an EEO may be made ex-parte (one side only) to the court at the hearing at which that judgment is given or made.
The EEO certificate is issued using the standard form in Annex 1 of Regulation 805/2004.
A creditor must make an application to the competent courts of the Member State of enforcement with a copy of the judgment and EEO certificate.
However, a judgment which has been certified as an EEO in the Member State of origin shall be recognised and enforced in the Member State of enforcement without any need for a declaration of enforceability being made and therefore there is no possibility of a debtor opposing the EEO.
An EEO will be treated as if it had been handed down by the courts in the country in which enforcement is sought. The EEO mechanism therefore enables the free circulation of judgments, court settlements and authentic instruments in all Member States without the need for intermediate proceedings.
While an applicant may prefer to use the BIR system given it is more economical, an EEO carries certain benefits. As mentioned above, a declaration of enforceability is not required, and a defendant cannot appeal against the issuing of an EEO certificate.
Enforcement of a Judgment in a non-EU Regulation/ Convention Country
If a judgment creditor seeks to enforce judgment in a non-EU Member State or country with no bilateral agreement, they will have to rely upon common law principles or civil code depending on the jurisdiction.
In Ireland for example, it is necessary to rely on the Irish common law rules of enforcement which permit the enforcement of foreign judgments. These common law rules set out certain prerequisites;
- Judgment must be for a definite sum
- Judgment must be final and conclusive.
- Judgment must be given by a court of a competent jurisdiction
The last requirement is the most difficult to fulfil. The foreign court must have had competent jurisdiction. Therefore, an Irish based defendant must have been present in the foreign country at the time of institution of proceedings. In the case of a company, this can be fulfilled if it has a foreign branch or has assets in the foreign country. It may also be fulfilled if the parties have an exclusive jurisdiction clause submitting to the jurisdiction of the courts of a particular country.
Recognition and enforcement of judgments against a debtor can be difficult, time consuming and more expensive in a non-EU country or a country with which there is no bilateral agreement in place. In these circumstances, courts must commonly assess aspects of foreign law with which they are unfamiliar. It is also less predictable due to judicial intervention and the respondent can seek to defend and draw out proceedings.
Other Creditors
European Order for Payment (EOP)
Regulation 1896/2006 established the European Order for Payment procedure. It applies to civil and commercial matters meaning both individuals and businesses can use the EOP. It is for cross-border uncontested claims for money due and owing to the claimant. The claim may also include interest and other costs, including legal costs. There is no upper limit to the monetary value of a claim under the EOP.
The procedure is relatively straightforward and can be completed without legal advice. EOP applies to all Member States (with the exception of Denmark), as well as members of the EFTA, such as Switzerland, Norway, Iceland and Liechtenstein. Cross-border means that it can only be used where the creditor is in one EU Member State and the defendant is in another EU Member State.
Claimants lodge an application form, which can be found online. The request must be sent to a competent court. The competent courts for the EOP are those that have been designated by the Member States and officially notified to the Commission. Member States can modify notifications at any time; therefore, the current notifications must be checked when applying for an EOP.
The Master of the High Court is designated by S.I. No. 525/2008 - European Communities (European Order for Payment) Regulations 2008 to assess the claim. The Master assesses whether the application has fulfilled requirements such as the description of the evidence and jurisdictional issues. If the application form is deemed insufficient, the applicant may rectify it. The Master has the power to reject the application if the claim is clearly unfounded or if the claimant fails to respond to a request for modification within the required time. No right of appeal lies against rejection of an application; however, the claimant may issue a fresh application for another EOP.
If the Master is satisfied with the application, he will issue the EOP. The EOP states that the respondent may pay the amount sought or file a statement of opposition within 30 days of the service of the order. If no Statement of Opposition is lodged within the specified time, the Court must declare the EOP enforceable. The EOP is served on the defendant in accordance with the national law of the State in which service is to be effected. The claimant should also provide the competent court or authority in the Member State of enforcement with a copy of the order, as declared enforceable by the court of origin. The courts of the Member State where enforcement is required cannot review the EOP as to the substance or the procedures that led to the issuing of the order.
For Irish creditors, the Irish courts do not have any role in executing the EOP (i.e. in recovering the sum due to you) and creditors may need to instruct Irish solicitors to assist in that regard.
If the defendant lodges a notice of opposition then, depending on the amount claimed, the case will continue before the courts of the country of origin, in accordance with rules of ordinary civil procedure. The EOP is an attractive option to claimants seeking judgment for uncontested claims in another EU Member State given its cost effectiveness.
European Small Claims Procedure
Regulation 861/2007 established the European Small Claims Procedure (ESCP). ESCP applies to civil and commercial matters, meaning both individuals and businesses can use it. ESCP applies where the value of a claim does not exceed €5,000, excluding interest and expenses. The Regulation applies between all Member States of the EU with the exception of Denmark.
The relevant application form is available online and can be completed and submitted electronically. In Ireland, the Small Claims Registrar provides the service through the District Court. The court fee is currently €25. Again, the procedure is relatively straightforward and can be completed without legal advice.
The claim form is served on the defendant by post. The defendant has 30 days to respond. If the defendant does not respond to the claim within 30 days of service, the court will grant judgment on the claim.
Where the defendant contests the claim, the Registrar will attempt to negotiate a solution between the creditor and debtor. If this fails, the claim is referred to the District Court for judgement.
The District Court gives its judgement within 30 days of receiving the response from the defendant. If there is a counterclaim, the judgement is given within 30 days of the defendant’s response.
However, the court can decide to ask for further information from either or both parties (30 days to reply). It may hold an oral hearing at either the defendant’s or claimant’s request.
Enforcement of the judgement is governed by the law of the EU Member State where you seek to have the judgement enforced. You are required to provide to the court in the Member State an original copy of the judgement and the certificate of judgement
The defendant can appeal against the judgement. The court in the Member State of enforcement can refuse to enforce the judgment where the judgment is irreconcilable with an earlier judgment on the same matter.
ESCP introduces standard forms to be used by parties across the EU and establishes time limits in order to speed-up litigation. As such, the procedure is relatively quick and inexpensive compared to other debt recovery procedures.
Conclusion
Due to the inability of many sectors of the economy to operate as normal, bad debts are going to increase on a national, EU and international basis as a result ofCovid-19.
Judgements against debtors in EU states and certain other states are relatively easy to secure due to the above mentioned Regulations. The introduction of BIR enabled the use of a common certificate to accompany a judgment issued in an EU Member State, that is automatically recognised in any Member State and any signatory State to the Lugano Convention. The court’s powers are limited to assessing whether the documents submitted in the application are in accordance with the provisions of BIR. As illustrated above, the EEO system provided another useful method for a creditor where the claim is uncontested. Enforcement is automatic when a copy of the judgement and certificate are supplied to the relevant courts of the Member State in which enforcement is sought.
The ESCP provides time limits and introduces easy to access claim forms across the EU. It provides an efficient mechanism where the amount claimed is below €5,000 and can be used where the claim is disputed or undisputed. The EOP system is another efficient option for an uncontested cross border EU claim.
The matter is more complicated for a creditor if they have a claim against a debtor located outside of the EU and there is no bilateral agreement with the country where enforcement is sought. A judgment creditor will be forced to rely upon common law principles or depending on the jurisdiction, the relevant provisions of the civil code that deal with recognition and enforcement of foreign judgments. The collection of these debts is therefore generally more expensive as legal input is undoubtedly required and a cost/benefit analysis should be undertaken before embarking upon any debt collection procedure.