Legal effects of settlements in EU private international law

Notion of the concept of a settlement in private international law

In private international law the concept of ‘settlement’ is mentioned as one of the documents which may end a dispute and be enforced in cross-border civil and commercial matters (Regulation (EU) No 1215/2012, Article 59; Hague Conference on Private International Law, 2019, Article 11). The ‘settlement’, however, seems to be not a strictly ‘legal’ concept, as it may refer to a financial, geographical, archaeological or social phenomenon. The Cambridge Dictionary suggests that the word ‘to settle’ means to reach a decision or an agreement about something, or to end a disagreement. Thus, this notion is related to the action of reaching the result and/or to resolve a matter to the end (resolution).

In civil proceedings, various expressions may be referred to as ‘settlement’; namely judicial settlement, court settlement, peaceful agreement and so on. However, do they bear the same meanings? Is a settlement a contract between the parties or a judicial act approved by the court to end litigation? It seems that the notion of the ‘settlement’ in private international law was found for the first time in the Convention of 25 November 1965 on the Choice of Court. Article 10 of this convention established that settlements made in the chosen court in the course of proceedings there, pending which are enforceable in the state of that court, shall be treated in the same manner as decisions made by that court. Later, ‘settlement’ was also introduced in the first codification of the rules of private international law in the EU, namely in the Brussels Convention of 1968, and now is found in Brussels Ibis which regulates the main elements of cross-border litigation in civil matters in the EU.

Recent developments in private international law are reflected in the Convention, which provides the mechanisms of recognition and enforcement of judgements in cross-border civil disputes. It seeks to facilitate effective recognition and enforcement of foreign judgements in civil or commercial matters, providing greater predictability and certainty in relation to the global circulation of foreign judgements (Hague Conference on Private International Law, 2019). The rules on recognition and enforcement of foreign judgements in the Convention reflect the current development of private international law and also raise the challenges of the coherent application of the rules on recognition and enforcement in Brussels Ibis.

The original proposal to adopt the Convention was sent by the United States in 1992 with the aim to harmonise rules on jurisdiction, recognition and enforcement (Hague Conference on Private International Law, 1992). The preliminary draft to the Convention allowed settlements to be ‘recognised, declared enforceable or registered for enforcement in the state addressed under the same conditions as judgments’ (Hague Conference on Private International Law, 2000, Article 36). Both recognition and enforcement were allowed only if the settlement is made before the court of a Contracting State (Hague Conference on Private International Law, 2000: 122). However, after a series of informal meetings and negotiations, the modified draft reflects only enforcement of the settlements, and not recognition (Hague Conference on Private International Law, 2015, Article 10).

The Convention provides that judicial settlements (fr. transactions judiciaires) which the court of a Contracting State has approved, or which have been concluded in the course of proceedings before the court of a Contracting State, and which are enforceable in the same manner as a judgement in the state of origin, shall be enforced under this Convention in the same manner as a judgement (Hague Conference on Private International Law, 2019, Article 11). It is the only provision in the Convention related to judicial settlements and how they should be dealt with in cross-border civil matters.

The Convention does not provide a definition of settlement, but rather establishes the rule on its enforcement. As a result, the settlement has to be approved by the court and has to have the same effects as the judgement in order to be enforceable in the requested state. However, it remains unclear to what effects the reference is made. The Explanatory Report to the Convention makes reference to the definition, namely that a judicial settlement is an agreement concluded before, or approved by the court, in which the parties settled their dispute by making mutual concessions (Garcimartín and Saumier, 2019, para. 296). Therefore, in order for the parties’ agreement to get the form of the settlement, it must be approved (or concluded) before the court. Nevertheless, it is unclear whether a settlement should be included in the judgement ending civil litigation, or whether it is a separate document only reviewed by the court and approved by the stamp or similar formality. It also does not establish any material requirements for the settlement, leaving it for the national law of the state of origin.

In EU private international law, Brussels Ibis holds a landmark place in the arena of cross-border civil litigation as the main legal act which regulates the questions of jurisdiction and circulation of judicial decisions in cross-border civil matters across the EU. It refers to the court settlement as a settlement which has been approved by the court of a Member State, or is concluded before the court of a Member State in the course of proceedings (Regulation (EU) No 1215/2012, Article 2(b)). Brussels Ibis deals with settlements which contain the ‘court’ element; however, it provides no guidance on how a settlement has to be drafted, approved, what information it should contain, whether it should be involved as an integral part of the judgement which ends the litigation, or drafted as a separate procedural document and only approved by the court in the state where the litigation takes place.

The divergence of the rules on civil proceedings in the EU Member States may also lead to practical challenges of the notion of a settlement. The CJEU in the Charles Taylor Adjusting case reveals the example of misapplication of a legal term in the multilingual environment of the EU, which lead to confusion of ‘settlement’ with ‘judgement’. The dispute was initiated when the ‘Alexandros T’ vessel sank and disappeared in South Africa (CJEU, C-590/21, 2023, para. 8). After some disagreements regarding indemnity payment, the owner of the vessel and insurers concluded settlement agreements, which the court in the UK ratified and ordered to suspend any further proceedings relating to the case concerned and arising from the same action (paras. 9–10). However, the new action was brought in Greece by the owners of the vessel against legal and technical consultants of the insurers for allegedly spreading rumours about defects in the vessel (paras. 11–12). In response, legal and technical consultants filed a suit in the UK, claiming that the new proceedings were in breach of the settlement and prohibition to litigate regarding the same matter (paras. 13–14). After the High Court was satisfied of this claim and it was recognised in Greece, the appeal declared it as ‘quasi anti-suit injunction’ and violation of public policy (paras. 15–17). This led to the question of whether a court order to suspend further litigation on the same matter may be qualified as public policy violation.

The CJEU was asked to interpret public policy violation as the ground for non-recognition of foreign judgement under Brussels Ibis (para. 1). While the court discussed the peculiarities of the anti-suit injunction and its compatibility with the EU legal framework, this judgement also sparked considerations regarding the linguistic aspects of ‘settlement’. The CJEU established that the settlement agreement which is lawfully concluded by the court of the Member State which gave that judgement may bar the proceeding on the same subject matter before a different court (para. 41). In this sentence, the court refers to the settlement agreement as to the judgement. At the same time, in the French version of the decision, the ‘judgement’ refers to the ‘décision’. The word ‘decision’ in this case reflects the essence of the legal act issued by the court. The application of the term ‘judgement’ brings misleading effects as it confuses different types of judicial decisions.

This linguistic clash between the words ‘judgement’ and ‘decision’ crystallises the hurdles of unification of legal rules in the multilingual environment of the EU. Since the judgement in the Charles Taylor Adjusting case was rendered in French language (the original language), this version contains the primary (original) meaning. When the terms in private international law are unclear, or have different linguistic meanings, it may hamper the effectiveness of dispute resolution and recognition and enforcement of acts which end litigation in foreign jurisdictions. This effect is especially detrimental in the illustrated case, given the uncertainty regarding the nature of the settlement and its correlation with the judgement.

However, such unclarities could be mitigated by providing reference to the notion and effects of the settlement. The concept of the settlement which covers its forms could shed light on the effects of this judicial decision. In this case, it would be clear which settlement agreements are covered by the existing legal framework and which effects they could possibly receive.

To sum up, it seems that under the current framework of private international law, settlement as the dispute resolution instrument may be perceived as the agreement which brings a legal dispute to its end. The form of its conclusion varies as it may be concluded at any stage of the proceeding, in a different form of proceeding and it may be approved/concluded by the court. Regardless of its form and how it is mentioned in private international law, the anatomy of each settlement lies in its contractual nature, meaning that it reflects the will of the parties to end litigation.

Ambiguous effect of res judicata of a settlement in cross-border litigation

A settlement is an amicable agreement to end a civil dispute (in part or in whole). The agreement between the parties to end the dispute also means that similarly to a judgement, it determines how the dispute is resolved and changes the legal relations of the parties. The conclusion and its confirmation by the court also mean that it becomes a final resolution of how the dispute between the parties ends.

Res judicata is the general principle of law which is closely related to legal certainty and constitutes one of the major elements of a fair trial as the core element of the dispute resolution. However, neither Brussels Ibis, nor the Convention addresses the question of the finality (the effect of res judicata) of a settlement. The settlement under the Convention can be enforced only when it is approved/concluded before the court of the state of origin and is enforceable as a judgement in the state of origin (Hague Conference on Private International Law, 2019, Article 11). However, does it mean that a settlement acquires the effect of res judicata and precludes further litigation between the same parties, subject matter and cause of action in another jurisdiction?

The challenges of the understanding of finality (the effect of res judicata) of a settlement were addressed in the preparatory documents of the Convention. It seems that the position of the drafters of the Convention indicates that the legal effects of a settlement are not linked with the effect of res judicata. The Explanatory Report to the Convention contains limitation as regards to settlements’ finality. It states that ‘judicial settlement from another state cannot be invoked in the requested state as a procedural defence to a new claim, when it aims to extend the judgment’s effects outside the state of origin’ (Garcimartín and Saumier, 2019, para. 298). Thus, the Convention does not couple a settlement with bar to initiate the new set of litigation between the parties in another state where the settlement has been reached. However, does the phrasing ‘procedural defence to a new claim’ refer to the precluding effect of the settlement to bar opening of the proceedings in another state? If so, it means that the settlement cannot acquire finality and res judicata effect since the parties are not barred from further litigation over the same subject matter.

One of the reasons why under the Convention a settlement cannot be used as a procedural defence against a new claim in a different jurisdiction is because different states have different approaches towards granting the effect of res judicata to the settlements. For instance, when one party seeks to initiate the same dispute which has been settled by the settlement in the state of origin, another party may not ask to preclude the litigation on the basis of the recognition of a settlement as having the effect of res judicata. When one state accords res judicata to judicial settlements, there is no guarantee that another state does the same and when one of the parties seeks recognition of a settlement in a foreign state, it might be refused. This leads to failed expectations of the parties in the proceeding and reduces the aim to facilitate free circulation of settlements and incentivise the parties to settle the dispute amicably. To avoid such risks, the Convention creates a regime where a settlement lacks the effect of res judicata, unless provided under the national law. Therefore, the Convention intentionally prevents clashes between different effects on this substantial matter, but at the cost of the effectiveness of a settlement as an amicable way of dispute resolution.

At the same time, the Convention allows to use the settlement to prove that the matter has been already resolved if it is possible under the national law (Garcimartín and Saumier, 2019, para. 298). As a result, when national law grants the effect of res judicata to the judgement or another act ending litigation (such as a settlement), it also allows recognition (without enforcement) in case a party has to prove that the matter has been already resolved. However, if national law does not provide such effect the party cannot use this option and litigation risks arise again.

The Convention does not preclude a court from granting the effect of res judicata to a foreign judicial settlement under national law since such agreements have some, or even all, of the effects of a final judgement (Garcimartín and Saumier, 2019, para. 298). Although the Convention treats a settlement as an agreement, it still attributes the effect of the judgement, namely finality. Therefore, in order to determine whether the effect of res judicata can be attributed to the settlements, national law steps into play.

The different approach towards the effect of res judicata, however, seems to be found in EU private international law. Under Article 59 of Brussels Ibis, a court settlement which is enforceable in the Member State of origin shall be enforced in the other Member States under the same conditions as authentic instruments. Thus, the regulation only provides the option of enforcement of a settlement and is silent on the possible effects of res judicata. The Solo Kleinmotoren heard by the CJEU stands as a proper example of the practical challenges of the legal effects of a settlement in EU private international law. In this case the court was asked to interpret the notion of judgement and the legal effects of court settlement under the Brussels Convention. A dispute arose between Solo Kleinmotoren, a company incorporated in Germany, and Emilio Boch, the owner of the company ‘Solo’ which re-sells agricultural machinery (CJEU, C-414/92, 1994a, para. 2). Mr. Boch was selling machineries supplied by Solo Kleinmotoren in Italy until ‘Solo Italiana’ began to distribute Solo Kleinmotoren’s machineries (para. 3). As a result, Mr. Boch lost supplies and filed two actions, where the first was for breach of supplies contracts with Solo Kleinmotoren, and the second concerned infringement of the ‘Solo’ tradename and unfair competition (paras. 3–5).

The peculiarity of this case is that the first dispute was resolved by a settlement concluded in Germany, in which Mr. Boch and Solo Kleinmotoren agreed to resolve all their claims regarding business activities (para. 4). When subsequently Mr. Boch filed another action in Italy, Solo Kleinmotoren unsuccessfully tried to appeal it, but then brought a cessation on the effect of the settlement to preclude recognition and enforcement of a judgement given on the same subject matter and between the same parties (paras. 5–9). The principal question brought to the CJEU was whether the settlement reached between the parties acquires the legal effects of a judgement and shall also be regarded as the bar to start new litigation in another jurisdiction (res judicata effect). Under Article 27(3) of the Brussels Convention a judgement shall not be recognised if the judgement is irreconcilable with a judgement given in a dispute between the same parties in the state in which recognition is sought. The court was asked whether the settlement reached between the parties in the civil case may amount to the judgement and create the res judicata effect to bar further litigation over the same dispute.

The CJEU argued that the term ‘judgement’ is used solely for judicial decisions actually given by a court or tribunal of a Contracting State, precluding treatment of a court settlement as a judgement given by a court or tribunal (para. 15; para. 20). Moreover, interpretation otherwise would constitute an obstacle to achieve one of the fundamental aims of the Convention, namely free circulation of judgements (para. 20).

As a result, the CJEU established that: ‘In order to have effect of a “judgment”, the decision must emanate from a judicial body deciding on its own authority on the issues between the parties. That condition is not fulfilled in the case of a settlement, even if it was reached before a court and brings legal proceedings to an end. Settlements in court are essentially contractual since they depend first and foremost on the parties’ intention’ (para. 37). While interpreting the effects of the settlement, the CJEU highlighted that even if it was reached before the court and brings dispute to the end, it cannot get the same effects as the judgement. The reason lies in the contractual nature of the settlement, illustrating the parties’ will rather than the power of judicial bodies.

This judgement in the Solo Kleinmotoren case still raises the question as regards the relevance of this approach nowadays. Although the Brussels Ibis mentions that settlement shall be enforced under the same rules as an authentic instrument (Article 59 of the Brussels Ibis), it is silent about whether the settlement bars further litigation between the parties and thus may be invoked as the ground for non-recognition of a judgement under Article 45(1)(c) of the Brussels Ibis. Following the rationale of the CJEU in the Solo Kleinmotoren case, one may argue that the court deprived the settlement of the effect of res judicata because of its contractual nature. Nevertheless, such position triggers the question of whether it is compatible with the aim of a settlement and the effectiveness of the rules of cross-border litigation.

To sum up, the finality of the settlement and its res judicata effect remain rather unclear in private international law. Brussels Ibis similarly to the Convention does not grant res judicata to judicial settlements, meaning that settlement may not preclude further litigation between the same parties on a similar matter. Although the Convention allows to use settlement to prove that the matter has been already resolved, it still depends on the national law of the state of origin.

Challenges of the lack of recognition of a settlement

In private international law, enforcement and recognition of an enforceable document play a major role to determine the effects of legal acts ending litigation and their powers in a foreign jurisdiction in which those effects shall be employed. When a judgement is rendered in the state of origin, it may be recognised and enforced in other states (Article 36(1), 39 of the Brussels Ibis; Article 4(1), Article 5(1) of the Convention). Both Brussels Ibis and the Convention only couple the effects of a settlement with enforcement, but not recognition. Indeed, a settlement depends on the parties’ intentions. When it is approved by the court, it passes the test on compliance with public policy and becomes a judicial document which brings legal effects. This raises questions about the procedural aspects in cross-border civil litigation. Does enforcement of a settlement in a foreign jurisdiction include recognition? How it is possible to enforce the settlement without recognition? Does a dispute resolution by a settlement preclude the opening of a similar dispute in another jurisdiction?

The exclusion of recognition of judicial settlements from the scope of the Convention is recognised in the first attempt to harmonise the rules on recognition and enforcement of judgements in the Convention of 1 February 1971 on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters. Article 19 of this convention established that settlements made in court in the course of a pending proceeding, which may be enforced in the state of origin, shall be enforceable in the state addressed under the same conditions as decisions falling within this Convention, so far as those conditions apply to settlements. Thus, the Convention provides only enforcement of a settlement, but not recognition.

Under the Brussels Ibis, a settlement may also be only enforced, but not recognised. To understand the consequences of such lack of recognition of a settlement, one may refer to the case law of the CJEU dealing with the effects of the recognition of the judgement in a foreign jurisdiction. The dispute in the Hoffmann case resulted from the obligation to pay monthly maintenance to the spouse in the case of divorce (CJEU, C-141/86, 1988, para. 2). Since the spouses lived separately in different states, the question arose whether the judgement which seeks recognition in another state may get the same effects in the state of origin? The CJEU in this case established that ‘recognition must have the result of conferring on judgments the authority and effectiveness accorded to them in the state in which they were given’ (para. 10). However, it does not hold true in the case of settlements. Brussels Ibis is silent on recognition of the settlements and on how to determine the effects of a settlement in other Member States.

Under the existing legal framework of Brussels Ibis, enforcement of a settlement in cross-border civil litigation depends on the national law of the Member States where it was concluded and confirmed. When a settlement has to be enforced in a foreign state, it may face divergent national law rules of the Member States and this may diminish the effectiveness of a settlement since the way of resolution of the dispute in a settlement may not be known in a foreign jurisdiction where it should be enforced.

The parties to the dispute should bear in mind that if the need for non-voluntary enforcement of a settlement arises in a foreign jurisdiction, it should possess the same effects as in the state of origin. This situation may deprive a settlement of the practical effects, since on the one hand the current legal framework facilitates cross-border judicial cooperation, multilateral trade and investments, but on the other hand maintains hurdles of free circulation of settlements (Regulation (EU) No 1215/2012, Recital 3; Hague Conference on Private International Law, 2019, Preamble). Therefore, when the parties decide to conclude peaceful agreement in a cross-border litigation, they face risks of its recognition and prevention of further disputes on the same matter and whether a settlement in a foreign jurisdiction would bring the same legal effects as in the state of origin. Would it be possible to recognise the settlement in foreign jurisdiction? Would it get the same effects as in the state of origin? Would it be possible to prevent re-litigation of the same matter? The answers are not clear as it depends on the national law of each state.

These aspects of a settlement under the Brussels Ibis reveal that a settlement may lose effectiveness when it comes to enforcement. However, the effective enforcement of a settlement may bring positive impact for the resolution of cross-border disputes. Increase of the disputes resolved by settlement would positively affect litigation of each jurisdiction. Starting with the courts, they would be released from long-lasting cases and would increase efficiency. Parties may save time and resources which they are required to spend in the course of litigation. Above all, this would promote settlements as a risk-free instrument of dispute resolution, where parties are free to negotiate the possible outcomes.

Another challenge related to the legal effects of a settlement may be the lack of a common notion of what a settlement is under EU law. Since the Brussels Ibis establishes that a settlement can be enforced only when it is enforceable in the state of origin, then the common understanding should be found under the framework of this regulation. The concept of a settlement is divergent under national law and a common notion of a settlement may be needed to incentivise the parties to conclude it and facilitate its circulation. This would include the definition and the form of how it should be concluded and approved in the state of origin. Whether it should be an agreement approved by the court or the court’s decision based on the agreement; it should be sealed by the court or fully issued by the court; place of concluding of agreement would also matter for the unified form.

When the common notion of a settlement is reached, the burden for its compliance with requirements for recognition and enforceability would lie on the state where it was reached (confirmed), which should be held as the state of origin. Namely the court of the state of origin while confirming a settlement should check whether it is recognisable and enforceable in the same manner as the judgement. Only after reaching these effects in the state of origin, can the settlement be granted the same effects in another state (the requested state). Therefore, the judicial bodies of each state would ensure that when they grant certain effects to the settlement in their jurisdiction, it should get the same effects in another jurisdiction.

Not every state may be ready to rely on the judicial standards and the means of solving the civil dispute of another state. At the same time, the existing legal framework under Brussels Ibis lacks harmonisation of the settlements’ circulation in cross-border civil proceedings. As a result, it deprives settlements of effectiveness, which they could have brought to the cross-border civil litigation. Moreover, foreseeability of the legal effects of a settlement would create a trustworthy platform for the parties to negotiate the possible outcome with the opportunity to prevent further re-litigation of the same matter. Therefore, a proper balance needs to be found between the common understanding of a settlement, its effective application for the common benefit of free movement of judgements and respect of sovereignty of the Member States.

To sum up, Brussels Ibis does not provide recognition of settlements, but only enforcement. This established practice is justified by different effects of settlement in different states. However, recognition of settlements would unlock the potential of this dispute’s resolution mechanism and increase the effectiveness of settlement, release the burden from the court and provide guarantees for the parties. At the same time, this approach would be beneficial on the background of established form and rules on free circulation of settlements in private international law.