Banks operating across jurisdictions face a several questions as to legal exposure when a dispute is actioned across borders. Unlike a domestic claim, a cross-border dispute forces a bank to consider not only on its merits, but also to fathom where a claim may be brought, which jurisdiction’s laws will apply, whether any judgment obtained will be capable of enforcement, and whether the opponent’s assets can, as a practical matter, be reached at all. We consider the principal factors that a bank, advised by its litigation and regulatory teams, might weigh when assessing litigation risk in a cross-border context governed, in whole or in part, by the law of England and Wales, drawing on the framework established by statute, treaty, and select case law.
Jurisdiction
The starting point for any litigation risk assessment is jurisdiction: which court, or which arbitral tribunal, has the power to hear the dispute? For a bank, this question typically begins with the terms of the underlying facility agreement, guarantee, or derivatives documentation, the great majority of which will contain an express jurisdiction clause. Where the contract designates the courts of England and Wales, and no party disputes the validity of that clause, jurisdiction is generally straightforward. Difficulty arises where a counterparty is domiciled abroad, where assets or events touch several jurisdictions, or where a competing set of proceedings has been commenced elsewhere, sometimes deliberately, in order to frustrate the favoured.
Where a bank wishes to bring proceedings in this jurisdiction against a defendant who is not present within the jurisdiction, it must obtain the court’s permission to serve the claim outside England and Wales. The claimant should establish three matters: a good arguable case that the claim falls within one of the jurisdictional gateways set out in Practice Direction 6B, that there is a serious issue to be tried between the parties on the merits, meaning a real, as opposed to fanciful, prospect of success, and that this jurisdiction is the proper place in which to bring the claim. The gateways include, among others, claims founded on a contract governed by the law of England and Wales, claims in respect of acts committed within the jurisdiction, and claims where the contract itself contains a jurisdiction clause in favour of these courts. A bank seeking permission will prepare a robust application supported by witness evidence, and it should expect the opposition may challenge that application, whether by contesting the existence of a gateway or by arguing that the forum is not appropriate to bring the dispute, a doctrine traditionally described as forum non conveniens.
For banks operating in the finance sector specifically, the position was, until recently, complicated by the departure of the United Kingdom from the European Union. Before the end of the transition period, jurisdiction as between the United Kingdom and European Union member states was governed by the Recast Brussels Regulation, which provided relatively automatic rules as to which member state’s courts should hear a dispute. That regime no longer applies to proceedings commenced after 31 December 2020. In its place, the United Kingdom has relied principally upon the Hague Convention on Choice of Court Agreements 2005, to which it acceded in its own right from 1 January 2021, and upon the common law rules described above. The 2005 Convention gives effect to exclusive jurisdiction clauses as between contracting states, meaning that where a facility agreement contains an exclusive English jurisdiction clause, courts in other contracting states are, in principle, obliged to respect it and to decline jurisdiction themselves. Its scope, however, is narrow: it does not extend to non-exclusive jurisdiction clauses, nor, on one reading, to the asymmetric jurisdiction clauses commonly found in loan and bond documentation, under which a lender may sue in any jurisdiction while the borrower is confined to a single forum. A bank assessing litigation risk must therefore look carefully at the precise drafting of its jurisdiction clause, since the protection available under the 2005 Convention may not extend to every form of clause.
Governing Law
Jurisdiction determines where a dispute may be heard; governing law determines which country’s substantive law will be applied to decide it. For contracts entered into by English banks, the parties will typically make an express choice of law, most commonly English law, in the finance documentation itself. That choice is given effect in England and Wales, and in European Union member states, by the retained version of the Rome I Regulation, that is, Regulation (EC) No 593/2008 on the law applicable to contractual obligations, which continues to apply in domestic law following its conversion into retained European Union law by section 3 of the European Union (Withdrawal) Act 2018, subject to technical amendment by the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019. Because Rome I operates on a universal basis rather than on reciprocity between contracting states, an express choice of English law will generally continue to be respected by the courts of European Union member states even though the United Kingdom is no longer a member state itself. The equivalent instrument for non-contractual obligations, the retained Rome II Regulation, that is, Regulation (EC) No 864/2007, governs claims founded in tort, such as claims for fraud or misrepresentation that arise alongside a contractual claim. For a bank, the practical consequence is that an express and properly drafted governing law clause remains one of the more stable elements of cross-border risk assessment, notwithstanding the wider disruption to jurisdiction and enforcement caused by the departure of the United Kingdom from the European Union.
Enforcement
A litigation risk assessment that stops at the question of liability is incomplete, since a bank’s genuine concern is recovery. Even a favourable judgment is of limited value if it cannot be enforced against a counterparty’s assets, and the position for enforcing a foreign judgment in England and Wales, or an English judgment abroad, has become materially more complex since the departure of the United Kingdom from the European Union removed the automatic recognition previously available under the Recast Brussels Regulation and the Lugano Convention.
Three principal regimes now apply. First, where the judgment falls within the Hague Convention on Choice of Court Agreements of 30 June 2005, meaning it was given by a court designated in an exclusive jurisdiction clause and remains enforceable in the state of origin under Article 8(3) of that Convention, the judgment creditor may apply, without notice, for registration of the judgment in the High Court under Part 74 of the Civil Procedure Rules and section 4B of the Civil Jurisdiction and Judgments Act 1982. On registration, the foreign judgment takes effect as though it were a judgment of the English court. Under Article 8(2), there is no review of the merits of the underlying decision, and recognition or enforcement may be refused only on the exhaustive grounds set out in Article 9, which include procedural fraud and a breach of the requested state’s fundamental principles of procedural fairness.
Second, from 1 July 2025, the newer Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, ratified by the United Kingdom on 27 June 2024, has begun to widen this regime considerably, since, unlike the narrower 2005 Convention, it is not confined to judgments given pursuant to an exclusive jurisdiction clause and it extends, notably, to the asymmetric jurisdiction clauses often used in cross-border finance documentation.
Third, where neither Hague instrument applies, a judgment creditor is generally left to the common law, under which a foreign judgment may be enforced by bringing a fresh action in England on the judgment as a debt, provided the foreign judgment is final and conclusive, was given by a court of competent jurisdiction, and is not tainted by fraud or contrary to English public policy. A small number of bilateral treaties and statutory schemes, including the Foreign Judgments (Reciprocal Enforcement) Act 1933 and the Administration of Justice Act 1920, continue to apply as between England and Wales and a limited list of other states, and a bank’s advisers will need to check, jurisdiction by jurisdiction, which of these regimes, if any, is available before litigation is commenced.
Arbitration
Given the fragmentation of the post-Brexit enforcement landscape, many banks have tended to prefer arbitration clauses for cross-border finance and derivatives disputes, particularly where the counterparty’s assets are located in jurisdictions with no reciprocal enforcement arrangement with the United Kingdom. The principal advantage of arbitration lies in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 and in force from 7 June 1959, to which the great majority of the world’s trading nations, including the United Kingdom, are contracting states. Under the New York Convention, a contracting state undertakes to recognise arbitration agreements and to enforce arbitral awards made in other contracting states, subject only to a limited and exhaustive list of grounds for refusal set out in Article V, such as incapacity of a party, invalidity of the arbitration agreement, or a serious procedural irregularity. Because the Convention rests on near-universal ratification, a bank with a properly drafted arbitration clause and an award in its favour will often find enforcement considerably more straightforward across multiple jurisdictions than would be the case for a court judgment reliant on the more fragmented network of judgment-enforcement treaties described above.
Sovereign Opponents and State Immunity
Where a bank’s counterparty is a state, a central bank, or a state-owned entity, litigation risk assessment must also address the doctrine of state immunity. In England and Wales, this is governed by the State Immunity Act 1978, which received royal assent on 20 July 1978 and came into force on 22 November 1978. Section 1 of the Act provides that a state is generally immune from the jurisdiction of the courts of the United Kingdom unless one of the exceptions set out in the Act applies, including, under section 2, where the state has submitted to the jurisdiction, and, under section 3, where the state has entered into a commercial transaction. The Act adopts the doctrine of restrictive immunity, distinguishing between acts undertaken by a state in the exercise of sovereign authority, which remain immune, and acts of a commercial nature, which do not. The Act draws a further, and for banks a particularly important, distinction between immunity from adjudication, that is, the ability to bring proceedings against a state at all, and the more restrictive immunity from enforcement under section 13, that is, the ability to seize a state’s property to satisfy any judgment or arbitration award obtained, which section 13 excludes unless the state has given its written consent or the property is in use for commercial purposes. Even where a bank succeeds in establishing jurisdiction and obtaining judgment against a sovereign borrower, section 14(4) of the Act affords particular protection to the property of a state’s central bank, which is not to be regarded as in use or intended for use for commercial purposes for the purposes of section 13, and is accordingly immune from enforcement unless the central bank itself has given its written consent. A bank lending into a jurisdiction where the borrower is, or may be treated as, an emanation of the state should therefore factor the practical difficulty of enforcement against sovereign assets into its risk assessment from the outset, rather than treating it as a matter to be addressed only once a dispute has already arisen.
Interim relief and asset preservation
Finally, litigation risk assessment must take account of the practical steps available to preserve an opponent’s assets pending resolution of a dispute, since a judgment or award obtained after a counterparty has dissipated its assets is of little value. The English courts have long been prepared to grant freezing injunctions, including worldwide freezing orders, restraining a respondent from dealing with assets pending trial, provided the applicant can demonstrate a good arguable case, a real risk that assets will otherwise be dissipated, and that it is just and convenient to grant the order.
Because a worldwide freezing order restrains assets wherever they are located, English courts require correspondingly cogent evidence of dissipation risk before granting one. For a bank facing an opponent suspected of moving assets out of reach, the availability and enforceability of such relief, both within England and Wales and in the jurisdictions where the counterparty’s assets are actually located, forms an integral part of any considered assessment of litigation risk.
Conclusion
Litigation risk in a cross-border banking dispute cannot be reduced to an assessment of the merits the claim. A bank must consider, in sequence, whether an English court or an arbitral tribunal has jurisdiction to hear the dispute, which country’s law will govern the substantive issues, whether any judgment or award obtained can, as a matter of law and of practical reality, be enforced against the assets, and whether those assets can be preserved pending final resolution. The departure of the United Kingdom from the European Union has added a further layer of complexity to this assessment, replacing what was once a relatively harmonised regime for jurisdiction and enforcement within Europe with a patchwork of Hague instruments, bilateral treaties and common law rules whose application will vary from one counterparty jurisdiction to the next. It is this combination of factors, considered together rather than in isolation, which informs a bank’s assessment of the true risk presented by a cross-border dispute.
