Liquidity, Luxembourg, ESG – Must Be Fund Finance October 2021 | Issue 147 – Fund financing operations and enforcement of foreign judgments in Luxembourg | Cadwalader, Wickersham & Taft LLP
[guest author: Michael Mbayi]*
Luxembourg is a center of excellence for investment funds and the second largest fund domicile in the world after the United States. As such, it is a great place to observe the evolution of fund finance on a global scale, since Luxembourg funds are commonly involved in fund finance transactions.
One of the typical questions asked by lenders and senior advisers in a fund financing transaction involving Luxembourg investment funds concerns the enforcement of foreign judgments in Luxembourg.
In Luxembourg, concerning subscription facilities, there are generally three types of transactions:
- purely domestic fund financing operations, where the facility agreement is governed by Luxembourg law with a set of Luxembourg law securities;
- US-Lux cross-border transactions, where the credit agreement is governed by New York law with a security package under Luxembourg law (US-Lux Transactions); and
- Anglo-Luxembourg cross-border transactions, where the facility agreement is governed by the laws of England and Wales with a security package under Luxembourg law (Transactions England-Lux).
For the rest of this article, we will focus on cross-border transactions.
It is a question here of determining under which conditions a final judgment rendered by the courts of New York concerning the credit agreement would be recognized and enforceable in Luxembourg.
An enforcement procedure, instituted in particular by the Luxembourg Code of Civil Procedure (New Code of Civil Procedure) is necessary. In addition, Luxembourg case law provides specific requirements for the recognition of foreign judgments in Luxembourg.
First, the judgment must be final and duly enforceable in the courts of New York.
In addition, according to Luxembourg rules on conflicts of jurisdiction as well as under New York law, the courts of New York must have jurisdiction.
In addition, the proceedings in New York must have been conducted in accordance with the rules of New York law.
Also, the so-called rights of defense (defense rights) must have been complied with.
Another requirement is that the courts of New York have applied to the case the law designated by the Luxembourg rules of conflict law.
Finally, the content of the judgment may not be contrary to Luxembourg international public order or be rendered in the context of circumvention of the law (law fraud).
Since the UK left the European Union, the principle of reciprocal recognition and the simplified enforcement process no longer exist.
Therefore, there are generally two situations that arise. The first is when the installation agreement does not contain an exclusive jurisdiction clause. In this case, what we have described above regarding the judgments of the courts of New York applies. mutatis mutandis to the English judgment.
The second situation is where the installation contract contains an exclusive jurisdiction clause. In this case, the judgment would be recognized and enforceable in Luxembourg in accordance with the provisions of the Hague Convention of 30 June 2005 on choice of court agreements (the “Hague Convention”).
The New York judgment enforcement regime has been consistent. Regarding English court judgments, since Brexit, we have observed more jurisdiction clauses in English law facility agreements in order to benefit from the Hague Convention regime and fewer asymmetric jurisdiction clauses (that is to say, when a party can decide to appoint a court other than the one expressly determined in the establishment).
* Director | Wildgen