The rules used by Member State Courts dealing with the allocation of jurisdiction and the reciprocal enforcement of judgments have been updated for cases commenced after 10 January 2015. This article sets out the key changes.
On 10 January 2015, the Brussels I Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) (Regulation (EU) No. 1215/2012) (the “Recast Regulation”) came into force, replacing the existing Brussels 1 Regulation (Regulation (EC) No. 44/2001) (the “Old Regulation”). The Old Regulation set out the rules used by Member State Courts to determine whether they had jurisdiction to deal with a cross-border case and dealt with the reciprocal enforcement of judgments within the EU. The Recast Regulation is broadly similar to the Old Regulation, but there are some key changes in the following areas:
• Suing non-EU parties in the Court of an EU Member State
• Giving priority to Member State Courts which have been granted jurisdiction by an exclusive jurisdiction clause, even if they were not the Courts first seised.
• Staying proceedings in Member State Courts if favour of prior proceedings in non-Member State Courts
• The absolute exclusion of arbitration and proceedings relating to arbitration from the scope of the Recast Regulation
• Simplifying the procedure for the enforcement of a Member State judgment in another Member State
It is also worth noting that although the wording remains the same in many cases, the numbering of the articles of the Old Regulation has changed in the Recast Regulation. For example, Article 23 of the Old Regulation relating to jurisdiction agreements is Article 25 in the Recast Regulation.
New rules governing when non-EU parties can be sued in Member State Courts
The EU regime is primarily concerned with proceedings where the Defendant is domiciled in the EU. However, the Old Regulation gave effect to jurisdiction agreements set out in documents to which at least one party was domiciled in the EU, even if that party was not the Defendant, or where the Defendant submitted to the jurisdiction. The Recast Regulation has expanded the circumstances in which a non-EU domiciled Defendant can be sued in a Member State Court to the following two scenarios:
1. Non-EU domiciled Defendants can now be sued in a Member State if:
a. that Defendant is an employer whose employee habitually works in a Member state; or
b. that Defendant is a trader which directs their commercial activities to a Member State.
This reflects the goal of enhancing consumer and employee protections. Previously, under the Old Regulation the employer or trader could only be sued if they had a “branch, agency or other establishment” in that Member State. This allows the Member State Courts to deal with employers and traders who are involved with commerce in the EU without ever establishing formal EU base.
2. Under Article 25 of the Recast Regulation, a non-EU Defendant can now be sued in a Member State Court which has been granted exclusive jurisdiction under a jurisdiction agreement even where neither party to that agreement is domiciled in the EU.
The Recast Regulation also confirms that the law of the Member State Court which has been granted exclusive jurisdiction shall be used to determine whether that exclusive jurisdiction clause is valid, if this is subject to a dispute.
Greater powers for Member State Courts which have been granted exclusive jurisdiction
A significant cause for complaint under the Old Regulation was the issue of the so-called “Italian Torpedo.” This described the situation where proceedings were commenced at a early stage in one Member State Court, even though a jurisdiction agreement granted exclusive jurisdiction to the Court of another Member State. This meant that until the Court first seised resolved the issue of its own jurisdiction, no proceedings could continue in the Court which had been granted exclusive jurisdiction. The tactic was used by parties to delay and frustrate claims by issuing in the Courts of Member States such as Italy which were either slow, or would only deal with jurisdiction issues at the same time as determining the substantive issues (i.e. not until trial).
Under the Recast Regulation, there is now an exception to the basic “first seised” rule where there is an exclusive jurisdiction clause. This defuses the effect of the Italian torpedo because even if proceedings are commenced in another Member State Court, that Court must stay those proceedings if proceedings are commenced in the Court of the Member State which the parties had previously agreed would have exclusive jurisdiction (although the latter Court does not need to wait for the court first seised to formally order the stay before it can proceed). This stay will last unless and until the Member Court which has been granted exclusive jurisdiction determines that the jurisdiction agreement is invalid.
These changes have been heralded as a long overdue victory for parties seeking to enforce agreed jurisdiction clauses, and will provide some much needed certainty to the process.
Discretion to defer to non-Member State Courts which were first seised
Generally speaking, a Member Court cannot stay proceedings where it has jurisdiction in reliance on the Defendant’s domicile on the basis that a non-Member State Court would be a more appropriate forum.
Under the Recast Regulation Member State Courts have been granted discretion to stay proceedings in favour of non-Member State Courts, but only in the following limited circumstances:
• proceedings in the non-Member State Court must have been started first;
• the non-Member State judgment is capable of recognition and enforcement in the Member State; and
• the Member State Court considers that a stay is necessary for the proper administration of justice.
Only if all of these criteria are satisfied can the Member State Court stay its proceedings. The Member State Court may also lift any stay at any time if it is satisfied that the non-Member State proceedings are stayed or discontinued or will not be concluded in a reasonable time, or if the Member State Court considers that the continuation of its proceedings is necessary for the proper administration of justice.
There are concerns that interpretation of these provisions may lead to satellite litigation. There is also a real likelihood that this rule, with its high threshold and levels of discretion, could result in the same case being fought on two separate fronts, with the associated risks of two inconsistent judgments being handed down.
Exclusion of arbitration and arbitration related proceedings
The Old Regulation stated that “The regulation shall not apply to arbitration” and nothing more. However, this apparently simple statement was eroded by subsequent case law such that the jurisdiction of Member State Courts to deal with proceedings concerning arbitration disputes was unclear and itself the subject of satellite litigation.
The Recast Regulation makes the position clear (albeit in the recitals rather than the articles of the Regulation): It does not apply to arbitration itself (including claims about the establishment or powers of an arbitration tribunal; the conduct of the arbitration or the decision of awards of the arbitration, including appeals.) Member State Courts are not prevented from referring the parties to arbitration or determining that an arbitration clause is null and void, but that decision itself will not be subject to the provisions of the Recast Regulation. This means that any Member State Court can reach these decisions without having to defer to proceedings on the same issue commenced in any other Member Court, thereby preventing any risk of a “torpedo” action in another Member State Court on the preliminary issue of the validity arbitration agreement.
Simplification of reciprocal recognition and enforcement of Member State judgments
The Old Regulation specified the regime for the reciprocal recognition and enforcement of judgments between Member State Courts.
The position as regards the recognition of a judgment given by a Member State Court has not changed under the Recast Regulation: it must be recognised in all other Member States without any special procedure being required except in certain limited grounds where such recognition would be inconsistent with the public policy of the Member State in question.
However, the procedure for the enforcement of judgments has been simplified. Under the Old Regulation, it was necessary for a judgment creditor to apply as a preliminary step to the Court of the Member State in which he wanted to enforce for that judgment to be declared enforceable, a process known as exequatur. The process was largely administrative in nature, but often resulted in a delay (and further costs being incurred) before the judgment creditor could effectively enforce the judgment.
The Recast Regulation simply requires the judgment creditor to present a copy of the judgment in question together with a completed standard form certificate (albeit a rather long winded one) at the enforcing Court in order to proceed with the chosen method of enforcement. Safeguards remain in place, as the Court can refuse enforcement for public policy reasons or if the claim was not properly served in the original proceedings. However, the onus is now on the judgment debtor to apply to Court to oppose enforcement.
The Recast Regulation is a case of evolution rather than revolution, intended to deal with practical issues arising out of the application of the Old Regulation. It has provided further clarity to the enforcement of jurisdiction agreements within Member States, although there has been some criticism that there are unresolved issues in relation to claims which are commenced outside of Member States.