On 10 January 2015 the Brussels Regulation which, since 2001, governed jurisdiction and the recognition and enforcement of judgments in civil and commercial matters across the EU, was repealed and replaced by the Recast Brussels Regulation.
The Recast Regulation largely mirrors the approach and structure of the Brussels Regulation and many of the provisions remain unchanged. However there are a number of significant changes to the old regime under the Brussels Regulation, in particular in relation to the:
- rules relating to jurisdiction clauses;
- issue of "torpedo actions";
- ability of EU member state courts to stay proceedings in favour of non- EU member state courts;
- scope of the arbitration exclusion; and
- procedure for the recognition and enforcement of judgments across the EU.
RULES RELATING TO JURISDICTION CLAUSES
Jurisdiction or 'choice of court' agreements are commonly used in commercial agreements. Under the Brussels Regulation, EU member state courts were obliged to recognise such agreements, provided at least one of the parties was domiciled in the EU.
The Recast Regulation removes that domicile requirement. Now, where parties to a contract, regardless of their domicile, agree that the courts of a particular EU member state will have jurisdiction to settle any disputes which arise in connection with the contract, the jurisdiction clause must be recognised by all EU member state courts.
JURISDICTION CLAUSES & "TORPEDO ACTIONS"
Under the Brussels Regulation, if a party, in breach of an exclusive jurisdiction clause, commenced proceedings in the courts of an EU member state other than that chosen by the parties, and the other party brought parallel proceedings in respect of the same cause of action before the chosen court, the chosen court had to wait until the court first seised determined whether it had jurisdiction.
This "first in time" rule seriously undermined the efficacy of exclusive jurisdiction clauses. Parties seeking to delay or frustrate proceedings which might properly be brought before the courts of the chosen member state often brought proceedings in another member state where it was likely to take a long time to determine the jurisdiction question. The courts of the chosen member state were required to stay the proceedings properly brought before them, pending the court first seised determining the issue of jurisdiction. This had the knock-on effect of delaying the determination of the proceedings properly brought. This tactic was often known as a "torpedo action".
The Recast Regulation addresses this shortcoming by giving priority to the chosen court and requiring any other court first seised to stay its proceedings until the chosen court decides whether it has jurisdiction. If the chosen court decides that it has jurisdiction, it can proceed to determine the substantive issue irrespective of whether the court first seised has granted a stay of the proceedings.
This solution only applies, however, where there is an exclusive jurisdiction clause. Many standard form contracts, particularly in the finance sector, contain what are known as unilateral or asymmetric jurisdiction clauses. Such clauses require one party to sue in a particular jurisdiction, but give the other party freedom to sue in a number of jurisdictions. It is as yet unclear whether such clauses will be regarded as exclusive jurisdiction clauses for the purposes of the Recast Regulation and so the risk of being 'torpedoed' potentially remains where such clauses are used.
JURISDICTION AGREEMENTS IN FAVOUR OF NON-EU MEMBER STATE COURTS
The Brussels Regulation was silent on the issue of whether EU member state courts could recognise exclusive jurisdiction agreements in favour of non-EU member state courts. Case law suggested that where there was an exclusive jurisdiction clause in favour of a non-EU member state court, but one of the parties brought parallel proceedings in an EU member state on the basis of one of the jurisdictional rules set out in the Brussels Regulation, the EU member state court was required to hear the matter, irrespective of the jurisdiction clause.
Under the Recast Regulation where the proceedings brought before the non-EU member state court are first in time, the EU member state court can stay any parallel proceedings brought before it in breach of the jurisdiction clause provided that: (i) the judgment of the non-EU member state court will be capable of recognition and enforcement in that member state; and (ii) the stay is necessary for the proper administration of justice.
This only applies where the non-EU member state court proceedings are first in time. There is an obvious risk therefore that a party who wishes to avoid a jurisdiction clause in favour of a non-EU member state court might simply bring pre-emptive proceedings in an EU member state.
THE ARBITRATION EXCLUSION
While arbitration was excluded from the scope of the Brussels Regulation, the scope of the exclusion was somewhat uncertain, and a confusing body of case law developed across the EU.
The Recast Regulation clarifies that all matters relating to arbitration fall outside its scope, including matters relating to the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure and the enforcement of an arbitral award. Where one party brings proceedings before an EU member state court in breach of an arbitration agreement, the other party can ask the court of the seat of the arbitration to refer the matter to arbitration and the court of the seat cannot be prevented from doing so.
The Recast Regulation does not apply to a ruling given by an EU member state court on the validity of an arbitration agreement. This means, for example, that where a party who has entered into an arbitration agreement where the seat of the arbitration is Ireland, obtains an order from the French courts that the arbitration agreement is invalid, this order need not be recognised by the Irish courts. However, if the French court then determines the substance of the dispute, this judgment must be recognised and enforced. The difficulty here is that the judgment of the French court on the substance of the dispute might conflict with the determination of the arbitral tribunal. Both these judgments will technically be enforceable in the Irish courts as the court of the seat. The Recast Regulation does say, however, that the New York Convention is to take precedence over the Recast Regulation, which suggests that, in the situation described, the Irish courts could recognise the arbitral award notwithstanding the conflicting French judgment. It remains to be seen how this will operate in practice.
ENFORCEMENT OF JUDGMENTS
Under the Brussels Regulation, in order to enforce an EU member state judgment in another member state, a judgment creditor was required to obtain a declaration of enforceability in the member state in which enforcement was sought. The Recast Regulation has removed this requirement, simplifying and streamlining the enforcement procedure. The judgment creditor is now only required to present a copy of the judgment and a standard form certificate issued by the court which granted the judgment. It can then begin whatever enforcement measures are available under the local law. The onus is on the judgment debtor to oppose enforcement and the grounds on which it can do so are very limited.
Overall the changes made in the Recast Regulation are to be welcomed, though it appears to have created some new areas of uncertainty. It is likely that we will see quite a bit of litigation in relation to the Recast Regulation in the coming years as parties get to grips with the consequences of its provisions.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.