From 10 January 2015, the reformed Brussels Regulation will be applied by the courts of all Member States of the European Union to regulate matters of jurisdiction and the recognition and enforcement of judgments in connection with civil and commercial claims. The impact of the "key" aspects of the reforms has been the subject of a good deal of commentary. The fundamental change in approach toward consumer 1 jurisdiction and the associated risks to business and institutions that contract with consumers seems, however, to have gone largely unnoticed, or at least unreported. That is surprising when it is the aspect of the reform which, in terms of extraterritorial effect, is one of the most far-reaching.
Summary of "Key" Reforms
The headline reform is undoubtedly the change to the lis
pendens provisions. The revision is designed to avoid the
delays and costs associated with the much-bemoaned "Italian
torpedo". Under the current regime, putative defendants
fearing an imminent claim against them are able to preempt the
action by commencing proceedings themselves before arguably
slow-moving courts of certain Member States, even where there is
little or no connection between those courts and the claim or the
parties. Once issued, that party can rest easy in the knowledge
that separate proceedings cannot be advanced by the wronged party
before any other EU Member State court (even the court nominated in
any applicable exclusive jurisdiction clause) until the court
"first seised" declares whether or not it has
jurisdiction. The new regime abolishes this rule and ensures the
effective supremacy of any court nominated by an exclusive
jurisdiction provision; every other Member State court is required
to stay proceedings until the court nominated by the parties in
their contract has determined whether or not it will hear the case.
This change should address the most serious abuses of the lis
pendens principle and one of the most criticised aspects of
the current Regulation.
Other key changes include: the application of the parties'
choice of exclusive jurisdiction specified in their agreement,
whether or not either party is EU domiciled; the express exclusion
of arbitration from the scope of the Regulation; the express
separation of jurisdiction agreements, meaning that they cannot be
contested merely on the basis that the agreement of which they form
part is said to be invalid; and the new discretion to have regard
to proceedings pending before a non-EU court. These changes have
been widely reported. The changes to the consumer position have
received much less publicity.
Consumer Contracts
As matters stand under the present Brussels Regulation,
consumers may sue EU-domiciled counterparties in the courts of the
Member State in which either the counterparty is domiciled or, in
recognition of their perceived position as the "weaker"
party, their own home court. This rule is currently restricted to
contracts entered into within the EU. This restriction was seen by
the European Commission as having the potential to result in
unequal access to justice for EU citizens, given that Member
States' own private international law rules concerning
jurisdiction outside the EU vary widely.
The result has been to harmonise the rules in respect of all
defendants to consumer contract claims, irrespective of their
domicile and whether or not they are EU based. Article 18 of the
reformed Regulation provides that a consumer may bring proceedings
against the other party to a contract either in the courts of the
Member State in which such after party is domiciled or,
regardless of the domicile of the other party, in the
consumer's home court.
While this reform stands to achieve its primary aim, it will do so
by taking the extraordinary step of conferring exorbitant
jurisdiction upon Member State courts in respect of any party that
happens to contract with EU-domiciled consumers, irrespective of
where the transaction took place. For example, if a Spanish tourist
visits Washington and purchases goods as a consumer, he or she can
bring claims in respect of those purchases in Spain, irrespective
of any jurisdiction clause within the contract which the vendor may
believe or assert is applicable. It could also cover the situation
where a sophisticated British businessman working in New York
purchases complex financial products (assuming that he does so
outside the normal course of his profession).
Consumer-facing businesses and institutions located outside Europe
whose customer or client base does or could include consumers
domiciled in the EU will therefore face a far greater risk of
becoming embroiled in litigation before the courts of EU Member
States with which they may be unfamiliar and have no direct
connection. The relevant forum will be determined solely by
reference to the consumer's own domicile and the European view
as to what constitutes a consumer, notwithstanding any protections
which the counterparty has included within the contract; there is
no ability to contract out of the relevant provisions by way of,
for example, an exclusive jurisdiction clause. What is less clear,
however, is how easily consumers could successfully enforce
resulting judgments in the event that their counterparties had no
assets within the EU or how courts outside the EU will react to
this development.
Conclusion
Almost as striking as the expansion of EU Member State courts' jurisdiction by the reform of the consumer contracts provisions of the Brussels Regulation is the lack of attention generated by it. The practical effect of these changes is yet to be seen, but it seems almost certain that non-EU businesses and institutions will become embroiled in litigation before the courts of EU Member States with which they have no direct connection and that may be entirely unfamiliar to them.
Footnotes
1 A "consumer contract" is defined within the Regulation as one concluded with a person for a purpose outside of their own trade or profession. This definition has been further explained by caselaw looking at related consumer regulations, for example see Overy v Paypal (Europe) Ltd [2012] EWHC 2659 (QB).
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