The long awaited Recast Brussels Regulation recently came into force. While much of the existing Brussels regime has been reproduced in the new instrument, there has also been significant and welcome reform. In this article, we highlight the key changes for commercial parties.
The Recast Brussels Regulation: The significant changes for commercial litigants
The Brussels Regulation (Regulation (EC) No 44/2001), the key European instrument on jurisdiction and enforcement in civil and commercial matters, has recently undergone an extensive review and has been replaced by the recast Brussels Regulation (Regulation (EU) No 1215/2012) (the “Recast Regulation”) which is applicable in EU Member States from 10 January 2015.
The Brussels Regulation is now repealed save that it will continue to apply to the enforcement of judgments given in proceedings instituted before 10 January 2015. It will also continue to apply in relation to Denmark. Denmark has notified its intention to implement the Recast Regulation but the date of implementation remains uncertain.
Many of the provisions of the Brussels Regulation remain unchanged under the Recast Regulation but it does introduce a number of key changes to jurisdiction agreements, lis pendens rules, third state proceedings and the recognition and enforcement of judgments across the EU. It also clarifies the scope of the arbitration exception under the Brussels regime.
In an exclusive jurisdiction clause the parties agree that the courts of a particular state will have jurisdiction over any dispute which might arise between them. Previously under the Brussels Regulation such an agreement would only be recognised where at least one party was EU-domiciled. Article 25 of the Recast Regulation now gives jurisdiction to the courts of the Member State chosen by the parties, regardless of their domicile. This means that where two non-EU parties agree that any dispute between them will be subject to the exclusive jurisdiction of a particular Member State’s courts, those courts will be required to accept jurisdiction.
There is also a new provision on separability of jurisdiction agreements. This means that, even if there is a claim that the underlying contract is invalid, the parties can be clear as to which courts will resolve any dispute.
Lis pendens rules
Under the Brussels Regulation there were significant difficulties with torpedo actions. This is where one party to an exclusive jurisdiction clause decides for tactical reasons to ignore that clause and bring proceedings in a different jurisdiction. Under the Brussels Regulation, where there were proceedings involving the same parties and the same cause of action, any court other than the court first seised had to stay its proceedings until the court first seised decided whether it had jurisdiction to hear the action. This meant that if the other party attempted to bring parallel proceedings in the chosen jurisdiction, these could be stalled for a significant period of time.
The Recast Regulation addresses this difficulty. Now under Art 31.2 the court chosen by the parties has priority irrespective of which proceedings are first in time. The other court must stay its proceedings pending a decision of the chosen court on jurisdiction. However, it is necessary to bring proceedings in the chosen court.
This new rule applies only in the case of exclusive jurisdiction clauses. It is unclear whether this will encompass contracts which include a unilateral jurisdiction clause. This is where one party is obliged to bring proceedings in a particular jurisdiction while the other party has the option to sue in a number of jurisdictions. It is also of note that uncertainty has arisen in relation to the validity of unilateral clauses under the Brussels regime following a decision of the French Supreme Court invalidating a hybrid jurisdiction clause (Ms X v Banque Privée Edmond de Rothschild (French Supreme Court, First Civil Chamber, 26 September 2012, No 11-26.022). The Recast Regulation does not address this issue. Some guidance will also be required from the courts on the application of the new lis pendens rules to related actions.
Third state proceedings
Under the Brussels Regulation, it was not clear whether proceedings brought in a Member State court could be stayed where there were identical or related proceedings pending in a non-Member State court and the nature of the action meant that it should be heard in that particular state or where there was an exclusive jurisdiction agreement in favour of that state. In each of these situations, there would be a clear requirement to stay the Member State proceedings if the competing jurisdiction was within the EU, but it was not clear whether these rules could be applied by analogy, in favour of non- Member State courts.
Now under Articles 33 and 34 of the Recast Regulation there is a new discretion to stay proceedings where an identical or related action is pending in a non-Member State court, but only if the non-Member State action was first in time and if certain other conditions are satisfied. In particular, the non-Member State judgment must be capable of recognition or enforcement in the Member State and the Member State court must be satisfied that a stay is necessary for the proper administration of justice.
Recognition and enforcement of judgments
Under the Brussels Regulation where a judgment creditor wished to enforce a judgment in another EU Member State, the judgment would first have to be declared enforceable or registered in the Member State of enforcement. This process was known as exequatur and added to the complexities of cross-border litigation.
This process has been abolished in the Recast Regulation. This means that a judgment can be enforced in the Member State of enforcement as if it had been delivered in that Member State itself. Certain safeguards have been maintained for judgment debtors. Under Articles 45 and 46 of the Recast Regulation, a party can apply for recognition or enforcement to be refused on the same restricted grounds as previously, including if:
- it would be manifestly contrary to public policy in the enforcing state;
- for default judgments, the defendant was not properly served with the proceedings in sufficient time to arrange for his defence;
- the judgment is irreconcilable with a judgment given between the same parties in the enforcing state.
Arbitration has always, at least theoretically, been excluded from the application of the Brussels Regulation. However, the scope of the exclusion was unclear. The Recast Regulation clarifies that all matters relating to arbitration are outside of its scope. For example, it states that the Recast Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award. It gives precedence to the New York Convention to which all EU Member States are signatories.
While this clarification is welcome, some issues remain uncertain in the area of arbitration. For instance, it is not yet clear how the precedence of the New York Convention will work in practice. For example, will a Member State court enforce an arbitration award from one jurisdiction in preference to a conflicting judgment from the courts of another Member State?
Overall the changes introduced by the Recast Regulation are positive and will address many of the difficulties that have come to light under the Brussels Regulation. There are some areas of uncertainty remaining which will require to be worked out over the coming years.