Creditors frustrated by cost and time delays in cross border disputes, as well as from unscrupulous delaying tactics by debtors, will have some comfort in the form of the revised EU Judgments Regulation. The revised Regulation came into force on 10 January 2015 and aims to resolve cross-border legal disputes more easily, bringing huge cost savings to creditors. The rules abolish the costly and lengthy procedure, which is currently used to get judgments in civil and commercial matters recognised in other EU countries. Such cross-border judgments will be automatically enforceable across the EU. The new procedure will apply to judgments obtained in proceedings commenced after 10 January 2015.

This is a problem often encountered by office holders in EU cross-border insolvencies who have to bring proceedings in other Member States to recover assets. In this post we highlight three key changes to the Regulation that could make a difference to creditors across the EU.

Court first-seized: Disarming the Italian Torpedo

The revised Regulation amends the court “first-seized” rule. This rule states that when the same cause of action is brought in two separate courts, the first court where the proceedings commenced takes priority. The principle appears fair; however in practice it allows a party hastily to bring proceedings in a jurisdiction which has a slow judicial system (typically somewhere like Italy) in order to delay and frustrate the process. This tactic is often known as the ‘Italian Torpedo’.

The revised Regulation provides that parties can agree in advance to confer exclusive jurisdiction on the court of a particular Member State in the event of a dispute between them. Proceedings will be stayed in other jurisdictions until the court of a Member State with exclusive jurisdiction declares that it has no jurisdiction.

This change should be welcomed as it provides a new level of certainty to parties agreeing contracts and stops unscrupulous debtors taking advantage of the speed (or lack of speed) of different court systems.

Abolition of the Exequatur Procedure

An enforceable judgment in civil and commercial matters in one Member State will be automatically enforceable anywhere in the EU. The rules abolish the cumbersome intermediate procedure – the “exequatur” procedure. This procedure requires the creditor to pay lawyers’ fees, translation and court costs. In almost 95% of cases, this procedure was a pure formality. This “mutual trust in the administration of justice” across the EU has been estimated to save €48 million by eliminating 10,000 such applications a year. (See EU Press Release)

The time and cost savings, allowed by a presumption of enforceability, will undoubtedly be welcomed by all creditors engaged in cross-border disputes.

Jurisdiction: To Domicile or not to Domicile

The original Judgments Regulation stated that at least one party must be domiciled in the EU for the Regulation to apply. However the revised Regulation states that “regardless of their domicile” parties can agree for the courts of a Member State to have jurisdiction and that will be sufficient to provide exclusive jurisdiction.

In this internet age of global commerce, EU consumers will be better protected in legal disputes involving businesses in non-EU countries. To date, it was often impractical to exercise their rights when purchasing goods from a trader located in a non-EU country and selling products in an EU Member State. The new rules mean that across the EU, in any such dispute, the consumer will have access to the courts in the country where he or she is residing – the consumer will not need to go to the courts of the non-EU country. This will also apply to EU businesses in commercial disputes, unless an exclusive jurisdiction clause has been agreed with the non-EU trader (see the Italian Torpedo above).

Conclusion

Creditors will welcome the revised Judgments Regulation which increases certainty, stops unscrupulous tactics and saves time and costs in cross-border disputes. Businesses will have more legal certainty when doing business across the EU.

The new measures deliver on the EU’s promise to cut red tape and strengthen the EU’s Single Market to boost sustainable economic growth. However more than that, the Regulation reaffirms the direction of travel for the EU: one of increasing trust in different judicial systems and recognising the need for fairness in cross border transactions. It is this direction of travel which will especially be cheered by creditors.