Disputes over jurisdiction (i.e. where a claim is heard and determined) are commonplace in shipping and international trade. They can lead to expensive and time-consuming "satellite" litigation (often in several different places) which delays the resolution of the real dispute.
Perhaps surprisingly to the man in the street (or boardroom) this can be the case even where the contract appears to provide a clear and unambiguous answer.
Attempts have been made over the years to harmonise national laws in this area. These have produced notable successes in relation to particular subjects such as arbitration (the New York Convention) and corporate insolvency (the UNCITRAL Model Law on Cross-Border Insolvency). However, an international regime addressing choice of court in civil and commercial matters generally remains elusive, despite the continued efforts of the Hague Conference.
The one supra-national organization that has effectively implemented such a regime is the European Union ("EU"). That regime has recently been updated and, as explained below, now has the potential to affect a much wider range of international contracts.
Exclusive Jurisdiction Clauses
The Brussels Recast, like Brussels I before it, deals with jurisdiction and the recognition and enforcement of judgments and applies to "all civil and commercial matters".
One of the more important changes implemented by the Recast concerns the treatment of jurisdiction clauses. The changes are set out below (emphasis added).
Brussels I Article 23(1):
“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court … of a Member State are to have jurisdiction … that court shall have jurisdiction. Such jurisdiction shall be exclusive unless … agreed otherwise”
Brussels Recast Article 25(1):
“If the parties, regardless of their domicile, have agreed that the court … of a Member State are to have jurisdiction … that court shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless … agreed otherwise”
Brussels I Article 23(1) only applied if:
- At least one party was domiciled in a Member State; and
- A particular Member State was specified in the jurisdiction clause.
This meant that Brussels I had no application where both parties were domiciled outside of the EU.
However, Brussels Recast Article 25(1) applies if only one condition is satisfied, namely:
- A particular Member State is specified in the jurisdiction clause.
This means that if, for example, a Chinese company and a Korean company agree that the courts of England & Wales have exclusive jurisdiction, Brussels Recast Article 25(1) will be engaged and the English courts will have mandatory jurisdiction.
In that case, it is widely understood that permission will not be needed to serve a Claim Form out of the jurisdiction – see CPR rule 6.33(2).
This is a welcome change. In the maritime field in particular, it is not unusual for both parties to be domiciled outside of the EU, and yet to choose the exclusive jurisdiction of the courts of England & Wales. The Brussels Recast will make it easier to give effect to the parties' choice.
The "Italian Torpedo"
Brussels I contained no provisions regarding the priority between Article 23 (jurisdiction agreements) and Article 27 (lis pendens).
As a result, some defendants would rush to start an action in particular EU Member States where Court proceedings are thought to be comparatively slow-paced, in order to take advantage of the ‘first in time’ rules.
This tactic was more commonly known as the "Italian Torpedo", and took advantage of the fact that the Member State court "first seised" of the matter would take precedence – regardless of whether the parties had agreed in their contract that the courts of another Member State had exclusive jurisdiction.
This already unfortunate situation was compounded by the decision of the European Court of Justice in Turner v Grovit that anti-suit injunctions could not be used to enforce jurisdiction clauses as against the courts of another Member State. This rendered parties powerless to stop the Italian Torpedo.
Critics of Brussels I argued that the consequence of allowing the Italian Torpedo to continue was increased costs for all parties, which in turn led to lower chances of settlement and an increased burden on the courts.
It appears that the EU took these arguments on board.
Recital 22 of the Brussels Recast provides (emphasis added) :
"in order to enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics, it is necessary to provide for an exception to the general lis pendens rule … where a court not designated in an exclusive choice-of-court agreement has been seised of proceedings and the designated court is seised subsequently of [the same] proceedings...
In such a case, the court first seised should be required to stay its proceedings as soon as the designated court has been seised and until such time as the latter court declares that it has no jurisdiction under the exclusive choice-of-court agreement."
In short, the Brussels Recast now provides that where there is a jurisdiction agreement:
- Any court other than the chosen court must stay proceedings until the chosen court has decided whether it does have jurisdiction; and
- If the chosen court decides it does have jurisdiction, all other courts must decline jurisdiction.
Precedence is therefore given to the country specified in the jurisdiction clause, regardless of whether proceedings have first been commenced elsewhere.
This is a welcome change, which should limit the scope for "abusive litigation tactics" such as the Italian Torpedo.
The Brussels Recast represents a significant improvement on Brussels I, extending the benefit to parties regardless of domicile and upholding choice-of-court agreements.
However, it must be remembered that these rules only apply where matters are before the courts of EU Member States. A truly international solution still seems far off, with only Mexico having acceded to the Hague Convention on Choice of Court Agreements, although the EU, USA and (very recently) Singapore have signed.