Background

On 10th January 2015 EU Regulation 1215/2012 ("the Recast Regulation") comes into force across the EU. The Civil Jurisdiction and Judgments (Amendment) Regulations 2014 make provision for the adoption of the Recast Regulation in the UK. In Scotland, changes to the Rules of Court are expected and are being considered by the Scottish Civil Justice Council in order to give effect to the new law.

The Recast Regulation, an update on Regulation 44/2001, makes significant changes to the law in two key areas: the determination of civil jurisdiction within the EU and enforcement of judgments between member states. Many of the basic principles of the 2001 Regulation are retained i.e. it is still the case that an EU domiciled person should usually be sued in the place of his domicile. However, the Recast aims to remedy some of the difficulties that have been encountered with the 2001 Regulation in practice. 

Exclusive Jurisdiction Clauses

The Recast Regulation makes some sensible reforms to the law in relation to exclusive jurisdiction clauses. Article 25 of the Recast Regulation provides that where parties have agreed that a particular court will have jurisdiction over any disputes this court will have jurisdiction regardless of the domicile of the parties. This will apply even where none of the parties are EU-domiciled. This reduces the potentially costly need to consider the domicile of each party to the contract and the possibility that different rules may apply to different parties.

However, an exclusive jurisdiction clause will not be upheld where it is null and void as to its substantive validity under the law of the member state. The Recast Regulation specifically provides that the question of whether the agreement is null and void should be determined with reference to the law of the member state designated in the agreement. 

The Recast Regulation also provides that an exclusive jurisdiction clause is separate from the contract as a whole. This means that, if it is argued that a contract is invalid, any exclusive jurisdiction clause can still apply and it will therefore be clear which court is entitled to resolve the dispute.

Conclusion 

Jurisdictional issues are often a significant source of contention for parties who are involved in cross-border litigation. The Recast Regulation provides some much needed clarity in this area and it is likely that commercial parties will wish to take advantage of the enhanced strength of exclusive jurisdiction clauses within the EU. 

In addition to the issue of exclusive jurisdiction clauses, the Recast Regulation makes reforms in several other key areas. These are briefly outlined below. 

The 'Italian Torpedo'

The 2001 Regulation was heavily criticised in terms of abuse of the lis pendens rules. These provide that if proceedings are brought in courts of separate member states, the court which is second 'seised' must 'stay' its proceedings and allow the first court to determine whether it has jurisdiction i.e. the second court must postpone its proceedings and wait for the first court to make a decision. This has been abused by some litigants who have used the rule to pre-emptively enter proceedings in a typically slow-moving jurisdiction, such as Italy.

To prevent such abusive tactics, the Recast Regulation provides that a court which is the subject of an exclusive jurisdiction clause may determine whether it has jurisdiction regardless of whether it is first 'seised.' This amendment takes the sting out of the 'Italian torpedo.'

Third States

The 2001 Regulation does not operate where there is a jurisdiction clause in favour of a court in a non-EU state. A member state court cannot decline jurisdiction in favour of a court in a 'third state', even where that court may be best placed to determine the case. However, under the new rules, a member state court may take into account equivalent proceedings in the third state. The member state court may postpone its proceedings where proceedings are first initiated in a third state court and where it is "necessary for the proper administration of justice" to do so. Although this is a largely welcome reform, concerns have been raised that the 'first-in-time' requirement may encourage pre-emptive proceedings in third state courts, thus potentially creating a new version of the 'Italian torpedo.'

Arbitration 

The 2001 Regulation expressly excludes arbitration from its scope. However, the European Court of Justice has considered that the initial question of the validity of an arbitration clause is within the scope of the Regulation. This has encouraged abusive litigation tactics and has allowed parties to seek to undermine arbitration agreements by raising proceedings in a jurisdiction where the clause is likely to be ruled invalid.

The Recast Regulation re-emphasises that arbitration is outside the scope of the regime. A member state court is not required to wait for the decision of a court in another member state on the validity of an arbitration agreement, even when the question of the agreement's validity was referred to that other court first. Moreover, a ruling that an arbitration agreement is null and void is excluded from the rules of recognition and enforcement of judgments. The incentive for parties to raise proceedings in order to render an arbitration agreement inoperative is therefore significantly reduced under the Recast Regulation.

Exequatur

In terms of the enforcement of judgments between member states, the Recast Regulation makes a significant amendment in terms of the removal of the 'exequatur' process. This process requires that, before a judgment of one member state could be enforced in another, it had to be registered or declared enforceable in the member state of enforcement. Under the new regime, the party wishing to enforce the judgment is required only to present the judgment alongside a standard certificate to begin the enforcement process. This reform strengthens the position of parties aiming to enforce judgments between member states and removes a time-consuming and potentially very costly hurdle.