The European Economic and Monetary Affairs Council has approved amendments to the Brussels Regulation (EC Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).
The key changes, which are expected to apply from early 2015, are designed to:
- Streamline the process for enforcement of judgments across EU member states.
- Strengthen choice of court agreements by ending cross border “torpedo” litigation tactics.
- Extend the remit of the Brussels Regulation’s jurisdiction rules to non-EU Defendants in certain circumstances.
- Protect arbitration clauses against abusive litigation.
The amendments are now set to become European law following completion of the EU legislative process over the coming weeks, although they will only apply two years after the legislation comes into effect. Overall, the changes are to be welcomed, particularly as they apply to limiting the scope for “torpedo” proceedings which have become an all-too-common part of the EU defendant’s armoury for delaying judgment. The decision to drop the European Commission’s more controversial proposals regarding extending the remit of the Brussels jurisdiction regime to non-EU defendants more generally is also reassuring. Nevertheless, what the changes mean in practice, and how effective they will be, remains to be seen.
Streamlining the enforcement of judgments across EU member states
At present, in order to enforce a civil or commercial judgment from one EU member state court in another member state, a judgment creditor is required under the existing Article 38 of the Brussels Regulation (the Regulation) to obtain a declaration of enforceability from the enforcing member state court (generally known as “exequatur”). Depending on the particular enforcing state, this process can add many months to the timeline for a claimant looking to enforce a judgment in another member state, and can give the defendant the opportunity to raise meritless defences to delay enforcement.
The revised Regulation will remove the need for this process. It provides that an EU member state court judgment will be immediately enforceable in another EU member state court without any declaration of enforceability being required (Article 39). The aim is to streamline the process and reduce time and cost for judgment creditors.
However, the revised Regulation does provide some safeguards for judgment debtors, and essentially retains the existing grounds for opposing enforcement in the member state where enforcement is sought. The onus will be on the judgment debtor to challenge enforcement, rather than on the judgment creditor to establish that the judgment should be enforced. A judgment debtor will be able to challenge/ overturn a judgment if, amongst other things, he can establish that it is:
- contrary to public policy in the member state where enforcement is being sought (Article 45(1)(a));
- a default judgment and he was not served with the proceedings (Article 45(1)(b)); or
- irreconcilable with a judgment given between the same parties either in the member state where enforcement is being sought (Article 45(1)(c)) or another member state (Article 45(1)(d)).
Strengthening choice of court agreements by ending cross border “torpedo” litigation tactics
The revised Regulation seeks to end the increasingly common tactic of “torpedo” proceedings - that is, where a party commences proceedings in an EU member state other than that chosen by the parties (in their choice of court/jurisdiction agreement) in order to cause delay. This is made possible by the current wording of the Regulation which provides that the member state court in which proceedings are first commenced (the court first seised) must be left to determine whether it has jurisdiction and no other member state can accept jurisdiction until it has done so. With a view to frustrating and delaying proceedings as long as possible, abusive litigants may bring pre-emptive proceedings in breach of an exclusive jurisdiction clause in a member state which is renowned for taking considerable periods of time to issue a decision on jurisdiction.
The European Commission has acknowledged this issue, and the revised Regulation seeks to end this practice. It provides that, where parties have conferred exclusive jurisdiction on a member state court, any other member state court shall stay proceedings brought before it until such time as the court provided for in the jurisdiction agreement rules on its jurisdiction (Article 31(2)) (provided proceedings are brought in that member state’s courts).
Extending the remit of the Regulation to non-EU Defendants
Save for limited exceptions, the Regulation does not currently apply to defendants domiciled outside of the EU. In such circumstances, member state courts apply their own rules to assert whether they can accept jurisdiction. This has resulted in different jurisdictional tests being applied across the EU.
The European Commission had initially proposed extending the Regulation to all non-EU domiciled Defendants where a claimant could establish a connection with a particular member state. This proposal was controversial and has not been fully adopted, thus avoiding a significant encroachment into what is left of member states’ private international law rules on jurisdiction (including the English common law rules). However, the revised Regulation does provide that employees and consumers will be able to initiate proceedings against non-EU domiciled employers/sellers in the member state in which the employee works or the consumer is domiciled.
In addition, the revised Regulation also amends the existing Article 23 of the Regulation, which provides that jurisdiction agreements will be upheld, and seeks to extend the ambit of the Regulation to agreements that confer jurisdiction on a member state court even where the parties are all non-EU domiciled (Article 25). In such circumstances, the revised Regulation dictates that the court provided for in the jurisdiction agreement must accept jurisdiction. The consequences of this are not considered to be controversial. For example, under existing common law rules in England, it is almost inevitable that the English courts would accept jurisdiction had two non-EU domiciled parties elected to have their disputes heard before the English courts.
Protecting arbitration clauses against abusive litigation
Following what has been perceived by practitioners as a steady encroachment of the Regulation into the domain of arbitration, the proposed amendments confirm that the Regulation does not apply to arbitration (Article 1(2)(d)), clarify the ambit of the arbitration exception (recital 12) and state that the Regulation shall not affect the application of the New York Convention (on the recognition and enforcement of Foreign Arbitral Awards) (Article 73(2)).
The decision of the European Court (the “CJEU”) in the West Tankers case (Allianz SpA v West Tankers (Case C-185/07)) indicated that, even if parties to an arbitration agreement had chosen a particular member state’s arbitral law and the supervisory jurisdiction of that member state’s courts for their arbitration, the courts of that member state would have to stay any proceedings in favour of another member state court if that court was first seised. This was so even on issues regarding the validity and scope of the arbitration agreement. This decision has been criticised on the basis that it undermines agreements to arbitrate and has led to litigation aimed at mitigating its effects. The revised Regulation is intended to address these concerns.
Accordingly, the revised Regulation confirms that:
- Member state courts retain the right to rule on the validity and scope of arbitration agreements in accordance with their national law and that such decisions should not be subject to the rules of recognition and enforcement laid down in the Regulation;
- The New York Convention takes precedence over the Regulation and therefore, member state courts are permitted to recognise and enforce an arbitral award even if it is inconsistent with another member state’s judgment; and
- The Regulation does not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.
While the most worrying aspects of the West Tankers decision therefore seem to have been addressed by the changes, it is unlikely that the amendments have reintroduced any real possibility of obtaining anti-suit injunctions to restrain proceedings brought in breach of an arbitration agreement in another member state court, which the CJEU found to be contrary to EU law in West Tankers.
Whilst the revised Regulation will not apply for another two years (it will enter into force 20 days after it is published in the Official Journal, which is expected to occur in the coming weeks, and will start to apply two years after that date), the streamlining of the process in respect of: (1) enforcement; and (2) jurisdiction agreements, will be welcomed by practitioners and litigants alike. In respect of the clarifications made in respect of arbitration, whilst certain issues will still need to be resolved, it is a positive development that should be seen as a significant step in the right direction.
In particular, if the amendments succeed in removing the “torpedo” action as an option for recalcitrant defendants and in improving the ease and speed of enforcement proceedings within the EU, they will have addressed perhaps the two biggest criticisms to date of the Brussels Regulation regime. However, judgment on whether the amendments will in fact achieve this must be reserved until it is seen how they will work in practice, and how the CJEU will respond to them.