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Company Law

Analysis - guidance - compliance

18 DEC 2014

The Brussels I Regulation Recast

Daniel  Clarke

Barrister

The Brussels I Regulation Recast
The Brussels I Regulation Recast
Regulation (EC) 44/2001, otherwise known as "Brussels I", regulates jurisdiction and the enforcement of judgments in civil and commercial matters within the EU. The EU has published a recast form of Brussels I (known variously as "the Recast Regulation", "Brussels Ia", or "Brussels I Bis"). This will apply to proceedings instituted on or after 10 January 2015.

Broadly speaking, the basic jurisdictional rules remain the same. The starting point is the domicile of the defendant (Article 4(1)). There are some potential additional jurisdictions, e.g. in matters relating to contract, in favour of the courts for the place of performance of the obligation in question (Article 7(1)(a)). Arbitration remains outside the scope of the Recast Regulation (Article 1(2)(d)).

However, the Recast Regulation makes a number of changes, of which practitioners involved in cross-border claims should be aware. The principal changes are as follows.

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Recognition and Enforcement
The procedure for enforcement is streamlined. The judgment creditor is no longer required to obtain a declaration of enforceability before enforcing. Instead, they need only present the enforcing court with a copy of the judgment and a standard certificate (Articles 42, 53 and Annex 1) before proceeding to the enforcement measures available under local law. The onus is on the judgment debtor to challenge recognition or enforcement.

Courts outside the EU
Brussels I, generally speaking, provides that if a court has jurisdiction (e.g. based on the defendant's domicile) it must exercise it. This is so even if there is a compelling argument that a non-EU court would be more appropriate to hear the matter (e.g. Owusu v Jackson, Case C-281/02). This is, of course, a departure from the common law where the courts retained a broad discretion to stay a claim issued in England and Wales in favour of proceedings in a foreign court. EU courts can, in some circumstances, halt proceedings in favour of non-EU courts when there is a jurisdiction clause in favour of a non-EU court. However, the scope of this limited exception is unclear.

The Recast Regulation introduces a discretion for EU courts to stay proceedings in favour of a non-EU court. This is a significant change in principle. But, it should be noted, it only applies when at least 3 conditions are met (Articles 33 and 34): the non-EU court is seised first; a judgment given by the non-EU court can be enforced in the EU member state concerned; a stay is necessary for the proper administration of justice.

Italian Torpedo
The Recast Regulation also creates an exception to the almost absolute rule under Brussels I that any court other than the first seised must stay its proceedings pending a decision by the court first seised.

This rule was open to abuse (the so-called "Italian Torpedo"). By this rule the court first seised takes precedence not only in deciding the substance of the dispute but also over the prior question of whether or not it has jurisdiction at all. Even where it is clear that the court first seised does not have jurisdiction, any court seised subsequently is obliged to stay its proceedings pending a decision by the court first seised. This can lead to significant delay and extra costs, something unscrupulous parties to litigation have exploited.

The exception under the Recast Regulation concerns exclusive jurisdiction clauses. If the parties have conferred exclusive jurisdiction on a court, that court may proceed to hear the case even if it was not first seised, thus preventing "Torpedoing". All other courts must halt their proceedings once the designated court has established it has jurisdiction (Article 31).

Arbitration
Recital (12) to the Recast Regulation provides that a "ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation". This effectively reverses the decision in The Wadi Sudr [2009] EWCA Civ 1397, which had held that, under Brussels I, a decision by another EU court as to the existence or applicability of an arbitration clause must be recognised.

Recital (12) and Article 73(1) of the Recast Regulation make further provision that seems destined to require further clarification, most likely by the CJEU. This concerns the situation where another EU court has determined that an arbitration agreement is invalid and goes on to give judgment on the substance of the dispute.

Recital (12) provides that the "non-recognition" under the Recast Regulation of the determination on the agreement should not preclude enforcement of the substantive judgment. However, this is without prejudice to the competence of courts to decide on the enforcement of arbitral awards under the New York Convention. This is stated to take priority over the Recast Regulation.

But what if the following occurs? An EU court determines that an arbitration clause is invalid. It goes on to give judgment on the substance. However, arbitrators in a different jurisdiction determine that the arbitration clause is valid. They also give an award on the substance. It is not made explicit, if the judgment or the award conflict, which takes priority.

Comment
The changes made by the Recast Regulation are significant. They also leave areas of uncertainty which will be resolved as they work their way through the courts. However, just as important as what is reformed is what it not. It is important to keep in mind the precise scope of the reforms.

For example, the introduction of a discretion on the part of EU courts to stay proceedings in favour of a non-EU court is a major innovation in principle. However, a major practical restriction on this is likely to be the fact that, if an EU court is seised first, there is no discretion. Additionally, on the face of it, this risks encouraging parties to start proceedings prematurely in order to ensure that their favoured court is first seised.

A further example lies in the exception under the Recast Regulation to the rule that any court other than the first seised must stay its proceedings pending a decision by the court first seised. Again, this is a major innovation in principle. But the exception is limited to exclusive jurisdiction clauses. This will be relevant in many cross-border claims. But there there will also be claims where there was no pre-existing relationship to speak of between the parties, let alone a contract, or a contract containing an exclusive jurisdiction clause. Parties in such claims may still be at risk of being "Torpedoed" (or, perhaps, "Gassered") and the Recast Regulation may do nothing to improve their lot.
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