Recast Brussels Regulation: recap of the key points

One of the criticisms made of the Brussels Regulation¹ was that it allowed an express choice of jurisdiction to be undermined by the ability to commence a so-called "Italian torpedo" action in a different EU court. Consequently, the Regulation has been "recast". The Recast Regulation,² which applies to proceedings commenced on or after 10 January 2015, now addresses the torpedo point. However, issues still remain and new problems may have been created.

The sinking of the Italian torpedo

This is best explained by reference to an example. A contract provides that the English courts have exclusive jurisdiction over all connected disputes. In breach of that agreement, the Italian counterparty commences proceedings first in Italy (the court "first seised"). English proceedings are then commenced by the other counterparty involving the same parties and the same issues.

Under the Brussels Regulation, the English court (as the court "second seised") was obliged to suspend its proceedings until the Italian court decided on jurisdiction. If the Italian court decided that it had jurisdiction, the action could not proceed in the English court. The rationale was the avoidance of inconsistent decisions.

Under Article 31(2) of the Recast Regulation, where a clause confers exclusive jurisdiction on one or more member states (and a jurisdiction clause will be considered exclusive unless the parties have agreed otherwise), the contractually chosen court has priority to decide its jurisdiction, not the court first seised.

Returning to our example, under the Recast Regulation, the English court (as the member state court chosen) has priority to decide the jurisdiction issue, even if proceedings were commenced first in Italy. If the English court decides that it has jurisdiction, the Italian court will have to decline jurisdiction in favour of the English court. By prioritising the contractually chosen court, there is little benefit to commencing a torpedo action.

Torpedo still afloat in an EFTA state

The Lugano Convention regulates jurisdiction as between the EU member states and Iceland, Switzerland or Norway. This has not yet been similarly "recast" and, as a result, "torpedo" actions remain an issue where a counterparty is domiciled in any of those countries.

Asymmetric clauses

It is unclear whether asymmetric jurisdiction clauses (where one party is required to bring proceedings in one jurisdiction exclusively, while the other party has the option to bring proceedings in various jurisdictions) fall within the definition of exclusive jurisdiction clause.

For example, party A is required to sue party B in the exclusive jurisdiction of the English courts, but nevertheless sues party B in Germany. Party B has the benefit of a non-exclusive right to sue party A in any competent court. Can Party B, for whom the jurisdiction clause is non-exclusive, commence proceedings in the English courts on the basis that the clause is an exclusive one for the purposes of Article 31(2) of the Recast Regulation? The position taken to date by the English courts on these clauses would suggest that they may well adopt a purposive interpretation and regard the clause as exclusive. However, the German court may well consider it to be non-exclusive and decline to stay its proceedings on that basis. Until the issue comes before the ECJ, there is uncertainty.

This lack of clarity is unfortunate considering that such provisions are widely used in finance agreements. Given the problems created by recent European decisions in this area (see our previous article), contracting parties will need to think carefully before incorporating such clauses, and assess whether they actually need the ability to bring proceedings in multiple jurisdictions.

Non-member state proceedings

Another issue the Recast Regulation sought to address concerned non-member state proceedings.  Under the Brussels Regulation, where a member state had jurisdiction based on a defendant's domicile, there was no jurisdiction to stay the proceedings in favour of a more appropriate non-member state on the basis of forum non conveniens.³ However, in circumstances where the non-member state would have had jurisdiction under the Brussels Regulation had it been a member state (by virtue of an exclusive jurisdiction clause in its favour or where the exclusive jurisdiction provisions would have conferred jurisdiction on it), the English courts have been prepared to give "reflexive effect" to such provisions and stay proceedings in favour of the non-member state.

The Recast Regulation has, to some extent, addressed this issue. Under Articles 33 and 34, member state courts may stay their proceedings where the same or related claims have been brought in a non-member state court, where the member state court's jurisdiction is based on the domicile of the defendant rule, contract exception (place of performance of the contract), or tort exception (the place where the harmful event occurred). However, that discretion may be exercised only if certain requirements are met. These include the need for the proceedings to have been commenced first in the non-member state.

The Recast Regulation does not address what happens if the non-member state court is second seised and there is, for example, an exclusive jurisdiction agreement in favour of that court or other exceptions conferring exclusive jurisdiction. By expressly providing for a discretion in Articles 33 and 34, the Recast Regulation may have curbed the discretionary powers the English courts previously exercised under the Brussels Regulation. It remains to be seen how the English courts will apply Articles 33 and 34 in practice.

Non-EU defendants: broader application of the Recast Regulation

Jurisdiction agreements

Article 25 of the Recast Regulation is broader that its Article 23 predecessor. Whereas the Brussels Regulation only applied to jurisdiction agreements where one of the parties was domiciled in the EU, the Recast Regulation applies to jurisdiction clauses that confer jurisdiction on a member state court regardless of domicile. So, if two non-EU domiciled parties elect English jurisdiction, the English court will have jurisdiction under Article 25. The practical implication is that there will be fewer instances where permission of the court will be required to serve out of the jurisdiction.

Exclusive jurisdiction

Likewise, the exclusive jurisdiction provisions (Article 24 of the Recast Regulation) now apply regardless of the domicile of the parties. For example, cases concerning immovable property such as land must be brought in the member state where the property is situated. Previously, one of the parties needed to be domiciled in a member state.

Employment and consumer contracts

Under the Brussels Regulation, the provisions concerning consumer and employment contracts only applied if the other party was domiciled in, or had a branch or agency in, a member state.  The Recast Regulation now extends those provisions to non-EU traders provided the trader directs commercial professional activities to that member state.

The Hague Convention

It is also worth mentioning the Hague Convention of 30 June 2005 on Choice of Court Agreements. Put very simply, this is the litigation equivalent of arbitration's New York Convention. It protects choice of court clauses (where they are exclusive jurisdiction agreements) and provides for reciprocal enforcement of foreign judgments in civil or commercial matters. To date, only Mexico has ratified it. However, it should enter into force later this year with EU ratification (which was approved in December 2014). And on 25 March 2015, Singapore signed it, so it appears to be gaining momentum. We will cover the Convention and its implications in more detail in our next newsletter.

The Convention and the explanatory note are available on the HCCH website.

Notes
^1. _{Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.}
^2. _{Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).}
^3. _{This was established in the European Court's decision in Owusu -v- Jackson [2005] EUECJ C-281/02.}