Brussels Regulation: The Commission proposes radical changes to rules on jurisdiction and enforcement of judgments

On Tuesday (14 December 2010) the Commission published its eagerly anticipated proposals relating to reforms to the Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation). Please click here for a link to the proposals.

The proposals will (if adopted) bring about important changes in relation to

• The ease of enforcing judgments across the EU
• The grounds on which Member State courts may assert jurisdiction over non-EU defendants
• The efficacy of choice of law agreements, and
• The interface between arbitration and court proceedings.

Summary of key proposals and some initial thoughts

The following is a short summary of the key proposals and the issues which the proposals seek to address.

Simplifying the recognition and enforcement of EU Member State judgments across the EU – Under the current rules judgment creditors need to have a judgment declared enforceable or have it registered in the Member State in which enforcement is sought before being able to proceed with enforcing the judgment in accordance with the national laws of the enforcing country. The Commission considers this process (exequatur) to be unnecessarily time consuming and costly and an obstacle to the free circulation of judgments in the EU.

It is proposed to abolish this intermediate procedure and to make judgments (given in another Member State) immediately enforceable across the EU with limited safeguards for the judgment debtor. The proposal puts the onus on the debtor to either challenge the judgment in the originating court on the basis that he was not served with the proceedings in sufficient time or to object to the enforcement in the enforcing court on the basis that the judgment conflicts with another (earlier) judgment or was obtained in breach of his fundamental right to a fair trial. The proposals only envisage provisional or protective measures to be enforceable across the EU where they have been granted by the court with substantive jurisdiction. Where measures are granted by another court (without substantive jurisdiction) they are no longer to be enforceable under the Brussels Regulation. By way of an exception, the exequatur procedure is to be retained (for the time being) in relation to judgments in defamation and collective redress cases.

The core of this proposal (ie to abolish the exequatur procedure) is unlikely to be controversial and is in line with the European Parliament's resolution of 7 September 2010 which adopts the report of the Parliament's Committee on Legal Affairs. Please click here for a link to the resolution. There is however likely to be discussion about the level of safeguards required.

Extending jurisdiction rules to non-EU defendants – Currently, most of the jurisdiction rules in the Brussels Regulation apply only in relation to defendants domiciled in the EU. In relation to non-EU defendants Member States apply their own private international law rules to determine whether they can assert jurisdiction over a foreign national. The Commission considers that this results in unequal access to justice for claimants as the ease of bringing proceedings against a non-EU defendant will depend on how readily different Member States assert jurisdiction over such a defendant.

It is proposed to extend the Brussels Regulation rules on jurisdiction to non-EU defendants and to remove the existing national jurisdiction rules. In addition there are to be two additional grounds for jurisdiction over non-EU defendants, ie where the defendant has assets in a Member State (and the dispute has (another) sufficient connection to the Member State) or where there is no other forum available which would guarantee a fair trial (and the dispute has a sufficient connection to the chosen Member State). Further, there is to be a new rule which allows a Member State court to stay proceedings if earlier proceedings were commenced in a non-EU court.

These suggestions are radical and are bound to be controversial. They are also contrary to the views expressed by the Parliament which considered that it would be premature to extend the rules to non-EU defendants without further consultation and political debate. If adopted, the proposal will result in the loss of grounds of jurisdiction currently available under English common law (eg where the contract was made or breached within the jurisdiction, or where a non-EU defendant is a necessary or proper party). Also, the proposal extends the protective rules in relation to consumers, the insured and employees to non-EU parties, giving preference to the courts of the consumer’s, insured’s or employee’s domicile and restricting the ability to enter into a jurisdiction agreement derogating jurisdiction away from these preferred jurisdictions. This is likely to be of concern to retailers, insurers and employers.

Further, the extension of the Brussels Regulation rules to non-EU defendants raises the question whether this will mean the complete loss of the English courts’ ability to stay proceedings on forum non conveniens grounds, ie in favour of a court which has a closer connection to the dispute. This ability has already been lost in relation to EU defendants due to the ECJ’s controversial decision in Owusu v Jackson (Case C-281/02) [2005] EUECJ but continues in relation to non-EU defendants. It is noteworthy in this context that the Parliament advocates in its resolution for a reversal of Owusu and an introduction of forum non conveniens considerations in relation to all proceedings, including those involving EU defendants.

Improving the efficacy of choice of jurisdiction agreements and defusing “torpedo” actions – Under current rules if a party brings proceedings in an EU Member State court which are in breach of a jurisdiction clause any subsequent proceedings brought in the chosen Member State court must be stayed pending the determination of jurisdiction by the first seised court. The ability to bring such a “torpedo” action undermines the efficacy of jurisdiction agreements. The Commission acknowledges this and proposes that where there is an exclusive jurisdiction clause in favour of a Member State court, court proceedings brought in another Member State court must be stayed until the chosen court has ruled upon its jurisdiction.

This approach will be welcomed by the commercial community although the operation of the rule is not entirely clear. For example the rule suggests that potentially offending proceedings must be stayed regardless of whether proceedings have been or are subsequently brought in the chosen court. That cannot be right. There must be a time frame in which proceedings must be brought in the chosen court to break the deadlock.

Clarifying the interface between arbitration and litigation – Article 1(2)(d) of the Brussels Regulation provides for the exclusion of arbitration from its scope. However, the delineation of this exclusion has become blurred as a result of the ECJ’s decision in Allianz SpA v West Tankers (Case C-185/07). Please click here for our e-bulletin on West Tankers. Based on West Tankers it is possible for a party to bring court proceedings in a Member State despite the existence of an arbitration agreement and for the court to consider the existence, validity and scope of the arbitration agreement by way of a preliminary or incidental issue therewith interfering with the arbitral process.

The Commission has dropped its suggestions canvassed in its Green Paper to partially abolish the arbitration exclusion and proposes the inclusion of a rule similar to the rule relating to jurisdiction agreements. The proposed rule requires a Member State court to stay its proceedings where there is an arbitration agreement and either the arbitral tribunal or the courts of the Member State at the “agreed or designated” seat have been seised to determine the existence, validity or effects of an arbitration agreement. This is likely to be welcomed by the arbitration community which is keen to preserve the autonomy of arbitration and to avoid court interference.

Next steps

The proposal is likely to trigger lively debate. For example the suggestions relating to the extension of jurisdiction rules are highly controversial and are diametrically opposed to the Parliament's views expressed in its resolution. Also, some of the suggested drafting is not entirely clear. The proposal will now go to the Council and the European Parliament for consideration under the ordinary legislative procedure (formerly known as the co-decision procedure). This process is expected to take two to three years until an agreed version of the reforms is adopted.