Recent High Court decision casts doubt on whether EU27 courts will be able to defer to English court pursuant to exclusive jurisdiction clauses in some circumstances if "no-deal" Brexit

The post below was first published on our Litigation blog

The High Court has held that there is no power under the recast Brussels Regulation to stay English proceedings against an English domiciled defendant in favour of proceedings in a non-EU court commenced pursuant to an exclusive jurisdiction agreement in favour of that court, unless the foreign proceedings were commenced before the English proceedings: Gulf International Bank BSC v Aldwood [2019] EWHC 1666 (QB).

In a number of High Court cases decided under the Brussels I Regulation, which preceded the recast Brussels Regulation, the court held that the English court had a power to stay in favour of a non-EU court in some circumstances, including where there was an exclusive foreign jurisdiction clause in favour of the foreign court (see our posts here and here). This was on the basis that the provisions in the Brussel I Regulation could be applied by analogy, or reflexively. In other words, as an EU court had to stay its proceedings in favour of another EU court where there was an exclusive jurisdiction court in the other court's favour, the same should apply where the chosen court was in a non-EU country.

The recast Brussels Regulation introduced new express powers in articles 33 and 34 giving an EU court the discretion to stay its proceedings in favour of identical or related proceedings in a non-EU country where the foreign proceedings were first in time. That left open the question what powers, if any, the court had where the foreign proceedings were second in time but there was an exclusive jurisdiction clause in favour of the foreign court.

The High Court has now held that there is no power to stay outside of the express provisions of articles 33 and 34 of the recast Brussels Regulation. The court commented that some aspects of reflexive effect have been incorporated into the recast Regulation; finding that there is a discretionary power outside of these provisions would conflict with the principles underpinning the interpretation of the Regulation, such as legal certainty and predictability.

This is a first instance decision, and it would not have been necessary for the judge to decide the point as he found the jurisdiction clause to be non-exclusive rather than exclusive. However, the decision potentially casts doubt on the effectiveness of English exclusive jurisdiction clauses in the event of a "no-deal" Brexit where proceedings are commenced first in an EU member state court and where the Hague Convention on Choice of Court Agreements 2005 is found not to apply – either because the clause was agreed before the Convention came into force for the UK (whether that is taken to be 1 October 2015, or 1 November 2019 when the UK is due to rejoin the Convention in its own right - see this post) or because of the domicile of the parties (if for example all parties are EU-domiciled, the rules in the recast Brussels Regulation will take precedence over the Convention for jurisdiction purposes). In those circumstances, if the approach taken in the present case is correct, an EU27 court  will only be able to stay proceedings commenced in breach of an English exclusive jurisdiction clause where the English proceedings were commenced first in time.

It is also worth noting that the decision is consistent with the High Court judgment in UCP Plc v Nectrus Ltd [2018] EWHC 380 (Comm) (considered in this post), which similarly found – though in a very different context and without such a detailed analysis of the arguments relating to reflexive effect – that the court's powers to stay proceedings in favour of a non-EU court under articles 33 and 34 are exhaustive.

Background

Proceedings were commenced against Mr Aldwood by the claimant bank under a personal guarantee seeking payment of approximately £29 million. He sought to set aside the proceedings on a number of grounds, including that the English court had a discretion to stay its proceedings as the guarantee provided for the exclusive jurisdiction of a Saudi Arabian Committee for Settlement of Banking Disputes ("SAMA").

Decision

The judge, Deputy High Court Judge John Kimbell QC, held that the court did not have a discretionary power to stay the English proceedings, given that Mr Aldwood was domiciled in England so the English court had jurisdiction under article 4(1) of the recast Brussels Regulation.

The correct approach, according to the deputy judge, was to interpret the recast Regulation in accordance with the well-established autonomous European law principles of construction, apply the decisions of the court that were binding on him, and consider previous first instance decisions under previous incarnations of the Regulation.

Interpretation of the recast Regulation

It was settled law that the recast Regulation must be interpreted purposively or teleologically and in accordance with the general principles underpinning the Regulation. Those principles include:

• Legal certainty and predictability
• Effectiveness (rules of national procedure cannot undermine the application and effect of the Regulation)
• Exceptions to a general rule (such as domicile) must be construed narrowly
• Continuity (interpretation of previous incarnations of the Regulation should continue unless plain that a change of wording was meant to produce a different outcome)

The deputy judge considered that the wording of the regulation gave a strong indication that the terms of the Regulation alone govern jurisdiction for defendants domiciled in the EU and any exceptions must be found in Regulation or not at all.

So far as the new articles 33 and 34 are concerned, in applying its power to stay proceedings a court may take into account a very wide range of factors including the existence of a jurisdiction agreement in favour of the third state, or facts which would have founded exclusive jurisdiction if the third state had been an EU member state. It was therefore clear that some aspects of reflexive effect have now been incorporated into the Regulation itself.

As a result of the inclusion of articles 33 and 34 it cannot be said of the recast Regulation that it is concerned only with regulation of the jurisdiction between the courts of member states, or that it fails to provide a mechanism to give effect to jurisdiction agreements in favour of countries outside the EU. It plainly now does both. Finding that there remained a discretionary power to stay would therefore conflict with the first three principles underpinning the interpretation of the regulation.

Owusu v Jackson C-281/02 [2005] QB 801

So far as binding decisions were concerned, the deputy judge considered the decision in Owusu (considered here) in some detail, finding that it decided that jurisdiction based on domicile is mandatory and subject only to the terms of the Regulation itself (express or implied). Owusu applied regardless of the grounds on which the other court was said to be more appropriate, so including where there was an exclusive jurisdiction clause in its favour. The decision was binding on him, and while it had been the subject of a great deal of criticism, it had been expressly approved recently in the Court of Appeal and Supreme court.

Coreck Maritime GmbH v Handelsveem BV C-387/98

The deputy judge rejected the argument that the decision of the CJEU in Coreck, which preceded Owusu, should be interpreted as not precluding a discretionary power to stay in favour of non-member states in some circumstances. This interpretation, initially put forward by Professor Briggs, had been accepted by Andrew Smith J in Ferrexpo AG v Gilson Investments Ltd [2012] EWJC 721 (Comm) (considered here).

The deputy judge's view was that the paragraphs relied on in Coreck merely dealt with how to assess the validity of a choice of court clause in favour of a non-contracting state. The case did not need to consider on its facts, nor had it considered, what effect which should be given to such a  clause once that exercise had been carried out.

English case law under the Brussels Convention and the Brussels I Regulation

So far as the previous decisions giving reflexive effect were concerned, the deputy judge was not persuaded to take a different view in light of them as:

• None of them were considering the recast Regulation.
• The case law wasn't consistent.
• The cases took an overly restrictive approach to Owusu, which wasn't permissible in light of the recent Supreme Court consideration of Owusu.
• Coreck had been given an inappropriately wide interpretation.
• The reasoning based on reflexive effect had been overtaken by incorporation of reflexive effect into articles 33 and 34 of the recast Brussels Regulation.
• Allowing a parallel discretionary power would undermine the effectiveness of the recast Regulation and contradict the principle of interpreting exceptions to jurisdiction based on domicile restrictively.
• A contrary finding would undermine certainty and predictability of outcome by adding a secondary discretionary layer whose content would vary from member state to member state.
• While Dicey and Morris on the Conflict of Laws had tentatively concluded that the previous case law on reflexive effect still applied to the recast Brussels Regulation, other academics, for example Professor Hartley, had taken a different view.

Jurisdiction clause in this case

If he was wrong in his interpretation of the recast Brussels Regulation and the court had a discretion to stay its proceedings, the deputy judge would not have exercised that discretion as he concluded that the clause in this case was non-exclusive rather than exclusive.