Reforms to Brussels Regulation now finalised

On 6 December the Council of EU Justice Ministers adopted proposed reforms to Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels Regulation). The changes had been proposed by the European Commission in December 2010 (see post) but were significantly revised before being approved by the European Parliament (on 20 November) and the Council.

The new Regulation (No 1215/2012) will come into force 20 days after its publication in the Official Journal of the EU, expected in a few weeks' time, but will not apply for another two years after that date. So it will be early 2015 before we see how the changes play out in practice. The key changes are as follows:

1. Making EU member state judgments immediately enforceable across the EU without the need for an intermediate registration process in the enforcing state (i.e. abolishing the so-called "exequatur" procedure).
2. Strengthening jurisdiction agreements by requiring member state courts to stay proceedings where there is an exclusive jurisdiction agreement in favour of another member state's court and that court has also been seised of proceedings, thereby defusing "torpedo" actions.
3. Extending the rules relating to jurisdiction agreements to apply where neither party is EU-domiciled, and extending the rules relating to consumers and employees to apply to non-EU domiciled traders and employers.
4. Clarifying that there is an absolute exclusion of arbitration from the ambit of the Regulation, and that exclusion also extends to court proceedings surrounding or in support of arbitration.

The first three of these changes are discussed in more detail below. For more detail on the fourth, see this post on our arbitration blog.

1. Making EU member state judgments immediately enforceable across the EU

Under the current rules, where a judgment creditor wishes to enforce a judgment in another member state, the judgment must first be declared enforceable or registered in the member state of enforcement (a process known as exequatur). The Commission proposed the abolition of this process, as it was seen as unnecessarily time consuming and costly and an obstacle to the free circulation of judgments in the EU.

This proposal was not in itself controversial but there was significant debate regarding the appropriate level of safeguards for judgment debtors, particularly since the proposal as originally drafted would have abolished the right of the judgment debtor to challenge enforcement on grounds of public policy (for example where a judgment was obtained in relation to a contract that would be considered illegal in the enforcing state).

This led to certain safeguards being reintroduced into the revised Regulation. Under Articles 45 and 46, recognition or enforcement will be refused on various grounds, including if recognition is manifestly contrary to public policy in the enforcing state, or (for default judgments) the defendant was not properly served with the proceedings in sufficient time to arrange for his defence, or the judgment is irreconcilable with a judgment given between the same parties in the enforcing state.

2. Strengthening jurisdiction agreements and defusing “torpedo” actions

Under current rules, where proceedings have already been commenced before a member state court, proceedings subsequently brought in another member state court must be stayed pending determination of jurisdiction by the first seised court. This applies even if the proceedings before the first seised court have been brought in breach of an exclusive jurisdiction clause. This gives scope for parties to bring so-called "torpedo" actions in a non-chosen court with a view to delaying or avoiding judgment in the chosen court, thereby undermining the efficacy of exclusive jurisdiction agreements.

The Commission acknowledged this problem and proposed that where there is an exclusive jurisdiction clause in favour of a member state court, proceedings brought in another member state court must be stayed until the chosen court has ruled upon its jurisdiction. This approach was welcomed by the commercial community. It is reflected in the final version of the Regulation (Article 31(2)) subject to the clarification, which has now been added, that the offending proceedings need only be stayed if proceedings have in fact been commenced before the chosen court.

3. Extending certain jurisdiction rules to non-EU parties

Currently, most of the jurisdiction rules in the Brussels Regulation apply only in relation to defendants domiciled in the EU (though the rules relating to jurisdiction agreements apply so long as any party, whether claimant or defendant, is 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.

The Commission took the view that this resulted in claimants having unequal access to justice, depending on how readily a given member state would assert jurisdiction over a non-EU defendant. It therefore proposed  removing the existing national jurisdiction rules (which, for example, allow the English courts to accept jurisdiction where a contract was entered into or breached in the jurisdiction, or where a defendant was served with proceedings while present in the jurisdiction) and extending the often narrower and more rigid Brussels Regulation rules to non-EU defendants. These suggestions were highly controversial, with 100% of responses to the MoJ’s consultation on the reforms having raised concerns about this aspect.

The proposals have therefore been significantly altered in the final version of the Regulation. Rather than extending the jurisdiction rules to non-EU defendants generally, the Regulation has been amended to:

• Extend the protective rules relating to consumers and employees to apply also to non-EU domiciled traders (Article 18) and employers (Article 21). In general terms these rules allow the consumer/employee to be sued only in the courts of their domicile, but allow the consumer/employee to bring proceedings either in those courts or in the courts where the trader/employer is established. They also restrict the ability of the parties to depart from these rules by agreement.
• Extend the rules relating to jurisdiction agreements to apply where neither party is EU-domiciled (Article 25). So if for example two non-EU parties agree that any disputes will be subject to the exclusive jurisdiction of the English courts, the English courts will be required to accept jurisdiction under the Regulation. Currently there is no such requirement, though the Regulation does say that other member state courts must refuse jurisdiction unless the chosen court has declined jurisdiction. (Of course, under common law rules, the English courts would almost certainly accept jurisdiction in any event where there is a jurisdiction clause in their favour.)