New EU jurisdiction rules apply from 10 January: Do you know where you can sue and be sued?

New EU rules on jurisdiction and the enforcement of judgments will apply to proceedings commenced from 10 January 2015, in the form of the recast Brussels Regulation (Regulation (EU) 1215/2012). Though similar in most respects to the original version of the Regulation it replaces, the recast Regulation includes some significant changes. The key practical implications for parties based both within and outside the EU are outlined below under the following headings:

• When can non-EU parties be sued in an EU member state court?
• Can a defendant delay proceedings in the chosen member state court?
• When can English proceedings be stayed in favour of a non-EU court?
• How can I enforce a member state judgment elsewhere in the EU?
• What about arbitration?

(You can click here for a copy of our recently published "Handy client guide to jurisdiction under recast Brussels Regulation: England and Wales". The guide features a decision tree, which is intended as a quick reference guide to help determine whether the English court will have jurisdiction over a dispute under the new rules.) 

When can non-EU parties be sued in an EU member state court?

In general terms, the Brussels regime regulates matters of jurisdiction as between EU member state courts where the defendant is EU-domiciled. Even under the original version of the Brussels Regulation, however, there were certain circumstances in which a non-EU defendant could be sued in a member state court, for example if the court's jurisdiction was derived from an agreement to which at least one party was EU-domiciled, or if the defendant submitted to the jurisdiction by filing a defence.

The recast Regulation clarifies and expands the circumstances in which a non-EU defendant can be sued in a member state court under the Regulation. In outline, the new circumstances are:

(i) Where there is a jurisdiction agreement in favour of a member state court, under article 25, whether or not any party to that agreement is EU-domiciled:

This is in contrast to the original version of the Regulation where, under article 23, at least one party had to be EU-domiciled for the Regulation to apply. Otherwise the relevant member state court would apply its own conflict of laws rules to determine whether it had jurisdiction. In the case of the English court, the claimant would need to satisfy three tests to obtain the court's permission to serve proceedings on the defendant out of the jurisdiction under the common law rules: first, that there was a serious issue to be tried on the merits; secondly, that there was a good arguable case that the claim came within at least one of the gateways for service out of the jurisdiction in CPR Practice Direction 6B paragraph 3.1 (which include where there is a contractual choice of English jurisdiction); and thirdly, that in all the circumstances England was clearly or distinctly the appropriate forum and the court ought to exercise its discretion to permit service out.

Under the recast Regulation, where there is an English jurisdiction clause, the claimant will no longer need the court's permission to serve out of the jurisdiction regardless of where any of the parties to the agreement are domiciled.

(ii) Where the defendant is an employer whose employee habitually works in an EU member state, or a trader who directs commercial or professional activities to an EU member state:

In contrast, under the original Brussels Regulation, the employer / trader could only be sued in a member state court if it had a branch, agency or other establishment there. Otherwise the court would only have jurisdiction (if at all) based on its own conflict of laws rules – see above for a summary of the English common law rules based on the court's permission to serve out of the jurisdiction.

To give an example, under the recast Regulaton, an employee who habitually works in England for a US employer can sue that employer in England. Similarly, an English consumer who buys something over the internet from a US trader can sue the trader in England, so long as the trader has directed its activities to England. In either case, there is no need for the court's permission to serve proceedings on the defendant out of the jurisdiction.

(iii) Where a member state court has exclusive jurisdiction under article 24 based on the subject matter of the proceedings:

The categories include land situated in a member state, certain matters relating to companies incorporated in a member state, and certain IP matters.

In fact, the equivalent provision in article 22 of the original Brussels Regulation probably also applied where a defendant was not EU-domiciled, but there was some uncertainty due to case law of the English court – see this post on the Dar Al Arkan decision which considers the position. The position is now made clear in the recitals to the recast Regulation.

Can a defendant delay proceedings in the chosen member state court?

Under the original Brussels Regulation, priority was given to the court "first seised", ie where proceedings were commenced first. Any other member state court had to stay its proceedings until the jurisdiction of the first court was established, even if the first action was brought in breach of an exclusive jurisdiction clause in favour of the second court.

This gave rise to a tactic known as the "Italian torpedo"; a party seeking to delay a judgment against it (say, a borrower under a loan agreement) could race to issue proceedings in the courts of a non-chosen member state; if the counterparty (say, the lender) then issued proceedings in the chosen court, they could not proceed until the first court declared it had no jurisdiction. This could take some considerable time, depending on procedures and timescales in the torpedo jurisdiction.

To address this problem, the recast Regulation provides for an exception to the basic "first seised" rule where there is an exclusive jurisdiction clause in favour of a member state court and proceedings have been commenced in that court. In those circumstances the chosen court has priority regardless of which court was first seised. Under article 31(2), any other member state court must stay its proceedings unless and until the chosen court has declared that it has no jurisdiction under the agreement. This is good news for claimants seeking to enforce their rights in the agreed jurisdiction.

When can English proceedings be stayed in favour of a non-EU court?

Where a member state court has jurisdiction based on a defendant’s domicile, it cannot stay its proceedings in favour of a non-member state court on the basis that that court has a closer connection to the dispute and therefore would be a more appropriate forum. This was established by the ECJ's 2005 decision in Owusu v Jackson (see post). It seems likely that the same principle applies where the member state court's jurisdiction is based on some other provision of the Brussels regime.

Under the original Brussels Regulation, it was not clear whether a member state court could stay proceedings in favour of a non-member state court on the basis that there were identical or related proceedings pending in that court. The recast Regulation introduces a new discretion to stay, under articles 33 and 34, but only if the non-member state action was first in time, the non-member state judgment is capable of recognition or enforcement in the member state, and the court is satisfied that a stay is necessary for the proper administration of justice. Also, this discretion to stay does not apply where the member state court's jurisdiction is based on a jurisdiction clause in its favour.

It was unclear under the original Brussels Regulation, and remains unclear under the recast Regulation, whether a member state court can stay proceedings in favour of a non-member state court where:

• The nature of the proceedings is such that the non-member state court would have exclusive jurisdiction under article 24 if it were within the EU (eg land): In Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm) the English High Court held that it could apply the equivalent provision under the original Brussels Regulation by analogy where the object of the proceedings was the validity of resolutions made by a Ukranian company (see post). However, the decision is only first instance and in any event it is not clear whether the same approach would be adopted today given that the recast Regulation could have, but did not, give an express power to stay in such circumstances.
• Proceedings have been commenced in a non‑member state court pursuant to an exclusive jurisdiction agreement in favour of that court: The CJEU's 2000 decision in Coreck Maritime GmbH v Handersveem BV (Case C-387/98), which pre-dates Owusu, suggested that a member state court could stay in favour of a non‑member state which has the benefit of an exclusive jurisdiction clause, and a number of first instance English court decisions have held that a stay can be ordered despite Owusu (eg Konkola Copper Mines v Coromin [2005] EWHC 898 (Comm)). But again it is not clear whether a similar approach will be taken now, in light of the recast Regulation.

How can I enforce a member state judgment elsewhere in the EU?

The recast Regulation has done away with the process of exequatur where, before a judgment of an EU member state could be enforced in another member state, it first had to be declared enforceable or registered in the member state of enforcement. This process was seen as unnecessarily time consuming and costly and an obstacle to the free circulation of judgments within the EU.

Certain safeguards have however been introduced for judgment debtors. Under articles 45 and 46 of the recast Regulation, an interested party can apply for recognition or enforcement to be refused on the same limited grounds as before, including if it would be 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.

What about arbitration?

Arbitration matters are excluded from the scope of the recast Brussels Regulation. There was a similar exclusion in the original Brussels Regulation, but its effect was undermined to some extent by the case law of the European courts. In particular, in West Tankers Inc v Allianz SpA (case C-185-07) [2009] AC 1138, the CJEU held that a preliminary issue concerning the application of an arbitration agreement, including in particular its validity, came within the scope of the Regulation if the main subject matter of the proceedings came within the Regulation.

This meant that a counterparty could launch a “torpedo” action in another member state on the merits, claiming that the arbitration agreement was invalid. The court of the seat would then be prevented from considering the validity of the arbitration agreement or referring the parties to arbitration, due to the "first seised" rule under the Regulation, unless and until the court of the torpedo jurisdiction refused jurisdiction.

The recast Regulation now clarifies, at recital 12, that there is an absolute exclusion of arbitration from its scope so that any member state court can examine the validity of an arbitration agreement or refer parties to arbitration and need not wait for the decision of another member state court on the validity of an arbitration agreement, even if the question has been referred to that other court first. Further, if an arbitral award and a member state court judgment conflict, a member state may enforce the arbitral award (if considered valid) under the New York Convention in preference to the court judgment.

The arbitration issues are considered in more detail in this post on our Arbitration Notes blog from December 2012.