Disabling the Torpedo
The Brussels Regulation Recast
The EU jurisdictional regime
Since 1982 jurisdiction and enforcement of judgments between EU Member States has been governed by treaties (the Brussels and Lugano Conventions and then the Brussels Regulation (Council Regulation (EC) 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).
From 10 January 2015, Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation (recast)) applies.
The recast regulation altered the regime previously in effect in a number of ways.
This note is not an exhaustive review of all the changes, but highlights some of the major amendments to the regime, in particular as they affect parties not from Member States.
The most significant change in relation to jurisdiction, and this clearly effects parties not from Member States, is that a jurisdiction agreement will be binding providing that the court specified in the jurisdiction agreement is in a Member State, even if none of the parties is. Article 25 provides,
“If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”
This will obviate arguments about the domicile of parties and the requirement to obtain permission to serve a defendant out of the jurisdiction.
The recast regulation also provides that the question of whether a jurisdiction clause is valid is also to be determined by the law of the jurisdiction in the agreement. It is not clear, if the jurisdiction clause is non-exclusive or hybrid, how this rule will be applied.
Article 25 (5) also introduces a further change that,
“An agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”
In other words, the jurisdiction provision is separable, which mirrors English law and reduces the risk of abuse.
Where there are proceedings involving the same cause of action or related proceedings (Articles 33 and 34), the recast regulation does not deal with the position where proceedings are commenced in a Member State when proceedings are already underway in a non-Member State or the dispute is subject to agreement to the jurisdiction of a non-Member State.
The provision governing related proceedings stipulates that the court may stay proceedings if “it is expedient to hear and determine the related actions together to avoid the risk of irreconcilable judgments resulting from separate proceedings”.
A condition of the stay is that the judgment of the Non-Member State must be capable of recognition, and, where applicable, enforcement, in the Member State which is considering whether to grant a stay.
A stay must be “necessary for the proper administration of justice” guided by Recital 24, which states,
“When taking into account the proper administration of justice, the court of the Member State concerned should assess all the circumstances of the case before it. Such circumstances may include connections between the facts of the case and the parties and the third State concerned, the stage to which the proceedings in the third State have progressed by the time proceedings are initiated in the court of the Member State and whether or not the court of the third State can be expected to give a judgment within a reasonable time.
That assessment may also include consideration of the question whether the court of the third State has exclusive jurisdiction in the particular case in circumstances where a court of a Member State would have exclusive jurisdiction.”
Article 34(2) provides that,
“2. The court of the Member State may continue the proceedings at any time if:
a) it appears to the court of the Member State that there is no longer a risk of irreconcilable judgments;
b) the proceedings in the court of the third State are themselves stayed or discontinued;
c) it appears to the court of the Member State that the proceedings in the court of the third State are unlikely to be concluded within a reasonable time; or
d) the continuation of the proceedings is required for the proper administration of justice.
3. The court of the Member State may dismiss the proceedings if the proceedings in the court of the third State are concluded and have resulted in a judgment capable of recognition and, where applicable, of enforcement in that Member State.
4. The court of the Member State shall apply this Article on the application of one of the parties or, where possible under national law, of its own motion.”
Enforcement of Judgments
Enforcement of judgments of one country to which the Regulation applies is now simpler (see Enforcement of Foreign Judgments in England). Instead of a registration procedure, the judgment creditor has to produce a copy of the judgment which satisfies the conditions necessary to establish its authenticity and a certificate in a form set out in the recast regulation.
Disabling the torpedo
Previously, any court other than the court first seised had to decline jurisdiction, until such time as the court first seised decided whether or not it had jurisdiction. The court first seised was the court in which the proceedings had first been issued, where proceedings were issued in the court of more than one country.
This change will also have an effect on litigation in which one or more of the parties is not resident or doing business in one of the states to which the recast regulation applies.
Pursuant to Article 31
“2. Without prejudice to Article 26, where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement.
3. Where the court designated in the agreement has established jurisdiction in accordance with the agreement, any court of another Member State shall decline jurisdiction in favour of that court.”
The change was designed to prevent the use of torpedo litigation. Often, the proposed defendant would commence proceedings, sometimes for a negative declaration, in a court other than that provided for in the contract. Such proceedings were usually brought in a jurisdiction known to be slow, thus delaying the proceedings. One of the favoured jurisdictions for such actions was Italy, thus such proceedings are commonly known as “the Italian torpedo”.
Whilst there may still be inconvenience and expense in dealing with a second set of proceedings, such litigation will not now prevent the court in the jurisdiction to which the parties agreed by contract from deciding whether it has jurisdiction and, if so, from continuing the proceedings. Once that court has decided that it does have jurisdiction any court in any other Member State must decline jurisdiction.
Arbitration is dealt with very clearly, by a provision in Article 1(2)(d) that arbitration is excluded from the scope of the recast regulation.
It is dealt with in more detail in Recital 12.
“This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative or incapable of being performed should not be subject to the rules of recognition and enforcement laid down in this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question.
On the other hand, where a court of a Member State, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not preclude that court’s judgment on the substance of the matter from being recognised or, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958 (‘the 1958 New York Convention’), which takes precedence over this Regulation.
This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of an arbitral tribunal, the powers of arbitrators, the conduct of an arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition or enforcement of an arbitral award.”
Issues to be clarified
It is not clear what the position is if the jurisdiction specified is not a court of a Member State. The Commission’s response that this will be dealt with when the EU ratifies the Hague Convention on Choice of Courts Agreement of 30 June 2005 is not ideal, given that, so far, only Mexico has ratified that Convention. It is also not specified what happens if the parties to a contract have agreed a dual jurisdiction clause, or a hybrid jurisdiction clause.
It is also not clear whether the parties can specify a different law to govern the jurisdiction clause.
Disabling the Torpedo
An unresolved issue is what happens if a party, most likely the defendant to the substantive claim, issues pre-emptive proceedings in a Member State to establish that court as the court first seised, in breach of a jurisdiction agreement, where the court with agreed jurisdiction is not in a Member State. The recast regulation did not deal with this possibility.
Inevitably, as with any new rules, there will be litigation to establish what the rules mean. The recast regulation solves some problems, but there are clearly issues which will need to be resolved by the courts.
Matters for lawyers to consider
Where to sue – torpedo
If a court not in a Member State would have jurisdiction under its own rules, torpedo litigation can still be commenced. This would not affect the continuation of the proceedings in the court agreed in the contract, but is an added inconvenience and expense.
Hybrid jurisdiction clauses, for example in a loan agreement, are likely to cause problems. It is unclear whether such provisions are “exclusive” for the purpose of the new rule. It may be that they are binding on the party which can only bring proceedings in the agreed jurisdiction, and not on the other party who is permitted to sue elsewhere. The rule cannot apply to non-exclusive jurisdiction clauses, as the parties have clearly agreed that the jurisdiction of other courts may be invoked.
It is also unclear to what extent a non-chosen court would have to apply a test to determine jurisdiction, bearing in mind the recast regulation, which would not have direct effect in that country.
Parties may wish to examine their current contracts and may well wish in future contracts to take advantage of exclusive jurisdiction clause to take advantage of the new rule.
It is not clear how the precedence of the New York Convention over the recast regulation will operate in practice. Again, there will, no doubt, be litigation to resolve issues such as what happens if there is an arbitral award and a conflicting court judgment.
The law of unintended consequences will apply to the changes in the rules, and only litigation will clarify what happens in the case of the current known unknowns, as well as the unknown unknowns which will almost certainly arise.