Do changes to the Brussels Regulations go far enough?

For many years, an exclusive jurisdiction clause provided little clout in circumstances where a party was (a) outside the EU, or (b) had issued and served first in another member state court (usually one in which it would be easier to delay the outcome – the so-called ‘Italian torpedo’).

Of all the changes to the Brussels Regulations, which came into force on 10 January 2015, the recognition by the European Commission of the need to respect the choice of jurisdiction by the parties in
their agreements is the most welcome.

Exclusive jurisdiction

Under article 25 of the new Brussels Regulations, if the parties have agreed in writing that a court of an EU member state shall have exclusive jurisdiction to settle a dispute, that court shall have jurisdiction. Unlike under the old rule, the parties are able to agree that an EU member state has jurisdiction – even if both are non-EU parties.

There is no longer a need to apply for permission to serve proceedings on a non-EU defendant who is party to an exclusive jurisdiction clause, as this rule grants jurisdiction over such a defendant, who has agreed to submit to an EU member state. This removes an unnecessary procedural step.

Where there is an exclusive jurisdiction clause, any other court seised in respect of a dispute involving the same cause of action and the same parties must stay the action in favour of the chosen court, which should determine any dispute as to jurisdiction (including the validity of the jurisdiction agreement), pursuant to article 31(2).

The purpose of this change is to prevent parties from abusing the lis pendens rule in breach
of a jurisdiction agreement. Before, there was often a race to the courts to issue and serve first; parties rarely engaged in pre-action discussions so as not to tip off the other that litigation was a prospect. This counter-productive and costly form of litigation has finally now been brought under some control.

Challenges remaining

Some issues remain unresolved. Where there is no exclusive jurisdiction clause, the challenges posed by the lis pendens rule remain. So, where several courts have jurisdiction under an agreement, or
where there is a hybrid clause granting exclusive jurisdiction to different courts depending on the party bringing the
action (common in lender agreements), the changes
do not assist.

It is not clear what happens where a non-EU state has exclusive jurisdiction but proceedings are brought in a member state. The regulations introduce new rules whereby member states may stay proceedings where the same action has already been commenced in a non-EU state, but various tests must be met, including whether the judgment of the non-EU state will be capable of recognition. Such a stay is within that member state’s court’s discretion, which is wide and worded in favour of the proceedings continuing. Further, the possibility of a stay only arises where proceedings have already been commenced in the non-EU state, so a party could issue proceedings in a member state first in breach of the non-EU jurisdiction clause. SJ

 

Practical tips   For those drafting contracts, agree a clear exclusive jurisdiction clause, granting jurisdiction to an appropriate EU member state.?  For litigators, when issuing claims in the English courts against non-EU parties where there is an English exclusive jurisdiction clause, there is not yet an up-to-date N510 form (no permission required to serve out). It is recommended that your completed N510 form is accompanied by an explanation as to why you consider permission is not required, based on the new rules. Where there is a written exclusive jurisdiction clause in favour of an EU member state, there is no longer the need to rush to be the first to issue and serve proceedings to seize jurisdiction. However, where there is no such clause, it is still vital to issue and serve first in order to maximise your client’s chances of securing your chosen jurisdiction.

 

Gavin Foggo, pictured, is honorary secretary of the London Solicitors Litigation Association (LSLA) and a partner at Fox Williams. Evie Meleagros is a member of the LSLA and a senior associate at Fox Willliams