Litigating in Europe: A Happy New Year?

Litigating in Europe: A Happy New Year?

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Author: Megan Holden

The Brussels I Regulation (Recast) comes into force on 10 January 2015 bringing with it the promise of significant improvements to the jurisdictional regime within the EU.

Most importantly, it gives priority to a court 'seised' (i.e. given the claim) under an exclusive jurisdiction clause and gives it the power to continue proceedings that have otherwise been first issued in the Court of another EU member state.

With cross-jurisdictional litigation becoming more common for commercial organisations this article addresses the impact of these changes and offers some practical guidance on how companies can ensure that they do not fall foul of jurisdictional challenges.

An introduction to the changes

The recast Regulation largely follows the structure of the old Regulation. For instance, a person domiciled in an EU member state must still be sued in that state unless the case falls within one of the exceptions set out in the Regulation. These exceptions also remain predominantly the same; for example, tortious claims are heard where the tortious act took place and contractual claims are heard where the contract was performed.

The most significant changes under the recast Regulation are introduced in respect of the enforceability of jurisdiction clauses, in particular clauses which stipulate in which member state proceedings must be issued.

The existing law

Parties who agree to give jurisdiction to a particular court have a reasonable expectation that the court of that member state will determine their claim. However, the existing law undermines this expectation and provides unscrupulous claimants with a mechanism to effectively 'forum shop' for the court system that best serves their needs.

The 'lis pendens' rule, under to Articles 27 and 28 of Brussels I, sets out a strict first in time rule. Accordingly, if the same claim between the same parties is brought in more than one member state court, the claim must be heard in the member state court first seised. The court 'first seised' is the first court to receive the claim.

An unfortunate consequence of this rule is that it permits disingenuous litigants to exploit the system and effectively launch what are known as 'Italian torpedoes' in the member state court that best serves their needs. An example of this would be a litigant who commences proceedings (in breach of an exclusive jurisdiction clause) in a member state court that is perceived to be slow-moving. This would enable the party to effectively delay or stymie the same proceedings from being brought in any other member state.

What's new in the EU?

In an attempt to rectify the flaws outlined above, the recast Regulation seeks to "enhance the effectiveness of choice of court agreements and to avoid abusive litigation tactics" (Recital 12).

Article 31(2) of the recast Regulation introduces a useful exemption for claims brought in member state courts in breach of an exclusive jurisdiction clause. The court first seised now has the power to determine whether it has jurisdiction pursuant to any exclusive jurisdiction clause. In effect, a member state court designated in an exclusive jurisdiction clause can now continue to run concurrent proceedings with the court first seised and is not required to stay its proceedings.

To bolster this amendment, Article 31(3) imposes an additional obligation on member state courts in which proceedings have been brought in contravention of an exclusive jurisdiction clause. These courts must now refuse to continue hearing a claim in favour of the member state court that has been explicitly agreed between the parties.

Exclusive jurisdiction agreements

The revised provisions will only apply to exclusive jurisdiction clauses. However, what amounts to an exclusive jurisdiction clause for these purposes remains an area of uncertainty.

One practical difficulty is how the courts will deal with one-sided jurisdiction clauses, i.e. those that require one party to issues proceedings in a particular court but permit the other party free choice of forum. Looking at the intended purpose of such clauses, which are common in financial agreements, if the named party initiates proceedings in a court other than that stipulated in the clause it would be an abusive litigation tactic and arguably subject to Article 31(2). However, the likelihood is that this issue, along with the wider issue of whether one-sided clauses are permitted by the recast Regulation at all, will need to be resolved by the Court of Justice of the European Union (CJEU).

Another potential area for uncertainty surrounds what level of assurance a member state court needs to have in the existence of an exclusive jurisdiction agreement. For example, it is not clear what the position would be if one party produces an obviously forged jurisdiction agreement or if there is dispute between the parties as to the existence of agreement. It is expected that further guidance will be needed from the CJEU.

Practical guidance

On paper the reforms sound promising. However, it remains to be seen whether these changes will bring the certainty and transparency intended in practice. There certainly remain several grey areas as to how reassured parties can be when selecting the appropriate forum for dispute.

Forum choice can be of imperative importance in the success of litigation. Accordingly, business should ensure they give careful thought to where they would like disputes to be heard. This should include a thorough assessment of the key legal and procedural aspects of each jurisdiction, including things like disclosure obligations and the enforcement of judgments.

Businesses should also take this opportunity to review their contractual documentation to ensure the existence of watertight and beneficial jurisdiction clauses. This should also be borne in mind in negotiating and drafting agreements going forward.

If you are in any doubt about effective jurisdiction provisions you should seek legal advice. Shoosmiths will be happy to advise on any questions of forum choice and effective drafting.

About the Author

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Megan Holden

Solicitor

03700 86 8357

Megan is a Solicitor in the Dispute Resolution and Compliance team in Milton Keynes. She advises on a broad range of domestic and cross-jurisdictional commercial disputes principally involving High Court proceedings including claims for breach of contract, contract termination disputes, agency disputes, professional negligence and misrepresentation.

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