On 14 December 2010, the European Commission published its proposal in respect of the reform of the 'Brussels I' Regulation (44/2001), which governs the courts' jurisdiction and the recognition of judgments in the EU.  The publication of this proposal represents the latest step in a reform process which was initiated by the Commission in April 2009, and should give rise to a final text in two years.  The amendments  to the Regulation are aimed at increasing the efficiency of the judicial framework in the EU, by reducing the costs and bureaucracy associated with cross-border litigation, and in so doing, creating the necessary legal environment for the European economy to recover.  The UK Government has launched a consultation ending in February 2011 on how the UK should approach the negotiations on the revision of the Brussels I Regulation, which can be accessed by clicking here.  You can also access the Commission's Proposal  by clicking here.

The most significant reform is the abolition of the 'exequatur' procedure, which, if adopted, will allow for the automatic recognition and enforcement of judgments between Member States, thereby reducing cost and administrative burden for those seeking enforcement.  The draft amended Regulation also includes significant changes as to how 'choice of court' agreements are dealt with, and as to how greater access to justice is ensured in respect of disputes involving non-EU defendants.  Notably, the proposal keeps arbitration excluded from the scope of the Regulation, but provides a solution to avoid situations where parties can try to undermine arbitration agreements by initiating inefficient parallel court proceedings.

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Detailed overview

The 'Brussels I' Regulation (Regulation 44/2001) facilitates civil judicial cooperation in the EU by harmonising the rules of jurisdiction of the EU Member States in a cross-border dispute, and by ensuring the effective recognition and enforcement of judgments issued in another Member State. It is directly applicable in English law. The European Commission's legislative proposal has been published within the context of the obligation contained in the Regulation for a five-yearly review, and follows on from the report and a Green Paper adopted by the Commission in April 2009, which set out the Commission's proposals on possible options for reform.

The proposals for reform have been sent to the European Parliament and the Council to be adopted under the ordinary legislative procedure, and final approval of the proposed reforms is expected within the next two to three years.

A summary of the key proposals for reform are as follows.

1. Abolition of 'exequatur' procedure

Currently, under the Regulation, a judgment issued in one Member State does not automatically take effect in another. In order to take effect, the judgment must first be validated and declared enforceable by a court under a special intermediate procedure known as 'exequatur'. This procedure can be time-consuming and expensive, in some cases leading to costs of up to €12,000 for a procedure which can take several months to resolve. A recent survey carried out by the Commission, however, showed that the procedure was a pure formality in approximately 95% of cases.

As such, the Commission has proposed to abolish the exequatur procedure, in so doing removing a significant administrative hurdle for parties to clear in achieving the enforcement of judgments from another Member State. If adopted, judgments in commercial and civil matters rendered by a court in one Member State will thus be automatically enforceable across the EU, with the exception of judgments which relate to defamation or collective redress (to which the exequatur procedure will still apply). The execution of the judgment could still be prevented by a court. However, this would only occur in exceptional (prescribed) circumstances, for example where the defendant was not given proper notice of the proceedings.

2. Disputes involving non-EU countries

Currently, the jurisdiction rules of the Regulation do not apply when the defendant is domiciled outside the EU; in such cases, the relevant national law will apply. Within the EU, national rules on jurisdiction for third country defendants vary widely between Member States, so whilst it may be possible for citizens or companies of one country to sue a defendant outside the EU in the national court, this may not be the case for citizens or companies of a different Member State.

As a result of this perceived 'unequal access to justice', the Commission's proposals are aimed at remedying this lack of uniformity across the EU, and preventing a distortion of competition for companies across the EU which may arise due to unequal business conditions.

The Commission has therefore proposed to extend the Regulation's jurisdictional rules to non-EU countries, which would establish a uniform basis for claimants in the EU to bring proceedings against non-EU defendants in the EU (for example, where the place of performance of the obligation in question is within the EU, despite the fact that the defendant is outside the EU). The amended rules would also ensure that the protective jurisdiction rules which currently apply to consumers, employees and the insured, would also apply if such parties are in dispute with non-EU parties.

The proposal also introduces a discretionary lis pendens rule for disputes on the same subject matter and between the same parties which are pending before the court of a Member State and the court of a non-EU country. In such cases, the court of a Member State could exceptionally stay proceedings if a non-EU court was seised first, and it would be expected to decide within a reasonable time if the decision will be capable of recognition and enforcement in that Member State. This amendment is aimed at preventing parallel proceedings in and outside the EU.

3. Choice of Court Agreements

At present, where proceedings are brought in breach of a jurisdiction agreement, the court specified in the jurisdiction agreement (if second seised) is obliged to stay its proceedings until the court first seised has determined its jurisdiction. In certain jurisdictions, it may take years before a court is able to determine jurisdiction, and it is not uncommon for litigation tactics to be used in order to challenge the validity of the choice of court agreement in another EU Member State to delay proceedings.

The Commission's proposals include amendments which are aimed at improving the effectiveness of choice of court agreements. Where the parties have designated a particular court to resolve a dispute, the chosen court would have priority to decide on its jurisdiction, regardless of whether it is first or second seised. Any other court would have to stay proceedings until the chosen court has established or declined jurisdiction. The modification is designed to increase the effectiveness of choice of court agreements and eliminate the incentives for abusive litigation tactics in non-competent courts.

4. Arbitration

Under the Regulation, arbitration, or any court proceedings which have arbitration as their subject matter, are excluded from its scope. However, the Commission has recognised that in practice, a company that wishes to escape from its obligations under an arbitration agreement can do so relatively easily by claiming that the agreement is invalid, and commencing proceedings in the court of a Member State which may give a favourable decision.

In recognition of this issue, the Commission has included in its proposals a specific rule which obliges a court seised of a dispute to stay proceedings if its jurisdiction is contested on the basis of an arbitration agreement, and an arbitral tribunal has been seised of the case or court proceedings relating to the arbitration agreement have been commenced in the Member State of the seat of arbitration.

This modification is aimed at enhancing the effectiveness of arbitration agreements in Europe, prevent parallel court and arbitration proceedings, and eliminate the incentive for abusive litigation tactics.

5. Other proposals

The Commission's reform proposals also include other amendments such as:

  • the creation of a forum for claims of rights in rem at the place where moveable assets are located;
  • the possibility to conclude a choice of court agreement for disputes concerning the tenancy of premises for professional use; and
  • clarification of the conditions under which provisional and protective measures can circulate in the EU, including measures granted ex parte (subject to certain conditions).

Conclusion

Many of the measures proposed by the Commission have been well-received by the commercial community, not least because of the simplification of certain procedures that under the current Regulation are overly-burdensome and bureaucratic. For example, the abolition of the exequatur procedure represents a seemingly pragmatic step to ensure faster and cheaper settlement of cross-border disputes, and remove what is currently a deterrent for cross-border transactions in Europe.

Further, the proposed reformation of the rules relating to choice of court agreements, if adopted, would have the welcome effect of deterring defendants from using delaying tactics to prevent judgment creditors progressing their claim to judgment (and enforcement) for many years. Recognising the inequity of such practices, and responding to the submissions received by it on this topic in response to its recent consultation exercise, the Commission has taken a sensible step in this regard.

However, there are areas of the Commission's proposed reforms which are likely to stimulate lively debate. For example, the Commission's extension of the Regulation to include previously unregulated areas, such as the rules relating to non-EU parties, represents a radical change from the previous position. The changes would appear to have the effect of potentially removing the existing English common law rules relating to grounds of jurisdiction. The extension of the protective rules relating to consumers, employees and the insured, ensuring that preference is given to the courts of those parties' domiciles when in dispute with non-EU parties, will be of particular concern to employers, insurers and retailers.

Finally, although there were concerns following the Commission's Green Paper that the arbitration exclusion would be removed, the proposed draft amended Regulation maintains the arbitration exception, but seeks to remedy the problem highlighted by the recent West Tankers case without compromising the independence of the arbitration process. In the West Tankers case, the ECJ ruled that an English court could not issue an anti-suit injunction restraining parallel litigation in Italy, in favour of an arbitration agreement that specified England as the seat of arbitration. The amendments to the Regulation in this area would appear to have solved this problem, ensuring that the Member State within which the chosen seat of arbitration/ arbitral tribunal is located has first priority to determine jurisdiction. The impossibility for the English courts to issue an anti-suit injunction within the EU would still remain even in arbitration cases. In its consultation paper on "How should the UK approach the negotiations", the Ministry of Justice has therefore reserved its position on the viability of the Commission's proposal until it has consulted extensively with the arbitration community.

There remains a lengthy process before the Commission's proposals are formally adopted, including two rounds of readings and amendments by the Council and the European Parliament, followed by a 'conciliation procedure' carried out by the Conciliation Committee. It is likely that the adoption of the amended Regulation, if approved, will take place within the next two to three years, but it will be important to monitor the reaction to, and genesis of, the Regulation during that time.

For link to Commission Proposal, please click here.

For link to Government Consultation paper, please click here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 13/01/2011.