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Council Regulation (EC) No 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (“the Brussels Regulation”) sets out the rules governing such matters within EU member states. On 14 December 2010, the European Commission published proposals which, if adopted, would bring about significant changes to those rules.

The key changes would:

• make it easier to enforce judgments across EU member states;
• introduce new rules for the courts of member states assuming jurisdiction over non-EU defenders;
• improve the effectiveness of choice of jurisdiction clauses;
• clarify the relationship between the Regulation and arbitration proceedings.

Simplified enforcement

The current rules set out in the Regulation require a successful litigant to have their judgment declared enforceable or registered in the member state in which he is seeking enforcement. This process (known as “exequatur”) is a prerequisite before any judgment can be enforced in accordance with the national laws of the enforcing country. The procedure can be time-consuming and expensive.

The Commission is proposing to do away with this procedure, save in relation to judgments in defamation and “collective redress” (class action) cases. A judgment would become automatically enforceable across the EU with limited protection for the judgment debtor. The judgment debtor has two options. First, they can challenge the judgment in the original court on the basis that they had insufficient notice of the proceedings. Alternatively, they can object to the enforcement in the enforcing court on the basis that either the judgment conflicts with an earlier judgment, or their fundamental right to a fair trial has been breached. The onus would therefore shift significantly on to the judgment debtor. If they fail to take the steps set out above, the judgment will be enforced in the enforcing country.

Since the Regulation applies (save for minor modifications) to intra-UK jurisdiction, this proposal could significantly simplify the procedure for registering a Scottish decree for enforcement in England and vice versa. This could result in a more speedy enforcement process in both jurisdictions. It may also require certain of the provisions in chapter 62 of the Rules of the Court of Session to be revised.

Jurisdiction over non-EU defenders

Save for a limited number of exceptions, the Regulation contains a framework of rules for determining jurisdiction in relation to defenders domiciled only in the EU. Member states apply their own private international law rules to determine whether their courts have jurisdiction over any non-EU defender. The Commission is proposing to extend the Regulation’s rules on jurisdiction to non-EU defenders. This would bring about an end to national courts in EU member states applying their own private international law rules on jurisdiction.

The rules on jurisdiction set out in the Regulation would apply equally to EU and non-EU domiciled defenders. It may also bring an end to the courts’ power to stay a legal action of the basis of forum non conveniens if that action involves a non-EU defender.

The Commission is also proposing two additional grounds upon which the courts of a member state may assume jurisdiction over non-EU domiciled defenders, namely:

• where the defender has assets in the member state (and the dispute has a sufficient connection with the member state); and
• where there is no other forum guaranteeing the right to a fair trial and the dispute has sufficient connection with the member state concerned.

These proposals represent a significant change in the EU’s approach to jurisdictional issues and are therefore likely to be controversial. For example, the current Regulation contains a number of protective measures (based on “social protection”) in relation to consumers and employees. If these new proposals were accepted, these protective measures would be extended to non-EU parties, a move that could impact on retailers and employers. These parties may no longer be able to impose their choice of jurisdiction on non-EU pursuers.

The end of the Italian torpedo?

Under the current Regulation, where a party commences an action in an EU member state in breach of a choice of jurisdiction agreement, subsequent proceedings in the chosen court must be put on hold until the court “first seised” has given a ruling on its jurisdiction. This is a fundamental principle underpinning the Regulation. This process can sometimes take years, particularly where proceedings are commenced in certain jurisdictions (hence the name “Italian torpedo”).

This has caused much concern to commercial parties as it can allow an unscrupulous litigant to obtain an unfair tactical advantage by commencing proceedings in flagrant breach of a choice of jurisdiction clause. By doing so, the determination of the substantive dispute can be delayed for several years. The Commission’s proposal is that, where there is an exclusive jurisdiction clause in favour of the courts of a member state, court proceedings brought in another member state must be stayed until the court chosen has determined its jurisdiction, irrespective of which proceedings were commenced first. This proposal would get rid of the unfair tactical advantage that can arise from the “court first seised” rule.

In order to deal with parallel proceedings where there is no choice of jurisdiction agreement, the Commission has proposed that the court first seised should establish its jurisdiction within six months, unless there are exceptional circumstances. This proposal would reduce the risk of an unfair advantage arising.

Arbitration and litigation

The Regulation does not govern arbitration proceedings. However, as a result of the ECJ’s decision in Allianz SpA v West Tankers (C-185/07), it is possible for a party to seek to gain an unfair tactical advantage by bringing court proceedings in a member state despite the fact that the parties have agreed to submit any dispute to arbitration.

As in the “Italian torpedo” scenario referred to above, under the current Regulation such a court would have to consider and determine the scope of the arbitration agreement before the arbitration proceedings could subsequently continue. Again, this can result in substantial delays, thereby benefiting the unscrupulous litigant. Many commercial parties consider this an unreasonable interference with the arbitration process. It can delay what is usually intended to be a relatively streamlined procedure.

The Commission has therefore proposed a new rule that would require a court of any EU member state 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 appointed to deal with the dispute, or court proceedings relating to the scope of the arbitration agreement have been commenced in the member state of the seat of the arbitration. This should address the concerns set out above and reduce the risk of an unnecessary delay in arbitration proceedings.

What happens now?

The Ministry of Justice published a consultation seeking views on whether it would be in the UK’s national interest to opt in and apply the revised Brussels Regulation in the terms proposed by the Commission. The deadline for responses was 11 February 2011. The UK Government must make a decision as to whether to opt into the proposal by mid-March 2011. The Government’s initial assessment is that it broadly supports the proposed reforms.

The Commission’s proposals will be sent to the European Parliament and the Council to be considered under the ordinary legislative procedure. The Commission has indicated that final approval of the proposal is expected in the next two to three years. If the proposals are implemented, this will bring about important changes to the rules of jurisdiction and enforcement of judgments within the EU.

All practitioners involved in cross-border litigation will need to be fully up to speed with these changes.

The proposals can be accessed via http://ec.europa.eu/justice/news/intro/ news_201012_en.htm