Preparing for Brussels I recast—choice of court agreements

With the recast Brussels I Regulation set to apply from January 2015, what do lawyers need to be aware of and prepare for when dealing with matters under the new regulation? Patrick Robinson, a partner in the dispute resolution practice at Linklaters, considers the amendments to the general rules on EU jurisdiction clauses and, among other things, points out the potential pitfalls—and how to avoid them—arising from the adoption of a new rule on substantive validity.

What are the key changes to the choice of court provisions?

The Brussels I recast Regulation (EU) 1215/2012, art 25(1) contains its ‘core’ rules on EU jurisdiction clauses. It largely reproduces the Brussels I Regulation (EC) 44/2001, art 23(1). Like that article, it requires that effect be given to such clauses provided certain requirements are met.

There are two significant changes. First the terms of art 23(1) required at least one party to be EU-domiciled before its terms fully applied. That requirement is now gone so, in matters within the scope of Brussels I recast, such clauses will be governed by and derive their effect from art 25(1)—even if no parties are domiciled in the EU. This has practical implications, which are discussed later in the article.

The second change is the introduction into the article of a rule which states that the chosen court shall have jurisdiction unless the agreement is ‘null and void as to its substantive validity under the law of that [ie the chosen] member state’. Recital 20 adds that this includes the chosen state’s conflicts of laws rules.

This is a significant change. In case law on art 25’s predecessors, the Court of Justice of the European Union (CJEU) has consistently held that assessing the clause’s validity is a matter for autonomous EU requirements, not a national governing law (eg Trasporti Castelletti Spedizioni Internazionali SpA v Hugo Trumpy SpA: C-159/97). In addition, associated matters such as the separability of a clause have been measured by an autonomous standard (Benincasa v Dentalkit Srl: C-269/95 [1998] All ER (EC) 135). Overall, the CJEU’s concern has been to see that the (minimal) formal requirements of the relevant article are met and, if so, that would be it.

The question that now arises is: how much of the CJEU’s previous approach is undone?

Two things appear clear. First, national laws on formal validity (for example that a clause be written in a particular language) will remain irrelevant. The (minimal) requirements remain prescribed by Brussels I recast. Separability of the jurisdiction clause will also remain autonomous. It has been enshrined in Brussels I recast, art 25(5)—a necessary step to protect the CJEU’s decision in Benincasa from the legislative change under discussion.

Beyond that, however, it is fair to say that there is a lack of consensus as to what the consequences are.

How will this affect the relationship between Brussels I recast and the Hague Convention on Choice of Court Agreements?

The broad scope of the Convention is to govern the effect, within a contracting state, of a wholly exclusive jurisdiction clause in favour of the court, or courts, of another contracting state or, indeed, itself. The Hartley/Dougachi report (paras 99, 102–109) makes clear the Convention is limited to such clauses—so exclusive clauses which are in favour of more than one state’s court or asymmetric fall outside the Convention’s scope. The Convention is, of course, not yet in force but it is likely that the EU (excluding Denmark) will soon ratify it.

From the perspective of an EU court, assessing such a clause in favour of itself or another EU court, an important point to keep in mind is that the Convention is in some instances capable of taking precedence over Brussels I recast (ie EU lawyers should not assume that the Convention is just about giving effect to exclusive jurisdiction clauses in favour of a non-EU contracting state). There are ‘give-way’ provisions in the Convention which significantly restrict when this will be so (particularly whilst ratification remains piecemeal). However, the broad consequence is that while one exclusive jurisdiction clause in favour of an EU court may be governed by Brussels I recast, another may be governed by the Convention.

The changes discussed above are, therefore, important because they ensure, in so far as a chosen EU court is concerned, that the approach it must take to a clause in its favour is rendered the same—irrespective of whether it considers it under Brussels I recast or the Convention (ie the changes in Brussels I recast bring conformity with the approach a chosen court would take under the Convention). In this respect another important change has been the override of Gasser (Gasser (Erich) GmbH v MISAT Srl: C-116/02 [2005] 1 All ER (Comm) 538) by Brussels I recast, as, under the Convention, a chosen court is not permitted to stay its proceedings on the basis of lis pendens elsewhere (Hartley/Dougachi paras [133]–[134]).

By contrast, the degree to which the obligations under the Convention of a non-chosen EU court are precisely the same as under Brussels I recast when faced with an exclusive clause in favour of elsewhere in the EU (in particular, whether the obligation to stay whenever the chosen court is seized applies) may be more debatable (albeit with strong arguments in favour based on the CJEU’s approach in The Maciej Rataj Tatry (cargo owners) v Maciej Rataj (owners): C-406/92 [1995] All ER (EC) 229)

What are the practical implications for practitioners?

For litigators before the English courts, one of the most important practical points is that removal of the party domicile requirement from art 25(1) will likely impact upon the need to obtain permission to serve out of the jurisdiction. Generally speaking, this is not required where jurisdiction is based on Brussels I and the change to the article expands its width. Exactly how the Civil Procedure Rules 1998, SI 1998/3132 are changed to accommodate this, however, remains to be seen, so the position should be checked at the time.

Should lawyers be taking any action in light of these changes?

The new rule on substantive validity carries potential pitfalls. To give one example, if the infamous decision of the French Supreme Court in Madame X v Rothschild were replayed under Brussels I recast (and French law was the appropriate law to be applied), it would become more difficult to criticise the outcome. In that light, it may be prudent, when using EU jurisdiction clauses, to consider which national law will apply to determine the issue of substantive validity under Brussels I recast in order to anticipate, and avoid, any specific problems that may arise. Fortunately, for English lawyers, to the extent that this would be English law (as, for example, in an English law governed contract with an English jurisdiction clause) there are likely to be few problems—at least so far as commercial transactions are concerned—given that English law is very tolerant in this area. It seems sensible to consider this now as it appears that under Brussels I recast the rules to be applied to a clause will be those in effect when proceedings are commenced, not when the clause is entered into (Sanicentral GmbH v Collin: C-25/79[1979] ECR 3423)—although the conclusions in that case may not be absolutely unimpeachable given the different treatment of jurisdiction clauses under Brussels I recast.

Do you have any further comments you wish to add?

In prompting the introduction of a rule on substantive validity, the Convention has moved Brussels I recast away from a procedurally-centred approach towards one based on contractual analysis (a direct analogy can be drawn here to the general treatment of arbitration clauses). The EU seems to have regarded the change as an acceptable sacrifice on the path to bringing the Convention into force. Whether this was appropriate or necessary, however, is another matter. As to the first, what works in the context of a limited Convention designed to cover wholly exclusive clauses in favour of one court becomes significantly less straightforward in the context of EU legislation which has within its potential scope every possible way of structuring a jurisdiction clause. As to the second, even though the Convention permits assessment of the substantive validity of a clause under the law of the chosen state, would it really have been so inconsistent with such an approach for the EU to continue to prescribe the content of that law for the EU member states? From that starting point the EU could have taken the opportunity to strengthen its prior approach, not water it down.

Patrick Robinson has a broad banking and financial markets litigation practice. He would like to thank Stephen Lacey for his input throughout the interview. Stephen is a senior professional support lawyer within the dispute resolution practice at Linklaters, specialising in general commercial litigation with emphasis on conflict of laws matters.

Interviewed by Kate Beaumont.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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