Preparing for Brussels I recast—jurisdiction outside the EU

With Brussels I (recast) set to apply from 10 January 2015, we continue our series considering what lawyers need to be aware of and prepare for when dealing with matters under the new regulation.In our 8th installment, Patrick Robinson, a partner in the dispute resolution practice at Linklaters, discusses the new rules regarding jurisdiction outside the EU.

What problems have arisen when an EU court wants to give way to a non-EU court?

Difficult questions have arisen under Brussels I (Regulation (EC) 44/2001) in this area. In particular, the problem concerns whether an EU court, which would otherwise have jurisdiction under the Regulation, can decline to exercise that jurisdiction on the basis of a non-EU jurisdictional factor (Switzerland, Norway or Iceland are not to be taken as part of the following analysis—the Lugano Convention regulates the EU’s jurisdictional relationship with those states).

Where only Brussels I, art 4 is engaged (ie the defendant is non-EU domiciled and no other ground of jurisdiction in the Regulation applies) the issue is (and will remain so under Brussels I (recast), art 6) less pressing because national law can be applied by the court.

On the other hand, greater difficulties have arisen when any of the other grounds of jurisdiction in Brussels I apply, for example art 2 (defendant sued in the courts of its domicile). In such a case there is nothing on the face of the regulation which tells the EU court that it can decline jurisdiction.

Furthermore, in the case of Owusu v Jackson (t/a Villa Holidays Bal-Inn Villas): C-281/02 [2005] QB 801, [2005] 2 All ER (Comm) 577 the Court of Justice of the European Union (CJEU) held that in such a case it was not permissible for an EU court to stay proceedings in favour of a non-EU court on the basis of forum non conveniens.

The conclusion from the above might be that the EU court must ignore the non-EU factor and accept jurisdiction. However, Owusu left one question open which was whether this is true even where the factor is of a specific type which Brussels I would recognise as having particular importance if in favour of an EU court. For example, a case where the non-EU court should have exclusive jurisdiction over, say, rights in rem in property in its jurisdiction, a case where an exclusive jurisdiction clause exists in favour of the non-EU state or where there is a lis pendens in the non-EU court.

One solution to such cases which many commentators advocate (and which has been considered by national courts, a recent example in England being Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm)) is to apply the equivalent provisions of the regulation by analogy (sometimes called ‘reflexive effect’) to give effect to the non-EU factor. However, no definitive ruling by the CJEU on this exists (in Goshawk Dedicated Ltd and others v Life Receivables Ireland Ltd [2009] IESC 7 a reference was made by the Irish Supreme Court but was later withdrawn) and the area remains controversial.

What change, if any has taken place through Brussels I (recast) to address such problems?

Against the above background, it is significant that Brussels I (recast) now sets out a legislative rule relevant to such issues. Specifically, Brussels I (recast), arts 33 and 34 provide EU courts with a discretion to stay proceedings brought before them where the same or related matters are already before the courts of a non-EU state.

However, these articles come with certain conditions. In summary, the non-EU proceedings must be first in time, the stay must be necessary for the proper administration of justice and, broadly speaking, the judgment of the non-EU court must also be capable of recognition and enforcement in the EU state seized. Furthermore, the EU court’s jurisdiction must also be based on the provisions of Brussels I (recast) which apply when the defendant is EU domiciled (Brussels I (recast), arts 4, 7, 8 and 9). If, for example, the EU court has exclusive jurisdiction (art 24) or jurisdiction pursuant to a clause in its favour (art 25) then arts 33 and 34 find no application.

What problems or issues will remain?

Given that ‘reflexive effect’ remains controversial, arts 33 and 34 can be seen as a positive development in that they now at least confirm that there will be a way to recognise non-EU jurisdictional factors in some cases of recast-based jurisdiction.

On the other hand, the difficulty is that, in the face of such a provision, arguments in support of ‘reflexive effect’ become more difficult to accept as being appropriate. Recital 24 of Brussels I (recast) gives support to such a view as it refers to matters of ‘exclusive’ jurisdiction of a non-EU court as falling within the assessment of the interests of justice to be carried out under arts 33 and 34.

If this is correct then, to give an example, an EU court with jurisdiction over a defendant domiciled in its territory but faced with an exclusive jurisdiction clause in favour of a non-EU court, will only be able to give effect to that clause within the terms of arts 33 and 34.

What practical considerations should practitioners be aware of when dealing with disputes which fall into this category?

The implications of the above should be clear. Under arts 33 and 34, it is critical that the non-EU proceedings are first in time. Thus non-EU lawyers managing domestic disputes where EU parties are involved will need to be aware of that fact. Furthermore, if their case raises any possibility of one of those parties being sued in the EU then commencing proceedings quickly in their local jurisdiction will likely be essential to insulating their local court’s proceedings and jurisdiction (be it on the basis of a jurisdiction clause or otherwise) against parallel proceedings in the EU.

Are there any further comments or observations you wish to add?

One caveat to the analysis at Q4 is the potential impact of the Hague Convention on Choice of Court Agreements when a case involves a non-EU jurisdiction clause. It is likely that the EU (excluding Denmark) will shortly ratify the Convention. If so, then it will provide a route by which a (wholly) exclusive jurisdiction clause in favour of one non-EU state might be given direct effect by an EU court in the face of recast-based jurisdiction. There are, however, two significant limitations. First, the chosen court must be in a state party to the Convention and ratification by others may be piecemeal (at the time of writing only Mexico has done so). Second, even if the clause is in favour of such a court, the Convention provides that it gives way to Brussels I (recast) unless at least one party is resident in a state which is both party to the Convention and not in the EU. Consequently the scope for the Convention to affect such matters is likely to be, at least initially, very limited.

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.