Preparing for Brussels I recast—reversing Gasser

forumshoppingWith Brussels I (recast) 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? Oliver Browne and Philip Clifford, partners with Latham & Watkins, consider whether Brussels I (recast) will support exclusive jurisdiction agreements and discourage forum shopping.

 

How is the new provision in art 31, which deals with the position where several courts have exclusive jurisdiction, likely to work?

Oliver Browne (OB): Article 27 of Council Regulation (EC) 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) deals with the issue of identical proceedings commenced in the courts of different member states. Article 27 says that where proceedings involving the same cause of action and between the same parties are brought in the courts of different member states any court that is not first seised must stay its proceedings until the jurisdiction of the court first seised is established. Note that art 28 deals with the issue of related proceedings and says that where related proceedings are pending in the courts of different member states, any court other than the court first seised may stay its proceedings or may decline jurisdiction altogether.

The effect of the European Court of Justice decision in Gasser (Erich) GmbH v MISAT Srl: C-116/02 [2005] QB 1,[2005] 1 All ER (Comm) 538 is that any court that is not first seised must stay its proceedings until the court first seised has declared that it has no jurisdiction, even where there is an agreement conferring jurisdiction on the court that was not first seised.

One impact of Brussels I and Gasser is that when a dispute arises, there can be a race to commence proceedings (ie so that the court in which those proceedings have been commenced becomes the court first seised of the dispute) in notoriously slow jurisdictions, regardless of any agreement over which courts have jurisdiction, for purely tactical reasons. That can result in an advantageous delay while the court first seised works out whether or not it has jurisdiction. It can also result in a party expending time and money dealing with proceedings in a court it had not selected.

Article 31 of Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I (recast)) seeks to address the issues caused by Brussels I and Gasser:

  • art 31(2) provides that where a court of a member state is seised as a result of an exclusive jurisdiction agreement, any court of another member state shall stay proceedings before it until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement, and
  • art 31(3) provides that where a court of a member state determines that it has jurisdiction as a result of an exclusive jurisdiction agreement, any court of another member state shall decline jurisdiction in favour of that court

What types of cases will be affected? And will the move discourage pre-emptive tactical litigation?

Philip Clifford (PC): As explained above, Brussels I (recast) now supports exclusive jurisdiction agreements and, it is hoped, will discourage forum shopping in circumstances where parties have expressly designated that a particular court should have jurisdiction over disputes between them. Such forum shopping is now likely to be unsuccessful.

Article 31 will of course be of greatest relevance where parties have conferred exclusive jurisdiction on a member state court, but one of the parties seeks to initiate proceedings in another member state court in violation of an exclusive jurisdiction clause. However, art 31 will not require a member state court to stay proceedings where exclusive jurisdiction has been conferred on a non-member state court. Article 31 is also no use where there is no agreement between parties on jurisdiction in accordance with art 25 of Brussels I (recast).

Note that art 31(4) of Brussels I (recast) stipulates that the other provisions of art 31 do not apply to certain insurance, consumer and employment matters.

What problems might be encountered?

OB: A party must start proceedings in the designated court in order to trigger a stay of existing proceedings in a non-designated court under art 31(2). This means that a degree of tactical litigation is still possible since proceedings in the non-designated court must be progressed to the stage where it is able to issue a stay of its proceedings and that may take time and cause the defendant to incur unexpected costs.

It is unclear how a non-designated court should approach its obligations under art 31(2). For example, how should the court determine whether an ‘exclusive jurisdiction clause’ actually exists in the circumstances? There is a possibility that the non-designated court’s determination could differ from the designated court's determination in relation to that issue, which could cause problems.

Recital 22 of Brussels I (recast) states that art 31 will not apply where parties have entered into conflicting jurisdiction clauses. However, in certain cases it may be difficult to determine whether jurisdiction clauses actually conflict, or whether they simply apply to different disputes. Forum shopping might still be possible in situations where there are multiple contracts between multiple parties with different jurisdiction clauses.

It is unclear whether art 31 can be relied upon by parties with the benefit of a hybrid or asymmetric jurisdiction clause as it might not be clear whether such clauses can be considered ‘exclusive’ jurisdiction clauses. Under a hybrid jurisdiction clause, one or both of the parties have the right to choose between arbitration and litigation. Under an asymmetric jurisdiction clause, one party is bound to bring proceedings in a particular jurisdiction but the other party is not.

What can practitioners try to do to alleviate any potential problems?

PC: The simplest way to avoid any problems that could arise is to ensure: (a) that parties have an agreement between them providing that disputes should be subject to the exclusive jurisdiction of the courts of a member state; and (b) that the agreement is drafted as simply and as clearly as possible, while complying with art 25 of the Brussels I (recast). The need for agreements to be simple and clear is particularly important where parties are considering a hybrid or asymmetric jurisdiction clause. Finally, care should be taken to ensure that, where appropriate, transactions involving multiple agreements contain identical agreements on jurisdiction, to avoid the issues that will arise where there are conflicting jurisdiction agreements.

What should lawyers do next?

OB: Lawyers should focus on ensuring that their standard form jurisdiction agreements meet the requirements of art 25 of the Brussels I and are simple and clearly expressed.

Do you have any further comments or observations?

PC: Articles 33 and 34 of Brussels I (recast) are noteworthy as they provide a member state court with a degree of discretion to stay its own proceedings to take into account proceedings in a non-member state court that involve the same cause of action and the same parties, or proceedings in a non-member state court that are related.

Such discretion can only be exercised if:

  • proceedings in the non-member state court have been started first
  • it is expected that the judgment of the non-member state is capable of recognition and, where applicable, enforcement in the member state which is considering whether to grant a stay
  • it is necessary for the proper administration of justice (including consideration of whether exclusive jurisdiction has been conferred on the non-member state court), and
  • for related proceedings only, it is expedient to hear actions together to avoid irreconcilable judgments resulting from separate proceedings

This is a useful extension of the lis pendens/related actions rules to litigation involving member state and non-member state courts.

Oliver Browne is a partner in the London office and a solicitor advocate. He has been an international arbitration specialist for a decade and has represented companies in proceedings conducted under the LCIA, ICC, UNCITRAL, DIAC, DIFC-LCIA and ICSID rules, as well as on an ad hoc basis. Oliver also has considerable experience advising on arbitration related proceedings, and general commercial litigation, in the English High Court.

Philip Clifford is a partner in the firm’s arbitration and litigation department, a former global co-chair of the International Arbitration Practice, a Fellow of the Chartered Institute of Arbitrators, a United Kingdom representative on the ICC Commission on Arbitration and a solicitor advocate. He also sits as an arbitrator. Philip has 20 years’ experience in resolving a broad range of disputes through arbitration, litigation (in London and overseas) and mediation. He has particular expertise in complex, cross-border disputes.

Interviewed by Kate Beaumont.

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

Find the rest of the Preparing for Brussels I Recast series here

Filed Under: Brussels I Reform

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