Ending the Torpedo action: New Jurisdiction Rules within the EU

This article reviews key aspects of the Brussels I Recast and the changes to jurisdiction rules it will bring.  

24th December 2014

The Brussels I Regulation (44/2001) provides a series of rules on jurisdiction between EU member states in civil and commercial actions. Although it was largely seen as a success, its application by the courts led to certain problems, particularly in relation to its provisions concerning related proceedings (the lis pendens provisions). As a result, reform proposals have been considered since 2010, and amendments have now been agreed by the European Parliament and Council. The amended 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 (recast) (the ‘Recast’) will apply to all actions raised after 10 January 2015. This article reviews key aspects of the recast and explains their importance.

 

Torpedo actions

The original text of Brussels I stated that priority would be given to the first court in which proceedings were raised. If proceedings were subsequently raised in another court containing the same parties and the same cause of action, they would be stayed until the jurisdiction of the first court had been established. This rule enabled parties to raise ‘torpedo claims’. In seeking to delay a judgement against it, one party would race to raise proceedings (for example seeking a declaration of non-liability) in a member state other than that likely to be chosen by the pursuer. When the pursuer eventually raised proceedings, it would have to wait until the first court ruled on its own jurisdiction. This could be a lengthy period of time.

To resolve this issue, the Recast provides that where the parties have agreed an exclusive jurisdiction clause, the court specified in the agreement will be preferred. This will be the case even where proceedings have already been commenced in another court. In that case the first court will stay proceedings until the chosen court has determined its own jurisdiction.  As a result of this rule, we expect to see more exclusive jurisdiction clauses being included in commercial contracts. This should result in less forum shopping at the time of litigation, and more careful thought at the time of contract.

 

Stays in favour of proceedings raised in a non-member state court

Although the Brussels I Regulation laid down specific rules on staying proceedings in favour of earlier actions raised within the EU, it was unclear whether this could be done when proceedings were raised elsewhere.

Articles 33 and 34 of the Recast provide that the member state court now has discretion to stay proceedings where the same or related matters have already been raised before a non-EU court. This is subject to certain limitations: the foreign judgement must be capable of being recognised and enforced in the member state and the member state court must be satisfied that staying proceedings is necessary for the proper administration of justice. Where the jurisdiction of the member state court has been established by agreement between the parties, there will be no discretion.

The recast therefore provides increased certainty over the circumstances in which member state courts may decline jurisdiction in favour of those situated elsewhere.

 

Enforcement of member state judgements

The Brussels regulation mainly concerned matters of jurisdiction between EU member states where the defendant was domiciled in the EU. However, it also contained provisions as to the circumstances in which a defendant domiciled elsewhere could be sued in a member state court. This could happen where jurisdiction was based on an agreement and one party to that agreement was domiciled in the EU, or if the defendant accepted jurisdiction by submitting a defence.

The Recast expands on this and no longer requires one party to the agreement to be domiciled within the EU. It also expands the jurisdiction of member state courts in claims against an employer. Previously an employer could only be sued in a member state court if it had a place of business within that jurisdiction. The Recast specifies that where the employee habitually works in a member state, or where the employer directs its trading activities towards a member state, the employer can be sued in the courts of that member state.

 

Arbitration

The case of West Tankers Inc v Allianz SpA was decided under the original Brussels I Regulation. It held that preliminary issues involving arbitration agreements (for example, questions on their validity) came within the scope of the Regulation, if the underlying matter did. This made arbitration vulnerable to torpedo actions, as described above.

The Recast specifies that arbitration is completely excluded from its scope. Therefore any member state court is able to consider the validity and applicability of an arbitration agreement, without having to stay proceedings in favour of any other court. This ensures that arbitration and any supervisory proceedings are isolated from related court actions, which should enhance its ability to resolve claims.  

 

Enforcement of judgements

Under the Brussels I regulation, a judgement given by the court of one member state could only be enforced in another if the local court declared it enforceable. This process was known as exequatur and has been removed by the Recast. The amendment is likely to decrease the time between judgement and enforcement and removes a barrier to the free circulation of court judgements within the EU.  In order to prevent abuse of this freedom, the Recast also allows defenders to apply for the judgement to be declared unenforceable in limited circumstances. An example of this is where service was not properly effected.