Update on the Recast Brussels Regulation

04 September 2015

Jenna Rennie, Paul Sweeden

Introduction to the Recast Brussels Regulation
The Recast Brussels Regulation (Council Regulation (EU) 1215/2012) ("Recast") came into force on 10 January 2015 replacing the Brussels Regulation (Council Regulation (EC) 44/2001). The key aim of the Recast was to update the set of rules on jurisdiction and enforcement of judgments in civil and commercial matters within the EU. The Recast is applied by all 28 EU member states and applies to legal proceedings commenced on or after 10 January 2015. This note provides a reminder of what the Recast does, before considering some recent case law.

The general principle of the Recast, as with its predecessor, is that a court action relating to civil or commercial matters should be brought and pursued in the member state where the defendant is domiciled. However, the Recast also contains rules which depart from this general principle allowing potential claimants to sue in an alternative jurisdiction to that of the defendant's domicile in certain specified circumstances.

Key exceptions to the general rule
  • Section 2 of the Recast confers 'special jurisdiction' on courts in various circumstances. Most notable of these is the ability for a defendant to be sued in the place of performance of a contract. A similar approach also applies in respect of torts, where the relevant jurisdiction can be the place in which the harmful event occurred in respect of the tortious act, rather than having to pursue a defendant in his own domicile.
  • The Recast also has specific rules that apply in relation to insurance contracts (Section 3), consumer contracts (Section 4) and employment contracts (Section 5). The general approach adopted in these sections favours the potential weaker party to a dispute, enabling them to bring proceedings in their place of domicile. In addition, where an employment contract involves non-EU defendants, a member state will still have jurisdiction if the claimant employee habitually works for the defendant employer within that member state. In respect of consumer contracts, if the defendant is domiciled outside the EU but is directing its commercial or professional activities to a member state, this is sufficient under the Recast to give the member state jurisdiction.
  • Exclusive jurisdiction clauses can be agreed between parties, regardless of their domicile, conferring jurisdiction on courts of a specified member state (Article 25), unless the agreement is null and void as to its substantive validity under the law of that member state.
Key changes in the Brussels Recast

The above key exceptions are not new, however certain changes have been made which strengthen their application. We considered these in an article in January. However, in brief, following the Recast:

  • Jurisdiction agreements in favour of the courts of an EU member state are now valid even if neither party is domiciled in the EU;
  • Proceedings brought before a court in breach of an exclusive jurisdiction agreement in favour of another EU member State will be stayed (ending cross-border "torpedo actions");
  • In certain circumstances, member state courts have discretion to stay proceedings where proceedings have been brought involving the same cause of action and the same parties as proceedings in a third (non-EU) state;
  • Cross-border enforcement of judgments within the EU has been simplified; and
  • The position that arbitration is outside the scope of the Recast has been reinforced (a point that had been cast in some doubt by Allianz SpA v West Tankers Inc (Case C-185/07), a high-profile decision by the Court of Justice of the European Union).
The Recast in action

"Civil and Commercial matters" – principles distilled.

For the Recast to apply at all, the dispute must be a "civil or commercial matter". The Recast does not extend, in particular, to “revenue, customs or administrative matters or to the liability of the State for acts and omissions in the exercise of state authority”.

Where the boundary lies between civil and commercial matters, and administrative matters, was recently considered in the decision of Goldman Sachs International v Novo Banco [2015] EWHC 2371. The claim was one for debt, based on a Facility Agreement for a loan ("the Loan"). The Facility Agreement contained an exclusive jurisdiction clause making the Agreement subject to English law and jurisdiction. The Facility Agreement was entered into with Banco Espirito Santo ("BES"). However, following its collapse the Bank of Portugal ("BoP") took resolution measures pursuant to the Bank Recovery and Resolution Directive 2014/59/EU, creating Novo Banco ("NB") and transferring BES's liabilities to NB (with certain exclusions). There was correspondence between Goldman Sachs International ("GSI"), the BoP and NB in which it was stated that the Loan had transferred to NB. However, in December 2014, a decision was made by the BoP stating that the Loan had not transferred to NB, but was an excluded liability (the "December Decision").  

NB challenged the English court's jurisdiction to hear the claim, on the basis that it was not a claim relating to a "civil or commercial matter", but was a challenge to the December Decision, and so was an administrative matter outside the scope of the Recast. The court rejected this argument. In deciding whether the Recast applied, the court summarised and applied the principles arising out of ECJ case law. It gave "civil and commercial matters" an autonomous meaning, and emphasised the private law nature of the legal relationship upon which the claim was based. It considered it was immaterial that the context of the claim raised public law issues, and noted that it was the claim, not the defences raised, that was relevant to determining whether the Recast applied. Further, the court observed that even if the claim did arise from the exercise of a public power it was not a claim brought against the public authority in question.

The court therefore was satisfied that the claim was a "civil or commercial matter" and fell within the scope of the Recast. The court then proceeded to consider whether the English courts had jurisdiction under the Recast pursuant to Article 25 and held that GSI had the better of the argument that NB had become a party to the Facility Agreement which was sufficient to found jurisdiction under Article 25.

When a jurisdiction agreement will not prevail

In Petter v EMC Europe Ltd and Another [2015] EWCA 828, the Court of Appeal has also confirmed that what constitutes an "employment contract" under the Recast will continue to be interpreted broadly, in line with the policy of protecting the "weaker party". The case concerned a dispute relating to stock awards from the US-based parent company of the claimant's employer. The Court of Appeal held this was within the scope of the provisions in the Recast relating to employment contracts and so the English courts had jurisdiction, despite the jurisdiction agreement contained in the contract relating to the stock awards.

What this means for you

A thorough understanding of the Recast is essential to correctly determining jurisdiction in disputes that may arise in your business. The first few months of the application of the Recast in England and Wales have contained little that has been surprising, with the courts maintaining consistency with its approach under the original Brussels Regulation. The key changes outlined above have not been the subject of any particular focus by the English courts, although it is worth noting that the Court of Justice in the European Union side-stepped an opportunity to consider the arbitration point in its recent decision C-536/13 ('Gazprom'). However, given one intention behind the changes in the Recast was to extend and confirm the application of the original Brussels Regulation, it is perhaps not surprising that relatively few in-depth considerations of the Recast have been required. 

One area that attracted a lot of attention at the time the Recast was introduced was the changes designed to reduce the tactics used by parties to torpedo actions and cause lengthy delays. Given time, it will be interesting to see whether or not such provisions work in practice to reduce the delays caused by parties issuing proceedings in other jurisdictions, contrary to jurisdiction agreements, and how the respective courts work together to take full advantage of this new rule.

If you have any further questions please contact:

Jenna Rennie or Paul Sweeden


Related content:

Part one of the Dispute Resolution Essentials series: CPR Part 36 - significant changes from 6 April 2015