The European Commission is reviewing EU legislation on cross-border dispute resolution to create what has been called a single legal ‘space’ across the EU. UK litigation lawyer Mark Richardson looks at the background and implications.
To understand the European Commission’s plans to reform EU legislation on cross-border litigation, we have to go back to the 1968 Brussels Convention. This was an international agreement to provide the legal support necessary for the EU’s internal market to function properly.
Its aim was to address two key questions in the event of a dispute between the citizens of different member states: namely the courts of which member state had jurisdiction to rule on the dispute, and how the judgment given by those courts was recognised and enforced in the other member states.
In 2000 the rules were updated and became what is known as the ‘Brussels I’ regulation, which is considered a cornerstone of European judicial co-operation in civil and commercial matters and is also seen as a key instrument in establishing a European judicial ‘area’.
Brussels I covers civil and commercial disputes ranging from contractual issues to civil liability for damages. The Commission’s own explanation of the regulation gives the example of when a German and a Polish company conclude a construction contract in which they designate the courts of Warsaw to deal with any dispute arising under their contract.
The Brussels I regulation ensures that the choice of the Warsaw courts will be respected, even if the building is to be constructed in Berlin, and that the judgment given by the Polish courts will be recognised and enforced everywhere in the European Union.
Now that the regulation is more than five years old, the Commission is obliged to revisit its efficacy and this resulted, in April last year, in the launch of a report and a Green Paper consultation which considers a number of key issues and some suggested ways forward.
Chief among them is the possible abolition of exequatur. This is where, in the member state where enforcement of a judgment is sought, there is still a judicial procedure to go through to get the decision enforced.
The Green Paper looks at replacing this with automatic recognition and enforcement of judgments handed down in another member state in order to remove the remaining obstacles to the free circulation of judgments.
This move has been broadly welcomed, subject to certain procedural safeguards. In the UK, the Law Society has stressed the need for minimum service standards, provision of information to the defendant, a verification process to ensure the original judgment is valid, proof that the defendant has been validly served in the original jurisdiction and proof that he had the opportunity to challenge the original judgment.
These are sensible safeguards designed to ensure that if judgments do become as portable as the Commission suggests, at least they are being made and enforced under agreed common standards.
Another area the Commission is looking at is how the regulation should apply to defendants in third states but many believe this would be tantamount to extending Brussels I to the international legal order, and that would be a step too far.
The Commission is also concerned with the lis pendens rule, where proceedings on the same facts cannot be commenced in a second court if the action is already pending in the first.
This ‘first come, first served’ rule can result in a rush to court where a party to an action can launch so-called ‘torpedo proceedings’, resulting in delays while jurisdiction is established and if successful resulting in the case being heard in a more favourable jurisdiction.
Arbitration is another area under the microscope, highlighted by a case last year which found that a decision by a Spanish court that parties were not bound by an arbitration agreement had to be recognised in England, even if the English courts would have reached a different conclusion.
This tension between an arbitration agreement and the Brussels I regulation has prompted calls to strengthen the effectiveness of arbitration agreements to give them equal parity with the courts, but that will require a community effort to ensure they are not only recognised but enforced.
Following a consultation period that closed at the end of June 2009, a revised Brussels I regulation was expected to be proposed in October of last year but is now scheduled for the end of 2010. This will be put to national governments and the European Parliament to debate and adopt.
For companies operating in multiple jurisdictions within the European Union this should result in an increasingly uniform and transparent approach to resolving cross-border disputes.
Mark Richardson is a litigation lawyer with Stephens Scown solicitors in the UK. The litigation team is described as “exceptional” in the Legal 500 2010 independent directory.