8 Recognition and enforcement of judgments
in civil and commercial matters
| (32373)
18101/10
COM(10) 748
+ ADD 1
+ ADD 2
| Draft Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)
Commission staff working paper — Impact Assessment
Commission staff working paper — Summary of Impact Assessment
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| Legal base | Articles 67(4) and 81(2)(a),(c) and (e) TFEU; co-decision; QMV
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| Department | Ministry of Justice
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| Basis of consideration | Minister's letter of 22 May 2012
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| Previous Committee Reports | HC 428-xlvii (2010-12), chapter 17 (18 January 2012); HC 428-xvii (2010-11), chapter 4 (16 February 2011)
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| Discussion in Council | 7-8 June 2012
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| Committee's assessment | Legally important
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| Committee's decision | Not cleared; further information awaited
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Background
8.1 This proposal concerns the repeal and replacement of Regulation
(EC) No 44/2001 of 22 December 2001 (known as the Brussels I Regulation)
on jurisdiction and the recognition and enforcement of judgments
in civil and commercial matters.
8.2 The Brussels I Regulation replaced the Brussels
Convention. It came into force on 1 March 2002 and applies to
all Member States of the European Union with the exception of
Denmark, which does not participate in measures adopted under
Title IV of the Treaty establishing the European Community.[39]
Denmark has concluded a separate agreement with the European Community,
the effect of which is to extend the Regulation's rules to Denmark.
8.3 The Regulation lays down uniform rules to settle
conflicts of jurisdiction and facilitate the mutual recognition
and enforcement of judgments, court settlements and authentic
instruments within the EU in civil and commercial matters. It
also includes rules to assist courts in settling jurisdictional
matters.
8.4 The preamble to the Regulation states many of
its policy aims and objectives. It is designed to contribute to
the continued development of an area of freedom, security and
justice and to the "sound operation of the internal market".
The regime aims at facilitating the mutual recognition of judgments
in civil and commercial matters through a system of highly predictable
jurisdictional rules which are generally based on the defendant's
domicile. The regime established by the Regulation is founded
upon a principle of "mutual trust in the administration of
justice" between Member States.
8.5 Article 73 of the Regulation places an obligation
on the European Commission to present a report on the application
of the Regulation within five years. In May 2009, the European
Commission published this report, which was accompanied by a Green
Paper. [40]
In overall terms, the report concluded that the Regulation had
been a success, facilitating cross-border litigation through the
application of uniform jurisdiction rules, including rules to
regulate parallel proceedings, and rules to ensure the circulation
of judgments. However, it also concluded that there was a need
for improvement in certain specific areas. These included the
following:
- the abolition of exequatur
in the context of the international recognition and enforcement
of judgments;
- the operation of the Regulation in the broader
international legal order;
- the operation of choice of court clauses;
- intellectual property;
- rules governing lis pendens and related
actions;
- provisional measures;
- the relationship between the Regulation and arbitration
proceedings; and
- other issues, covering scope, jurisdiction, recognition
and enforcement.
8.6 The Green Paper sought views on ways to improve
the operation of the Regulation in these areas by the end of June
2009. It is as a result of this report and responses to the Green
Paper that this proposal was made.
Previous scrutiny
8.7 In our first Report[41]
we noted that, in relation to the decision whether to opt-in,
the Government recognised the importance to both businesses and
citizens of the current Brussels I Regulation; that it also recognised
that some of the Commission's proposals would constitute significant
improvements to it, notwithstanding that there were some issues
of concern that would need to be resolved during the negotiations;
but that this view was subject to the conclusions the Government
drew from the consultation exercise it was carrying out.
8.8 We thought this proposal was legally very significant,
and so, in line with the Government's Written Ministerial Statement
of 20 January 2011, we recommended that the decision whether to
opt into it be debated in European Committee B. That debate took
place on 28 March 2011.[42]
The Government notified its intention to opt in to the EU institutions
on 31 March 2011.
THE MINISTER'S LETTER OF 28 NOVEMBER 2011
8.9 We reported on this proposal again on 18 January
of this year, after the Minister of State at the Ministry of Justice
(Lord McNally) provided us with the UK's response to the consultation
it conducted from December 2010 to February 2011, and with an
update on the negotiations.
8.10 The Minister explained that the consultation
sought the views of interest groups on whether it was in the national
interest for the Government to opt into the revised Regulation.
Specific views were also sought on a number of issues which were
initially considered likely to prove problematic, namely on the
abolition of exequatur (specifically on the need to retain
safeguards for judgment debtors and retaining public policy);
the extension of the jurisdictional rules to third State defendants
(how this would affect national laws in this area); and arbitration
(whether a complete exclusion of arbitration from the scope of
the Regulation remained the favoured option).
8.11 He explained that an analysis of the responses
received indicated that the majority (88%) of those who responded
agreed that it was in the national interest to opt into the revised
Regulation. These responses, together with other issues raised,
were considered carefully before a final decision was made on
whether to opt into the revised Regulation or not, the Minister
said.
8.12 In summary, the results of the consultation
concluded that there were three main issues where focus would
be needed during the negotiation phase. The first concerned third
country jurisdiction. This relates to cases where the defendant
is not domiciled in the European Union (EU) but in a third country.
Currently courts in the UK use their own national rules to determine
where these types of case should be heard. The Commission had
proposed, however, that the Regulation should set out the only
grounds of jurisdiction on which courts should make such decisions.
UK national rules are fairly generous and if they were to be restricted
by the Regulation it was suggested by some respondents to the
consultation that this might affect the amount of business which
currently comes to the London commercial court.
PROGRESS IN NEGOTIATIONS
8.13 The Government had made clear in the negotiations
that the UK did not support the extension of EU jurisdiction in
relation to defendants domiciled in third countries, nor was it
persuaded that the scale and frequency of any problems which EU
citizens encounter justify such an extension to the Regulation.
Any extension would more appropriately be made in the context
of a global agreement reached in the Hague Conference and would
be in the interests of the EU as a whole. Current negotiations
appeared to indicate that the majority of Member States were not
in favour of extending jurisdiction to third state defendants,
the Minister explained.
8.14 The second key issue for the UK concerned arbitration.
The Commission had included a rule in the Regulation which will
govern the relationship between arbitration and court proceedings.
During the consultation phase with arbitration experts, albeit
that there was some support for the Commission's approach in principle,
the majority of experts was not persuaded that the Commission's
proposals dealt fully with the complexity of the issues at stake.
It was clear from discussion in the working group that some Member
States favour a solution which reinforces the current exclusion
of arbitration from the scope of the Regulation so as to exclude
the entire arbitral process. It was also clear that the alternative
solution proposed by the Commission (that is an attempt to improve
the relationship between arbitration and court proceedings) would
leave unresolved various technical issues which would need to
be addressed. In light of the complexity of these issues and the
fact that a solution of this kind would inevitably entail ceding
further external competence on arbitration matters to the EU,
the UK had so far in the negotiations been supportive of the views
of these Member States.
8.15 The third key issue concerns the abolition of
exequatur. The Commission had proposed abolishing the current
intermediate court procedure that requires one country's courts
to validate the judgments of another before they can be enforced.
Although the Government agreed with the Commission's reasoning
on why exequatur should be abolished, it nevertheless believed
that it is important that all the current protections for defendants
should be retained. These protections are designed to ensure that
defendants should not have foreign judgments enforced against
them in circumstances where it would be unfair to do so. The Minister
reported that this approach is supported by the great majority
of Member States.
Minister's letter of 22 May 2012
8.16 The Minister writes that the aim of the Danish
Presidency is that Council will reach political agreement on the
main text of the draft Regulation, including the key recitals
on arbitration, at the JHA Council on 7-8 June. The majority of
the remaining recitals and the prescribed forms will be concluded
under the Cypriot Presidency. In overall terms the outcome of
the negotiations has been positive from the UK's perspective,
the Minister says.
EXTENSION OF JURISDICTION TO THIRD STATE DEFENDANTS
8.17 The current position reached on this issue reflects
the general opinion expressed at the JHA Informal Council meeting
in January this year. At that meeting most Member States (including
the UK) opposed the Commission's proposal to extend the rules
of EU jurisdiction to cover defendants living outside the EU.
The preference was to retain the status quo. This would mean that,
in general terms, the rules of jurisdiction would not be extended
to defendants resident in non-EU states and such cases would continue
to be dealt with under national law. This result, if formally
adopted, would represent a good outcome for the UK. Two minor
exceptions to this outcome are now proposed by the Presidency.
These are discussed below but are assessed to be acceptable.
8.18 This result would reflect the rationale underlying
the Government's negotiating position. This had taken account
of concerns expressed by UK interest groups which were concerned
that the full harmonisation of the rules of jurisdiction could
diminish access to UK courts and could damage their attraction
for international commercial litigants, many of whom have little
or no substantive connection with the EU, but choose to resolve
their disputes in the UK. That choice depends on the liberal nature
of the UK's jurisdictional rules, together with the discretion
of judges to stay proceedings where they consider that the proceedings
should be pursued outside the EU. These long established rules
have worked well to date and have resulted in the high volume
of international litigation that comes to the UK from around the
world. The UK has been consistently keen to ensure that nothing
should be done that would imperil this, thereby resulting in business
moving outside the EU.
8.19 The two minor exceptions concern contracts involving
consumers and employees (Articles 16(1) and 19(2)). In cases involving
these weaker parties it is proposed that the protective rules
of jurisdiction should be extended to these cases where the other
party (the retailer or the employer) is resident outside the EU.
The result would be that the consumer or employee would be entitled
to sue in the courts of the Member State where they are resident.
Although the Government has not supported these extensions to
jurisdiction previously, it assesses that they will not have significant
implications for the UK. The volume of litigation is unlikely
to be substantial and the businesses in question will be in any
event located outside the EU. The Government advises that they
represent an acceptable compromise for the Commission and those
Member States (principally France and Spain) which had originally
supported a general harmonisation of jurisdiction in relation
to defendants domiciled outside the EU.
ARBITRATION
8.20 A significant number of Member States now support
reinforcing the exclusion of arbitration from the scope of the
Regulation. This is the UK's preferred solution. Such an outcome
would, if agreed by the Council, represent a good result for the
UK. It would in particular clarify in a recital that proceedings
relating to the validity/invalidity of an arbitration agreement
would fall outside the scope of the Regulation's rules on the
recognition and enforcement of judgments (see footnote 1 to Article
84(2) and paragraphs 2 of the proposed recital). This was the
particular concern raised by the Court of Justice of the EU's
decision in the West Tankers case. There would also be
a useful general provision stating that the Regulation would not
affect the operation of the 1958 New York Arbitration Convention
(see Article 84(2)). This solution would also have significant
advantage that, unlike the Commission's approach, it would not
in any way extend external EU competence in this area.
8.21 The Commission had attempted in its original
proposal to resolve the problems of abusive litigation resulting
from the CJEU's judgment in West Tankers. This decision
created the potential for parties to either frustrate or undermine
arbitration agreements by initiating court proceedings in another
Member State. However, the Commission's well intentioned solution
presented two difficulties for the UK. First, UK arbitration experts
were not persuaded that the Commission's proposal dealt fully
and adequately with all the technical complexity of the issues
at stake and, secondly, although the EU indisputably has power
under the Treaty to legislate in this way, the Commission's proposals
would have created a measure of additional external EU competence.
This would have given the Commission an enhanced role in international
negotiations in this area of business, a role which is currently
circumscribed by the limited extent of such competence in the
face of the general competence of the Member States in this area.
STREAMLINED MUTUAL RECOGNITION
8.22 Political agreement was reached by the JHA Council
in December 2011 on the abolition of exequatur, the process
that requires one country's courts to validate the judgments of
another before they can be enforced. The Government was supportive
of this as it was felt to be in the interests of judgment creditors,
offering the prospect of reducing the time, complexity and costs
that would otherwise be imposed upon them. At the same time, it
was also agreed by the JHA that all the current protections to
safeguard legitimate interests of judgment debtors should be preserved
in full and should be resolved in the courts of the Member State
where enforcement was being sought. This represents a significant
improvement on the Commission's proposal which would, to some
extent, have reduced those protections. This reduction would also
have been exacerbated by requiring the protection relating to
inadequate service of the originating process on the defendant
to be resolved only in the Member State of origin.
8.23 A further welcome consequence of these improvements
is that, contrary to the Commission's proposal, there will only
be one procedure for recognition and enforcement. This avoids
the complexity of the Commission's proposal which would have provided
for two such procedures, depending on the particular type of case.
NOTIFICATION
8.24 A proposal was made during the negotiations
to request a mandatory provision to translate (in all cases) the
notification of a foreign court decision. This had the support
of some Member States whilst others, including the UK, took the
view that such an approach was excessive and would detract from
any benefit resulting from abolishing the exequatur procedure.
The Government also took the view that such a provision was not
cost effective.
8.25 A compromise position has been proposed which
could be acceptable to the Government subject to some minor points
of clarification, in particular ensuring the appropriate application
of a minimum time frame.
OTHER ISSUES
8.26 There remains a short list of other outstanding
issues:
Choice of Court Agreements
8.27 The UK and the overwhelming majority of Member
States strongly supported the Commission's proposals on choice
of court agreements as an appropriate means of resolving the difficulties
arising out of the CJEU's judgment in Gasser (a case involving
tactical litigation where the parties to a contract had concluded
a choice of court agreement). The Commission proposed two reforms.
First, where the parties had designated a particular court to
resolve their dispute, priority should be given to the chosen
court to decide on its jurisdiction. This would be regardless
of whether it was the first or second seized in the dispute. Under
this proposal any other court would be required to stay proceedings
until the chosen court had either confirmed its jurisdiction or,
in cases where the choice of court agreement was invalid, declined
jurisdiction (see Article 32(2)). The Commission's second proposal
was for a harmonised conflict of law rule on the substantive validity
of choice of court agreements (see Article 23(1)).
8.28 The current text of the Regulation satisfactorily
resolves the problems resulting from Gasser. It ensures
that where parties have elected to choose the court to resolve
any dispute between them, (where they have entered into a choice
of court agreement) this agreement will be respected. This means
that if one of the party's attempts to instigate proceedings in
another Member State court this court has the duty to decline
to hear the case because of the existence of the choice of court
agreement. Overall, a good result has been achieved by the UK
on this matter.
International lis pendens and related issues
8.29 The Member States, including the UK, support
the proposed international lis pendens rules (Articles
34 and 34-0). These confer, on the courts of the Member State,
the discretion to stay their proceedings where the courts of a
third State is already dealing with the same or a related matter.
These flexible rules should be particularly helpful in the context
of commercial litigation where it is more appropriate for the
third State court to determine the case. It should help reduce
the occurrence of competing proceedings.
Trusts
8.30 The UK is continuing to seek a recital to alleviate
the inflexibility contained in the current wording of Article
5(6) of the Regulation. This provision, because it is limited
to proceedings brought against settlors, trustees and beneficiaries,
fails adequately to cover certain disputes relating to the internal
workings of a trust, particularly where the disputes relate to
the activities of "protectors" or "enforcers"
who have been created by a trust instrument in order to safeguard
the operation of the trust. Because the terms of the Commission's
"recast" of the Regulation preclude the amendment of
any of the Regulation's provisions which were not being amended
by the Commission's original proposal, it has not proved possible
to amend Article 5(6). The UK will, nevertheless, try under the
Cypriot Presidency to address the substance of the problem by
means of a recital.
Conclusion
8.31 We thank the Minister for his letter, but
regret that it was dated the day before the Committee was asked
to consider it.
8.32 Whilst we welcome the many improvements to
the text, we note that some appear to be conditional on whether
they will be formally adopted by the Council (on third state defendants
the Minister writes "if formally adopted" and on arbitration
"if agreed by the Council") or still under discussion
(notification and trusts).
8.33 We also question, for a legislative instrument
as important as this, the value in seeking political agreement
on the main text but not all of the recitals, as the latter inform
the former, and are a guide to how the former should be interpreted.
It also makes effective scrutiny more difficult — our work
is far more valuable when we consider a document as a whole.
8.34 For these reasons the Committee is not willing
to lift scrutiny on the document; or waive it for the purposes
of the JHA Council meeting on 7-8 June, pursuant to paragraph
3(b) of the Scrutiny Reserve Resolution of 17 November 1998.
8.35 We would be grateful in due course for an
account from the Minister of what was agreed at the JHA Council
on 7-8 June and how the Government voted.
39 Pre-Lisbon Treaty terminology. Back
40
See headnote: (30610) 9149/09 and (30569) 9150/09: HC 19-xviii
(2008-09), chapter 12 (3 June 2009) Back
41
See headnote. Back
42
Gen Co Deb, European Committee
B, 28 March 2011, cols. 3-16. Back
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