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24 October 2019

Recast Brussels Regulation: the latest from the courts

While it is unclear how long the recast Brussels Regulation (1215/2012/EC) may continue to apply in view of Brexit, a number of recent decisions have shed welcome light on the courts’ approach to different provisions within it. These decisions illustrate how the recast Brussels Regulation is working in practice and the potential ramifications of Brexit on the efficacy of English exclusive jurisdiction clauses (see “Practical points”).

Key provisions

Article 4(1) of the recast Brussels Regulation (Article 4(1)) states that, subject to the further jurisdiction rules in the recast Brussels Regulation, a person domiciled in an EU member state shall, whatever their nationality, be sued in the courts of that member state (see feature article “The recast Brussels Regulation: implications for commercial parties). As the European Court of Justice emphasised in Owusu v Jackson (t/a Villa Holidays Bal Inn Villas), Article 4 is mandatory and is the fundamental rule of jurisdiction (C-281/02; see News brief “Regulating jurisdiction: English courts’ discretion is curtailed).

Article 24 of the recast Brussels Regulation (Article 24) establishes that the courts of a member state shall have exclusive jurisdiction, regardless of the domicile of the parties, in relation to certain proceedings. These include proceedings that are concerned with rights in rem in immovable property and the validity of a company’s constitution, or relating to its nullity or dissolution (Articles 24(1) and 24(2)). Article 24 takes priority over the other jurisdiction grounds in the recast Brussels Regulation.

Non-EU jurisdiction clauses

In Gulf International Bank BSC v Aldwood, the High Court held that it did not have the discretion to stay proceedings as Mr Aldwood was domiciled in England, thereby engaging Article 4(1), even though there was an exclusive jurisdiction clause in favour of the courts of another country (here, a Saudi Arabian committee for settlement of banking disputes) ([2019] EWHC 1666 (QB)). The court observed that its ability to stay proceedings is contained in Articles 33 and 34 of the recast Brussels Regulation, which concern situations where identical or related proceedings have already been commenced in a non-EU country.

If proceedings have not already been commenced in that country, the court has no power to stay proceedings, regardless of the existence of an exclusive jurisdiction clause in favour of the courts of that country. In this regard, the court appears to have taken a different stance to that of the authors of Dicey, Morris & Collins on the Conflict of Laws (15th edition, 2012), as well as a number of other first instance decisions.

Gulf International highlights the restrictive nature of the recast Brussels Regulation and casts doubt on the effectiveness of exclusive English court jurisdiction clauses in the event of a no-deal Brexit. Unless court proceedings have been started first in the English courts, in which case one would expect a member state court to stay its proceedings, or the Hague Convention on Choice of Court Agreements 2005 applies, which will depend on when the agreement is made and the domicile of the parties, there is a real risk that these clauses would be ineffective in the face of proceedings commenced in a member state on the basis of the domicile of the defendant (see Briefing “Hague Choice of Court Convention: gaining momentum).
Extending the scope of Article 4(1)

In Gray v Hurley, Ms Gray had obtained an order for alternative service, under which she served the claim form on Mr Hurley by WhatsApp message ([2019] EWHC 1636 (QB)). Mr Hurley challenged jurisdiction on the basis that he was domiciled in New Zealand on the date that the claim form was issued.

The court held that there was a good arguable case that he was domiciled in England until January 2019 but that it was not clear where he was domiciled on the date that the claim form was issued. Ms Gray argued that the courts of a member state in which a defendant was known to have been domiciled will have jurisdiction under Article 4(1) unless and until the defendant can show positive domicile in another member state or third state, as well as apparently broken domicile in the original member state.
The High Court agreed. As England was Mr Hurley’s last known domicile, Ms Gray was entitled to serve the claim form on him out of the jurisdiction. The court’s decision represents an arguably novel expansion of Article 4(1), although it is a pragmatic one in circumstances where the defendant’s domicile either is not known or there is no firm evidence to establish it.
Anti-suit injunctions

Interestingly, in a subsequent decision in the same proceedings, the High Court declined to apply Article 4(1) to impose an anti-suit injunction in favour of Ms Gray where Mr Hurley had brought proceedings against her in New Zealand (Gray v Hurley [2019] EWHC 1972 (QB)). Although Ms Gray was domiciled in England and should have been sued there, the court was not persuaded that an injunction was warranted. Although England was the appropriate forum for Ms Gray’s claims, Mr Hurley’s claim under New Zealand property law would not be determined in England. It was not unconscionable for Mr Hurley to pursue the New Zealand proceedings and an anti-suit injunction would have prohibited him from bringing his claim.

Narrowly construing Article 24

Gray presents one further point of note. Ms Gray sought declaratory relief in relation to her ownership of a property in Italy to the effect that any legal title that Mr Hurley held to the property was held for her beneficially. Mr Hurley argued that this was a claim which had as its object rights in rem and therefore Article 24(1) applied, so that only the Italian courts could adjudicate on it. The High Court disagreed. It held that Ms Gray’s claim did not have as its object rights in rem in immovable property and so did not fall within Article 24(1). The decision highlights that Article 24(1) does not encompass all actions concerning rights in immovable property, but only those in rem rights which seek to determine the extent, content, ownership or possession of immovable property, or the existence of other rights therein, and to provide the holders of those rights with protection.

The Supreme Court gave close scrutiny to the exclusive jurisdiction provisions in Article 24 in Akçil and others v Koza Ltd and another ([2019] UKSC 40). The dispute concerned the ownership and control of Koza Ltd, the English wholly owned subsidiary of publicly listed gold mining Turkish company, Koza Altin. Mr Ipek, founder of the Koza group, commenced proceedings against Koza Altin and its (now former) trustees in the English courts, seeking to:

  • Stop Koza Altin’s attempts to resume control of Koza Ltd under the Companies Act 2006 (the English company law claim).
  • Argue that the English courts should not recognise the authority of the trustees (the authority claim).
Both claims challenged notices that the trustees had caused Koza Altin to serve on Koza Ltd seeking the removal of its directors and their replacement with three of the trustees.
Both the High Court and Court of Appeal held that the English courts had exclusive jurisdiction over both claims under Article 24(2) of the recast Brussels Regulation (Article 24(2)). The Supreme Court, however, unanimously allowed Koza Altin and the trustees’ appeal. It found that Article 24(2), as a derogation from jurisdiction based on domicile, must be interpreted narrowly. A mere link between a claim which engages Article 24(2) and one which does not was not sufficient to bring both claims within the scope of the provision. Here, the lower courts had been wrong to find that the authority claim was inextricably linked with the English company law claim; they were distinct claims where one could be brought without any need to consider the merits of the other.
As the Supreme Court noted, Article 24 is concerned with situations where reasons exist to recognise an especially strong and fixed connection between the subject matter of a dispute and the courts of a particular member state. Akçil underlines that Article 24(2) will only apply where the principal subject matter of the proceedings is a company law matter. Claims may well involve several distinct legal actions which are interrelated, but it is not sufficient that a claim merely involves a link with a decision adopted by an organ of a company to bring that claim within Article 24(2).
The Supreme Court adopted a necessarily narrow interpretation of Article 24(2). It emphasised that there should be only one correct application of Article 24 in relation to a given claim. It cannot depend on the type of evaluative judgment by which different courts could reasonably take different views, as was adopted by the lower courts. The objective of the recast Brussels Regulation is to set out highly predictable rules governing the allocation of jurisdiction.
While the Supreme Court in Akçil was concerned with Article 24(2), its comments undoubtedly apply to other heads of exclusive jurisdiction in Article 24. The court noted that, in circumstances where there was not another member state court with a competing claim to exclusive jurisdiction (the alternative courts here would have been those of Turkey which is not a member state), the English courts were free to assume jurisdiction on another basis, if one existed, under the Civil Procedure Rules. It was unnecessary for the Supreme Court to examine this point further since the English courts had assumed jurisdiction solely on the basis of Article 24(2), but the point is one worth bearing in mind for practitioners when considering the basis on which the English courts are entitled to assume jurisdiction.
Practical points

The cases discussed in this article provide a set of important points for practitioners to bear in mind:

  • When dealing with an exclusive jurisdiction clause in favour of the courts of a non-EU member state, it cannot be assumed that this will defeat a claim to jurisdiction on the basis of domicile under Article 4(1) of the recast Brussels Regulation (1215/2012/EC); in fact, it is very unlikely that it will. This issue may become particularly important should the UK exit the EU without a deal.
  • If pursuing a defendant whose current domicile cannot be established or where a positive case cannot be evidenced that they are now domiciled outside the jurisdiction, practitioners may rely on Gray v Hurley for authority that proceedings may be brought on the basis of the defendant’s last known domicile ([2019] EWHC 1636 (QB)).
  • When seeking to establish or contest jurisdiction on the basis of Article 24, parties should remember that the court will take a narrow approach to determining jurisdiction on this basis and is unlikely to allow a mere link between causes of action to satisfy this ground; the principal subject matter must engage the relevant provision of Article 24 of the recast Brussels Regulation or the claims must be inextricably linked. Practitioners may take some confidence that, if the UK leaves the EU without a deal, member state courts will remain bound to decline jurisdiction over claims concerning the validity of decisions made by the relevant organs of English companies.

This article was first published on Practical Law.

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