Translate into your preferred language

Monday, October 5, 2015

Conflict of the Conflict of the Laws: jurisdiction involving Choice of Court Agreements

Which court has jurisdiction in international cases is a classic “conflict of law” subject and several instruments exist (bilateral and multilateral), to avoid the unsatisfactory result that the same case is litigated in several venues, and –worse- those venues reach different outcomes. 
In Europe, two complimentary instruments exist with regards to "civil and commercial matters": the Brussels regulation applied in the European Union and the Lugano convention in the European Union, Iceland, Norway and Switzerland. A case purely related to the European Union falls outside the scope of the Lugano convention. 

Changes: new Brussels Regulation and Hague Convention

2015 saw two important changes to this system: In January, the original Brussels regulation (44/2001) was replaced by a new one (2012/2015). While the old Brussels Regulation was almost to the letter identical to the Lugano Convention, the new Brussels regulation is not. Significantly –and the object of this post is an exception to the “lis pendens” system, a corner stone of both instruments that indicates that the court seized first has jurisdiction and other courts should stay their proceedings until that first court has given its decision. This provision is to be regarded so strictly, that even if the parties had a Choice of Court Agreement for -say- a German court but proceedings were brought first for an Italian court, that German court would have to wait for the Italian court to determine it had no jurisdiction, before it could take jurisdiction. This sometimes resulted in seizing a non-chosen court being a useful delay tactic (especially when a backlogged court was chosen), informally termed the “Italian Torpedo”.  The new Brussels I Regulation addressed this and allowed a court to take jurisdiction, if the court unambiguously was chosen in a  valid choice of court agreement; even if parallel proceedings in a different court had been commenced.

The second change is more recent: the entry into force of the 2005 Hague Convention on Choice of Court Agreements. The convention now has two parties: Mexico and the European Union, which means that it applies immediately to 28 states (in addition to Mexico, all EU member states except Denmark). The convention has a much more limited scope than the Brussels regulation or the Lugano convention, as it only applies when a choice of court agreement is concluded. The system is similar to the new Brussels Regulation: the chosen court must hear the case, regardless of any pending actions for other courts. Courts not chosen should declare themselves not competent to hear the case. Also similar to the Brussels system: a decision should be recognised in other Hague convention states, regardless of the merits of the decision. 

From 1 October, the membership of those three instruments is as follows:

Country EU member Lugano Hague Convention

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and UK x x x
Denmark x x -
Iceland, Norway, Switzerland - x -
Mexico - - x

Conflict of the Conflict of law measures

So now we have ended up -in the European Union at least at least- with 3 systems to determine international jurisdiction in the presence of a choice of court agreement. Although they all -eventually- favour the agreement, the reasons to reject them varies. Furthermore, the Lugano convention still places the lis pendens regime above the choice of court agreement, so the chosen court will have to wait until the non-chosen court has rejected jurisdiction. It thus matters under which legal instrument the choice of court clause is evaluated. 

For the relationship between the Lugano and the Brussels convention is quite clear in this area. If a resident of Iceland, Norway or Liechtenstein is involved, or such a court is chosen, or seized before the chosen court is seized, the Lugano convention will apply, while in cases involving solely the EU, the Brussels convention applies (and yes, there are some areas, where there is ambiguity, but I won't go into that).

The relationship between the Hague Convention and other conventions is treated in article 26 and indicates that the convention should be interpreted as far as possible consistenly with other treaties. The rest of the provisions are complex to read, because they are phrased with many double negations (... where non of the parties (...) is not  a member ....). I will try to rephrase them positively, as that is a lot easier to understand. It may however come at the loss of some exactness (possibly when a person should be considered resident in more than one location). 
-26(2): Another convention [e.g. Lugano] takes precedence if all parties are residents of
-:'states, which are party to that other convention [e.g. Lugano]; and/or
-:'non Hague convention states 
-26(3): If the court seized has conflicting obligations with respect to an older [concluded before the contracting state became a Hague party, e.g. Lugano] treaty with respect to a non-Hague State (e.g. Switzerland). 
-26(6)a: The rules of a Regional Economic Integration Organization (REIO, e.g. the EU; applying Brussels Regulation) apply when all parties are residents of 
-:'REIO states [e.g. Brussels regulation]; and/or
-:'non Hague convention states' 

How does that all work in practice, especially in relation to the Italian torpedo risk? I'll evaluate that using a hypothetical case. The case concerns a dispute regarding a contract with a choice of court agreement favouring "the courts of state A" and the contract parties are party A, resident in State A and party B, resident in State B. When a conflict arises, Party B sues in State C. Subsequently Party A starts a procedure for (the chosen court) of state A. Let's see what happens, when we make A, B and C specific, I get the following applicable instruments:

A B C Applicable instrument in state A lis pendens?

(party A, Chosen courts) (party B) court first seized [applicable Hague "advantage"  provision]
1 France Belgium Greece Brussels I [Hague 26(6)] no
2 France Belgium United States Brussels I [Hague 26(6)] no
3 France Mexico Greece Hague no
4 France Belgium Switzerland Lugano [Hague 26(2)] yes
5 France Mexico Switzerland Lugano
[Hague 26(3)]
6 Switzerland Mexico France Lugano yes
7 France United States Belgium Brussels I [Hague 26(6)] no
8 United States France France - no

Case 1 is quite straight forward: if only EU states are involved, the Brussels I regulation applies, and -in its new version- that means no waiting for the Greek court to have decided. Case 2 involves only EU residents, and thus Brussels I applies at well. When residents of only non-EU Hague State Mexico are involved, the Hague Convention applies (example 3). 

However (example 5), the French court has the possibility to stay proceedings pending a decision by the Swiss court: under Hague 29(3), the Lugano convention's lis pendens regime is an international treaty obligation which should be respected, as non-Hague state Switzerland is involved. However, this give-way rule only applies when a non-Hague state is involved, so should Switzerland however become a member to the Hague Convention, then the Hague convention should be applied. 

In case 7 the EU system applies again, as no non-EU Hague states are involved. 

This whole system of examples does not change a lot when other Lugano states become party to the Hague Convention: only in example 5 (Hague 26(3)), Lugano would be inapplicable when Switzerland joins the Hague convention, as it allows only for conventions to gain precedence with regards to treaty obligations in relation to non Hague parties. 

Remaining Lugano Relevance
However, the rules under article 26(2) (if only Lugano states are involved + other states that are non Hague states), the Lugano convention applies) are still applicable. That means that the lis pendens regime in the Lugano states can only be resolved through a change in that convention. It puzzels me why no -public- mention of such negotiations is known: the divergence between Lugano an Brussels regulation seems something that politicians have tried to avoid for ages. There must be some hidden problem in the new Brussels regulation as far as the other Lugano states are involved, that hampers the corresponding change in the Lugano convention. Or could it have been that a tactical error has been made in not involving them in the negotiations of the Brussels I regulation recast, and they feel uncomfortable with a "take it or leave it" attitude with regards the corresponding change in the Lugano convention? Who knows!?

No comments:

Post a Comment