Commercial & Chancery: Brussels clout

A new pre-action conduct direction flags up the importance to the plaintiff of securing the court first seized, ensuring their jurisdiction of choice isn’t scuppered by the defendant’s delaying tactics. By Keith Oliver, Steve McCann and Katie Brown

Commercial & Chancery Special Report: Brussels clout A new practice direction on pre-action conduct is to be introduced on 6 April 2009. This provides more detailed guidance than the current rules as to the steps parties are expected to take prior to issuing a claim in cases where none of the pre-action protocols apply.

However, in cases where there is a risk that the proposed defendant might scupper a claim by bringing proceedings in another European jurisdiction, potential claimants may be well advised to issue proceedings without complying with the steps set out in the practice direction, despite the sanctions that the court may impose for non-­compliance, which include staying the ­proceedings, adverse costs orders and orders depriving the claimant of interest.

The jurisdiction of the English court in civil and commercial matters# is largely determined by the Brussels Regulation. The Brussels Regulation is directly applicable within and between member states of the EU. In cases involving Switzerland, ­Norway and Iceland it is necessary to refer to the Lugano Convention, the provisions of which are broadly similar to those of the Brussels Regulation.

Articles 27 and 28 of the Brussels ­Regulation provide for what the court ­second seized should do when proceedings are brought before the courts of different member states. Article 27 requires the court second seized to stay its proceedings where the proceedings involve the same cause of action and are between the same parties. Article 28 provides for a discretionary stay where the actions are ‘related’.

The only exception to Article 27 is where one court has exclusive jurisdiction under Article 22 (for example, in proceedings relating to property rights or insolvency). Otherwise, ;where ;different ;sets ;of ­proceedings involve the same cause of action and are between the same parties, the court second seized has no option but to stay its action until the court first seized has ­determined whether it has jurisdiction. This is so even if the proceedings before the court first seized are brought in breach of an exclusive jurisdiction clause or in bad faith (as a spoiling tactic). This is often known as the ‘torpedo effect’, whereby a prospective defendant brings a claim for a negative ­declaration in a jurisdiction where they know that the courts are likely to take years to reach a decision in order to scupper a bona fide claim that is about to be brought elsewhere. The Brussels Regulation does not distinguish between claims for ­negative declarations and claims for positive relief.

The question of when the court becomes seized is therefore of crucial importance. Article 30 of the Brussels Regulation ­provides that a court shall be deemed to be seized:
• at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the plaintiff has not subsequently failed to take the steps they were required to take to have service effected on the defendant; or
• if the document has to be served before lodging with the court, at the time when it is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps they were required to take to have the document lodged with the court.

This reflects the fact that different ­national courts have different rules. Article 30(1) applies to proceedings in states such as England, where a claim has to be issued by the court before it is served. Proceedings are pending under Article 30(1) at the time of issue, provided the claimant has not failed to take all the steps they were required to take to effect service. The steps the claimant is required to take are a question of national law, and local advice will have to be sought in order to determine which court was, in fact, seized first.

One result of Article 30(1) is that a court may be seized of proceedings some ­considerable time before the parties to those proceedings are even aware of their ­existence (for example, if service has to be effected overseas, under the Hague ­Convention). So long as the delay in service is not due to the claimant having failed to do something they were required to do, the court will be seized from the date of issue.

In light of the inflexibility of this regime, potential claimants in cross-jurisdictional litigation may be well advised to protect their positions by issuing proceedings in the court of their choice, thus ensuring that that court is the first seized of the dispute, and then agreeing for the proceedings to be stayed for a period to enable information to be exchanged and attempts to be made to resolve the matter, as envisaged by the new practice direction.

Keith Oliver is a senior partner, Steve McCann is a partner and Katie Brown an associate at Peters & Peters