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The last edition of Gard News contained a short summary of two recent decisions of the European Court of Justice1 which are regarded as having bade farewell to member states’ jurisdiction to grant an anti-suit injunction between litigants where one is domiciled in a Brussels Convention2 state. Since this jurisdiction had been exercised most vigorously by the English courts, this article seeks to explain the background to the decisions and the implications to litigants in the UK.

1  Turner v. Grovit (Case C-159/02) and Erich Gasser GmbH v. MISAT (Case C-116/02).
2  Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (as amended by the Accession Conventions of 1978, 1982 and 1989).

An anti-suit injunction is essentially an order restraining one party from commencing or continuing with proceedings brought before another judicial authority, even one abroad. The most common situations giving rise to an application for an anti-suit injunction is where a party commences proceedings in a place other than in the place agreed or, where a place/jurisdiction has not been agreed but the court nevertheless considers that the suit has been commenced in a foreign jurisdiction vexatiously or oppressively. The reasons behind commencing suit in these situations could be, inter alia, that the commencing party wishes to take advantage of a “home” court, or that the limitation of liability regime is more advantageous, or that the merits are better in a particular jurisdiction.

Jurisdiction – English Courts v. Brussels Convention Model
The English courts have traditionally embraced the concept of the anti-suit injunction and exercised a wide discretion (an important pillar of the common law system) as to whether it should be granted. This exercise of the jurisdiction was always subject, however, to the important limitation that the court would not grant an injunction unless the defendant was subject to the court’s jurisdiction (e.g., by a valid London arbitration or jurisdiction clause or that the contract was subject to English law) and that the defendant was within the power of the English court for the purpose of enforcement.

The approach of the English courts is to be contrasted with the Brussels Convention model: by the 1968 Brussels Convention, member states agreed uniform rules to allocate jurisdiction in civil and commercial disputes. Similar rules are set out in the Lugano Convention between the EU member states and the European Economic Area countries. These conventions have their genesis in the civil law tradition rather than common law. One important distinction between the two systems in relation to jurisdiction is that, whilst traditionally the English courts assert a discretion to enjoin a party by injunction from pursuing foreign legal proceedings in breach of an executive jurisdiction clause, under civil systems, the notion that a national court has discretion in the exercise of its jurisdiction does not exist – a court takes jurisdiction over a party who is domiciled in that country and not otherwise.

Under the Brussels/Lugano system, if a court has jurisdiction, whether under Article 2 (the general jurisdiction provision based on domicile) or under any of the special heads of jurisdiction (Articles 5-17), that court is required to hear the dispute, with one exception (by virtue of Article 21), namely, that if a proceeding involving the same claim between the same parties is pending in the court of another convention country, the second court must defer to the first court. If it is not clear that the first court has jurisdiction, the second court must issue a stay; if the first court’s jurisdiction is clear or becomes clear, the second court is required to dismiss. The only element of discretion comes in under Article 22 concerning related but not identical actions brought in the courts of different contracting states.

In brief, the Brussels/Lugano system dispenses with forum non conveniens (at least in disputes between domiciliaries of the contracting states) and replaces it with the principle of lis pendens. Such a principle should have made anti-suit injunctions in the states that continued to permit them unnecessary. However, this was not the case, certainly in the UK, where anti-suit injunctions continued to be ordered. Grave doubts were raised at senior judge level and by academics as to whether anti-suit injunctions were compatible with the Brussels/Lugano system of allocating jurisdiction since they were based on discretion whereas the Brussels system was a straightforward system of lis pendens aimed at achieving highly predictable and uniform rules of jurisdiction. In addition, the English court’s approach was considered to be a grave intrusion on another court’s jurisdiction in circumstances where the EU rules do not allow one country to review another court’s jurisdiction.

The two recent European Court of Justice (ECJ) cases have now finally confirmed the ECJ’s position:

Turner v. Grovit
This case concerned an injunction restraining Spanish proceedings which the English court of first instance considered had been brought in bad faith. The English Court of Appeal upheld the injunction. The defendant then appealed to the House of Lords, which decided that while they would have upheld the decision, it raised a question of EU law and so referred the matter to the ECJ. The ECJ heard the arguments put before it, including that the English court’s jurisdiction was not aimed at attacking the jurisdiction of foreign courts but at the wrongful defendant who commenced proceedings in a foreign jurisdiction in bad faith with the intent and purpose of frustrating or obstructing proceedings brought properly before the English court.

The ECJ decided that such injunctions were not reconcilable with the Brussels Convention and, while they recognised the argument that the UK court’s order was concerned not with the Spanish court’s jurisdiction but with the defendants, nevertheless, the result was to deprive the plaintiff of exercising a right of action and consequently to directly interfere with the unfettered jurisdiction of the Spanish court. It confirmed that apart from exceptional circumstances, the convention did not allow review of the jurisdiction of one EU court by another EU court.

It can be concluded following this decision that anti-suit injunctions are no longer valid where they concern the jurisdiction of another EU court even where the proceedings have been brought vexatiously or are oppressive.

Erich Gasser v. MISAT
In Erich Gasser v. MISAT the ECJ ruled that where a court is seized second, it must stay its proceedings until the first court seized has declared that it has no jurisdiction, even where the court seized second has a jurisdiction clause in its favour and the court first seized is guilty of delay in deciding its jurisdiction.

It should be noted at this juncture that Article 17 of the Brussels Convention gives effect to exclusive jurisdiction agreements where it has been agreed that a court of a contracting state has jurisdiction. To be an effective exclusive jurisdiction clause, however, Article 17 requires the clause to comply with certain formalities, the most important being that it is in writing or evidenced in writing.

Thus the scheme of the rules would be for a party to commence litigation in the agreed forum. If, however, a plaintiff commences suit elsewhere, it is open for the other party to apply for a declaration that this court has no jurisdiction and the court first seized should then declare it has no jurisdiction in light of the exclusive jurisdiction clause, thereby forcing the party to commence suit in the agreed forum.

Implications of the decisions
The two decisions have affirmed the supremacy of the Brussels Convention model within the contracting states, namely, that it is the court first seized which has the task of deciding whether it has jurisdiction to hear the claim, including when there is an exclusive jurisdiction clause.

It is clear from the decisions that the ECJ has placed great value on the principles of mutual confidence and trust which the contracting states have accorded to each other’s legal systems and judicial systems. It is also fair to say that recent decisions of the member states have shown an increasing willingness to give effect to valid exclusive jurisdiction clauses.

Commentators have stated that the decisions are limited to proceedings brought within the EU and that they do not extend to arbitration agreements since arbitration proceedings are expressly excluded from the Brussels Convention. It is also arguable that the English courts can continue to make anti-suit jurisdictions in cases where the parties are not domiciled in convention states.

Notwithstanding the above possible exceptions, the rulings do have important ramifications. One likely consequence is increased cost and delay whilst waiting for a decision on its own jurisdiction from the court first seized (which, in circumstances where parties have agreed an exclusive jurisdiction clause, seems particularly unfair). It might be comforting to know that if a claim has been brought wrongfully then the claim will eventually be referred back to the agreed forum, and the party bringing the claim will be penalised on costs. This, however, might not be a full or adequate remedy if there has been considerable delay in arriving at this decision.

What therefore can a party do now to protect against proceedings commenced in breach of an exclusive jurisdiction clause or where they have been brought with the intention of frustrating or obstructing proceedings brought properly?
– Ensure that any exclusive jurisdiction clause is properly drafted and is crystal clear.
– Ensure that the clause has teeth. It has been suggested that one way to achieve this would be to agree in the contract a liquidated damages clause to be triggered in the event that a party breaches the agreement to litigate in the agreed place. It will depend, however, on the agreed jurisdiction as to whether such a provision would be enforceable.
– It might also be advisable to agree in any contract to refer disputes to arbitration, since they are technically outside the scope of the Brussels system and it is arguable that an English court may still grant an anti-suit injunction where proceedings have been commenced in breach of a London arbitration clause.
– Once a contract has been agreed which contains an exclusive jurisdiction clause and a dispute appears likely, a party should consider quickly whether to commence proceedings, if only for a declaration, in order to avoid opponents commencing proceedings in a jurisdiction foreign to the one agreed in the contract or, where there is no agreement, in an unfavourable one.

 

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.