Court bans abusive litigation tactics but for how long?

For further information, please contact Alan Woolston, Partner, Fladgate LLP (awoolston@fladgate.com)

A welcome decision of the English High Court that potentially abusive litigation tactics cannot prevail could prove short-lived as a result of Brexit uncertainty.

The usual court first seized rule applies where claims are issued by disputing parties in the courts of two or more EU member states.  This means that all courts must stay their own proceedings until the court where the proceedings were brought first in time has determined whether it has jurisdiction.  It became possible to exploit this anomaly through a practice known as the “Italian torpedo”.  By commencing pre-emptive proceedings in Italy, lengthy delays in the Italian courts could severely delay the chosen court in proceeding to hear the claim.

In an effort to give greater efficacy to exclusive jurisdiction clauses, in 2015 the EU introduced Brussels 1 Recast[1].  This provides that the court first seized rule does not apply if the parties have agreed in writing that a particular EU member state’s courts are to have exclusive jurisdiction over the dispute.

Since Brussels 1 Recast was introduced, clarification has been required as to whether valid exclusive jurisdiction clauses extend to asymmetric jurisdiction clauses, namely clauses which contain different jurisdiction provisions depending on whether proceedings are commenced by one party to an agreement rather than the other and are widely used in international financial markets and construction projects.   That clarification has now been provided by the decision in Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc [2017].[2]

The practical effect of the decision in this case is that the English court was entitled to continue with proceedings which did not have to be stayed in deference to litigation on the same issues already underway in Greece. However, there is justifiable concern that the long-term implications of this judgment, and the clarity obtained, might be short-lived given that:

• the court held that whether a jurisdiction clause is exclusive for the purposes of Brussels 1 Recast is a matter of the autonomous interpretation of Brussels 1 Recast, rather than of English law.  Whether courts in other EU member states will follow the decision in Liquimar Tankers therefore remains to be seen.  Absent confirmation from the ECJ, there remains a risk of a “torpedo action” being effective; and
• with the UK set to leave the EU (Brexit) in or around March 2019, there is uncertainty as to which arrangements might replace Brussels 1 Recast and the extent to which the English courts will follow or be influenced by the decisions of the ECJ.  The analysis on which the court made its decision in Liquimar Tankers may therefore only remain relevant for so long as the UK remains an EU member.

In view of the above uncertainty, before agreeing to an asymmetric jurisdiction clause parties may now wish to identify which other countries might have jurisdiction under the asymmetric jurisdiction clause and confirm the stance that jurisdiction is likely to take in relation to such a clause.

[1]  Regulation (EU) 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

[2]  EWHC 161 (Comm)