WHERE ARE YOU GOING TO BE SUED TODAY?

CHANGES TO THE BRUSSELS CONVENTION ON JURISDICTION AND THE RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS

Key issues

Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters

Companies cannot exclude jurisdictions of consumer based in another member state

EU companies doing business throughout Europe can be sued in consumer’s member state

The Council Regulation (“the Regulation”) comes into force in March 2002. This will replace the Brussels Convention on jurisdiction and enforcement of judgments in civil and commercial matters.

The Regulation will have direct effect and will apply to all member states except Denmark which will continue to apply the Brussels Convention. Its object is to clarify parts of the Brussels Convention that previously have been unclear including questions of jurisdiction arising in e-commerce contracts with consumers.

This article will deal only with some of the more significant (or controversial) changes.

General Rules

Where an individual or EU company (“a person”) should be sued

The basic rule (Article 2) is that a person domiciled in a member state, whatever their nationality, should be sued in that member state. This rule is subject to the exceptions detailed in the next section. The Regulation clarifies the fact that nationality is not a relevant factor in determining where a person may be sued.

Under the Regulation, the domicile of a company is determined either by its statutory seat, its central administration or its principal place of business. This is wider than the current provisions of the Brussels Convention.

If a defendant is not domiciled in a member state, the member state should apply its own private international law to determine the proper jurisdiction. The Regulation will apply if the defendant has an exclusive jurisdiction clause in a contract with a party domiciled in a member state.

The Regulation also applies to a party not domiciled in a member state in matters falling under Article 22 of the Regulation which include, inter alia, actions relating to immovable property in a member state.

Exceptions to the General Rules

Certain exceptions apply to the general rules. Some of the most important exceptions in the Regulation are dealt with below.

Disputes relating to a Contract

In a contract dispute, even though a person domiciled in one member state can also be sued in another member state if that is where his contractual obligation in question was or should have been performed.

In contracts for the sale of goods, the place of performance is where the goods were delivered or should have been delivered.

In a contract for the provision of services, the place of performance is where the services were provided or should have been provided.

In tortious matters, the action can be brought in the place where the harmful event occurred or may occur.

Branches, Agency or other Establishments in a Member State

If a dispute arises out of the operations of a branch, agency or other establishment, a person domiciled in one member state can also be sued in the member state where the branch or agency is situated.

If any of the above exceptions apply, a person bringing proceedings can choose in which of the relevant member states he will sue the defendant – the domicile of the Defendant or the country in which the branch is situated.

Consumer Contracts

The most controversial changes to the Brussels Convention provisions relate to jurisdiction over consumer contracts.

The Regulation was intended to provide clarity in relation to the proper jurisdiction for disputes involving e-commerce contracts made with parties in different member states. Unfortunately, the Regulation may lead to even greater uncertainty. It could even deter e-commerce businesses from contracting outside their own domicile in some cases because the Regulation leans too heavily in favour of protecting the consumer.

A person deals as a consumer if he is contracting outside his trade or profession.

The provision causing the greatest consternation is Article 15(1)(c). This provides that the jurisdiction for a dispute under a contract concluded by a consumer with a person who “pursues commercial professional activities in the member state” in which the consumer is domiciled or, by any means, “directs such activities to that member state or to several member states including that member state”, will be determined by this section of the Regulation (as opposed the other articles mentioned above).

This new section entitles a consumer to bring proceedings against the other party either in the member state in which the party is domiciled or in the consumer’s own domicile.

This envisages the situation where, for example, a consumer in France buys goods over the internet from a supplier based in England. Clearly, the Regulation allows the French consumer to sue the English company in the French courts. This could be justified on the basis that the product or services were seen in France (because they were directed at France) and the supplier could be held to have agreed to be subject to the French courts jurisdiction because he subsequently delivered the order to the French address.

It is not yet clear what would happen if, for example, a consumer from France went to England and bought goods in England (the domicile of the supplier) and then had a claim against the supplier. If the supplier “directs such activities” to France or to several member states including France, it would appear that the consumer could sue the supplier in France, even though he bought the goods in England, and the supplier had no branch or agency in France. Given that, to the knowledge of the supplier, the particular contract had no connection with France when he entered into it, the supplier is likely to be surprised if he is sued in France.

Under the new Regulation, it would appear that a website offering goods or services is, prima facie, tantamount to submitting to the jurisdiction of all the member states, regardless of whether contracts are made with a consumer through that medium.

A party can only bring proceedings against the consumer in the member state in which the consumer is domiciled.

These provisions can only be varied in limited circumstances:

i) by agreement entered into after the dispute has arisen; or

ii) the agreement allows the consumer to bring proceedings in the jurisdictions of more member states than permitted under this article; or

iii) at the time the agreement is entered into, both parties are domiciled or habitually resident in the same member state and the agreement confers jurisdiction on that member state.

What Problems does this cause for Companies doing business in Europe?

It will not be possible to have jurisdiction clauses in consumer contracts which exclude the jurisdiction of the consumer’s domicile.

Companies could be sued in states in which their products or services are purchased by consumers or to which their commercial or professional activities are directed. This includes providers of services.

Where a company and a consumer are in different member states, the company will have to seek the consumer’s agreement after the dispute has arisen to resolve a dispute in the member state in which the company is domiciled - this agreement is unlikely to be forthcoming.

Businesses may be unprepared to risk being sued in foreign domiciles and so may be forced to limit business they do with consumers in other member states.

Avoiding potential consumers will have financial consequences for companies.

Trade throughout Europe may be reduced.

How can these problems be dealt with?

The Regulation determines jurisdiction not governing law so providers can still contract with consumers on terms selecting governing law of choice.

Suppliers may continue to contract on standards terms giving exclusive jurisdiction to own member state. If a dispute arises, there may be arguments available to challenge jurisdiction on the basis that the other party is not a consumer because the goods or services were purchased within the course of his trade or profession. If that argument were successful, the court would have to give effect to the exclusive jurisdiction clause.

Arbitration clauses in contract selecting seat of arbitration in home member state (and governing law).

Restrict which consumers one does business with.

These Regulations cannot be ignored. A consumer can sue a company in his or her own jurisdiction and any judgment obtained will be recognised (Article 33) and enforced in other member states (Article 38).

Providers of goods and services should also be aware that the new regulations may apply to them even if they are not domiciled in a member state.

The effect of the new provisions will only really be known when there have been some decisions from the European Court.

The message is, know your customer.

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