We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
10 February 2015
On January 10 2015 EU Regulation 1215/2012 – the recast Brussels Regulation – came into force. The recast Brussels Regulation repealed and replaced the Brussels I Regulation (44/2001). Among the reforms introduced by the recast Brussels Regulation are provisions intended to prevent the infamous abusive litigation tactic known as the 'Italian torpedo'.
The 'Italian torpedo' is the name given to a common tactical abuse of process in cross-border disputes to defeat a jurisdiction agreement. A party to a dispute may seek to frustrate its opponent by bringing an action in an EU member state that has a reputation for a slow or inefficient judicial system with a considerable backlog of cases, even where that jurisdiction has no connection to the claim. The court of the member state in whose favour the jurisdiction clause is drafted must then wait until the first court seised has dealt with the jurisdiction dispute. The resulting delay and expense in many cases forces the unfortunate torpedoed victim to settle.
In other words, this usually means suing for a declaration of non-liability in Italy, sinking the opponent's claim. A classic example of the Italian torpedo can be found in Trasporti Castelletti v Hugo Trumpy,(1) in which the Italian court took more than 10 years to decide that it had no jurisdiction to hear a claim over a bill of lading containing an English jurisdiction clause.
Popular in Europe, this tactic has been greatly assisted by the drafting of the lis alibi pendens (action pending elsewhere) provisions in Article 27 of the Brussels Regulation:
"1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.
2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court."
The European courts have strictly interpreted this article to mean that a second-seised court in a member state with the jurisdiction clause must stay its action and cannot interfere, for example, by granting an anti-suit injunction. English courts view jurisdiction as a civil and commercial matter, but European courts have tended to view it as a matter of public law and have not permitted interference by a foreign court. The European Court of Justice (ECJ) confirmed that anti-suit injunctions are not permitted to restrain breach of a jurisdiction clause in Turner v Grovit(2) and Erich Gasser GmbH v Misat Srl.(3)
More recently and controversially, in 2008 the ECJ held that anti-suit injunctions cannot restrain proceedings brought in breach of an arbitration agreement in Allianz SpA v West Tankers Inc.(4) This is despite the unambiguous carve-out for arbitration in the Brussels Regulation.(5) Allianz brought a claim against West Tankers in Italy, although the relevant charterparty agreement contained an arbitration clause in favour of London. West Tankers won a declaration of non-liability in the arbitration in London, but following the ECJ's decision was unable to extricate itself from the simultaneous Italian litigation with an anti-suit injunction.
The basis of the ECJ's reasoning was that deciding whether the arbitration agreement applied did fall within the Brussels Regulation. This ranks as one of the ECJ's more creative decisions and the result was that parties to an arbitration agreement also become vulnerable to the Italian torpedo.
The lis alibi pendens provisions in the Brussels Regulation were intended to avoid conflicting judgments from different members states' courts, but the result has been a race to the courts to avoid a potential torpedo action from the other side. While the Brussels Regulation was generally regarded as a successful piece of legislation, it has often been criticised for this reason and the European legislature is to be commended for attempting to tackle the problem.
The key reforms in this respect are contained in the new Article 31(2) on lis alibi pendens:
"Without prejudice to Article 26, where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement."
Under this new provision, most Italian torpedo actions should be prevented. It is hoped that this will mean that parties to a jurisdiction agreement will also not feel obliged to rush to court prematurely. However, parties without jurisdiction agreements may still feel obliged to do so when there are competing special and general grounds for jurisdiction under the recast Brussels Regulation, which in these respects remains largely unchanged.
It is also hoped that the deleterious effect that West Tankers and similar cases have had on arbitration agreements in Europe will be overturned by the recast Brussels Regulation. The arbitration exception in Article 1(2)(d) remains unchanged, perhaps because it is difficult to see how it could have been much clearer, except to the ECJ. However, the recast Brussels Regulation should have the effect of ensuring that West Tankers is overturned in two ways. First, Recital 12 provides:
"This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law."
Second, Article 73(2) provides: "This Regulation shall not affect the application of the 1958 New York Convention."
As all member states are parties to the New York Convention, it seems that the legislature found arbitration to be satisfactorily dealt with in that convention and a more complicated arbitration exclusion regime was unnecessary. The mischief of West Tankers for parties seeking to choose their seat of arbitration should be largely corrected and parties to an arbitration agreement can take confidence in the new legislation.
For further information on this topic please contact Jonathan Wood or Nick Allan at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1) Case C-159/97.
(2) Case C-159/02.
(3) Case C-159/02.
(4) Case C-185/07.
(5) Article 1(2)(d) provides: "The Regulation shall not apply to: ... arbitration."
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.