Green Paper on the Brussels I Regulation - European Union Committee Contents

Examination of Witnesses (Questions 40-59)

Mr Richard Fentiman

10 JUNE 2009

  Q40  Chairman: They are related proceedings rather than co-defendants.

  Mr Fentiman: Yes.

  Q41  Chairman: We have discussed competing litigation both generally and in the context of choice of court clauses and industrial property, what about the situation where you have a competition between litigation and arbitration? The Commission has suggested that certain specific points relating to arbitration might be addressed "not for the sake of regulating arbitration, but... to ensure the smooth circulation of judgments in Europe and prevent parallel proceedings". On that basis it suggests a partial deletion of the arbitration exception and the assignment of jurisdiction over various points relating to arbitration to the law and courts of place of arbitration. Do you agree?

  Mr Fentiman: I should begin by saying that I think this is a very positive and welcome suggestion in that it makes respectable—if I can use that word—a possibility which at one time was regarded certainly amongst arbitration practitioners as being absolutely unthinkable. If at one time you had said to arbitration practitioners that arbitration should in some sense fall within the scope of the Brussels Regulation they would have said no, and indeed in their replies to the questionnaire that was sent out to different Member States by the Heidelberg team they did say no. However, what is now clear—and became clear in the Heidelberg Report and is clear in the Green Paper—is that a fine line is going to be drawn and that the objective of this is simply to facilitate and not to regulate in an intrusive way the conduct of arbitration. I think the first thing to say is that this has put something on the table by the way it is expressed which I think previously many arbitration practitioners would have discounted. The question is, how successfully are the proposals in the Green Paper going to achieve that? The proposal that you support arbitral awards by providing expressly for the non-recognition of civil judgments inconsistent with those awards has been universally welcomed. That, in a very obvious sense, is a way in which the Regulation can support arbitration. I think less clear and much more controversial are the proposals for co-ordinating ancillary proceedings in different Member States in matters concerning arbitration. That is to say, in particular, attempting to regulate parallel proceedings in different Member States concerning the validity of an arbitration agreement. The suggestion is that essentially the civil courts of the country in which the arbitration is seated will have exclusive jurisdiction in that matter. In principle that is something which is hard to object to and in principle it achieves the harmonisation of a particular area of civil litigation, that is to say civil proceedings concerning arbitration, and in a sense of course it is supportive of arbitration by adding clarity to the validity of a jurisdiction agreement. The difficulty however is this—and it is a very serious difficulty—that if we in effect allocate exclusive jurisdiction in any matter to the courts of a particular country you do that because you make one of two assumptions. One assumption is that the courts of that country have some kind of unique interest in resolving the matter; the alternative assumption is that the issue involved (the validity of an arbitration agreement) is regulated by common rules to the extent that it does not really matter in a sense where that issue is resolved as long as you find an appropriate place in which it can be resolved. The difficulty is that the whole notion of exclusive jurisdiction (which is essentially what we have here) is predicated on one of those two assumptions but it is very unclear, and is widely doubted by practitioners, that either of those assumptions is actually correct. In other words, you are trying to establish an exclusive jurisdiction over the validity of an arbitration agreement where really there are no grounds for doing so. It may be because practitioners are very used to the idea of parallel proceedings involving validity but certainly in my experience practitioners in this area are not persuaded that the seat of the arbitration has any particular claim to resolve these issues. I think practitioners like to keep open the possibility of having the issues resolved in other countries where of course that would suit the interests of their own clients.

  Q42  Chairman: Can I just ask you, the seat of the arbitration may be clearly defined by the arbitration agreement but not necessarily, surely?

  Mr Fentiman: Indeed.

  Q43  Chairman: An ICC arbitration does not necessarily tell you where it is going to take place.

  Mr Fentiman: Indeed, and that gives rise to a further problem that in order to make this work the Regulation itself has to introduce rules which have the effect of telling you what the seat of the arbitration is, otherwise it does not work because there must be a degree of certainty about that. That of course is one of the difficulties because when you come to address that question it may be difficult to get agreement. I do not mean agreement between the parties, I mean agreement between Member States as to how the place should be located.

  Q44  Chairman: I see in footnote 14 of the Green Paper suggests that if you cannot find agreement as to the seat in the contract then it is suggested to connect to the courts of the Member State which would have jurisdiction over the dispute under the Regulation in the absence of an arbitration agreement. That could lead to anything, could it not, depending on which head of jurisdiction you look at?

  Mr Fentiman: Indeed. That is very much a default rule because it is necessary to have a rule rather than a default rule which actually expresses any particular connection between the arbitration and a Member State.

  Q45  Chairman: It does not even necessarily lead to one state; several states could have jurisdiction under the Regulation.

  Mr Fentiman: Indeed. This makes my point that it is very difficult in reality to argue for the position that there is one court which has a unique interest in resolving this dispute.

  Q46  Chairman: Under the New York Convention arbitration awards are enforceable directly anywhere in the world without getting the imprimatur of the law of the seat of the arbitration. Could this proposal interfere with that?

  Mr Fentiman: It could, although you could equally well say that it strengthens the enforceability of your award. I think there is a related question as well which is the distinct one of whether or not there is any assurance that the courts of any Member State seised of the question of the validity of an arbitration agreement will come to the same answer on the question of validity. If that were the case then there may be some reason for saying that the question of jurisdiction should be allocated to a particular place such as the seat. In order to achieve a degree of certainty on the question of validity the Regulation in fact steps into the realms of choice of law by introducing a conflict of laws rule which essentially says that the law of the seat will govern. I think that causes real difficulty insofar as Member States differ markedly from each other, not simply in how they answer the question of which law governs the validity of an arbitration agreement, but also of course as to whether or not that is a justiciable issue anyway. In some Member States once the arbitration has started there is no question of challenging the validity of the arbitration agreement. I think that causes a difficulty, not simply a conceptual difficulty because this is a regulation trespassing into the realms of a choice of law in a sense, but my impression is that it would be very hard to get agreement between Member States (and agreement within the arbitration community) that this is the right approach to determining the validity of an arbitration agreement.

  Q47  Chairman: I think what you have been referring to just now is that in some Member States arbitrators have competence to decide over their own competence.

  Mr Fentiman: Indeed, yes.

  Q48  Chairman: What about some rule which regulated the relationship between a European judgment or perhaps a worldwide judgment and an arbitration award if the judgment was given on a matter which was subject to an arbitration? Is that a desirable aim, a special exception to the recognition and enforcement of judgments if and when, contrary to an arbitration agreement or award?

  Mr Fentiman: I think in principle it does have the effect of strengthening arbitration in a way which would be acceptable. I think the difficulty is in actually formulating the precise nature of the proposal.

  Q49  Chairman: Do you agree with the Commission's analysis of problems about provisional measures and with its suggestions as to how they might be addressed? Do you have any further comments?

  Mr Fentiman: I think I would certainly welcome the thrust of the Green Paper and the Heidelberg Report upon which it was based because there is a clear sense that provisional measures such as, for example, freezing injunctions, have to be supported and have to be made to work. In the Heidelberg Report there is an openness to allowing Member States to grant such relief as they recognise under their own law even if that is not widely recognised in other systems. To put it bluntly, there is a recognition that there is nothing inherently wrong with the English worldwide freezing injunction, nor the fact that it operates in personam and therefore can be granted even in situations where there are no assets in England. I welcome the general thrust of the Green Paper but I have two difficulties with it. One difficulty is the suggestion that instead of addressing the circumstances in which a court granting an ancillary injunction in support of proceedings in another Member State can do so—which is the way we look at things at the moment after the Van Uden decision—it is suggested that we should not worry about that issue any more, presumably with the effect that the courts of Member States can grant whatever relief is available under their own law on the assumption that the primary court—the court seised of the substance of the issue—will have a power to vary or discharge the order that has been granted in the secondary proceedings. In one sense that is a very neat solution because it assumes that there is no need for the secondary court, as it were, to worry about compliance with some Community principle for the grant of provisional measures. Instead the primary court regulates whether or not the secondary court's remedy is going to be effective. In one sense that is in conformity with principle because it recognises, so to speak, the primacy of the primary court. But I think it causes considerable uncertainty. One wonders why you go to court X for a remedy when there is the risk that the order which that court considers is valid and enforceable can be varied in some way or discharged by the primary court. It seems to me that that is a recipe for uncertainty. I would actually favour adopting the basic approach which the Court of Justice has adopted thus far which is saying that the secondary court can grant such relief as is available under its own law provided there is a sufficient link between the relief sought and the courts of that country. I would favour retaining that general approach but merely clarifying it, and in particular clarifying it to make it clear that that test is satisfied if a court grants an in personam order based on a defendant's personal connection with its jurisdiction.

  Q50  Chairman: The Commission's suggestion might be thought to depart from the principle of mutual trust or at least non-interference with foreign courts' decisions.

  Mr Fentiman: It does, but it also reflects a policy which one can see in various proposals in the Green Paper which is an attempt to ensure that for any particular issue there is one court and one court only which ultimately has responsibility for this. That idea is hard to square with the notion of provisional measures in a secondary court.

  Q51  Chairman: Just to wrap up, we have in mind a rather long list of other matters which the Commission has touched on. Perhaps I can deal with it by just asking you in relation to the areas identified in section eight of the Green Paper do you consider action is merited? Are there any particular ones which you want to highlight for us to look at?

  Mr Fentiman: It did not seem to me that there was any matter which particularly needed attention. I suppose that is precisely why these matters are collected at the back of the Green Paper. There are perhaps three particular matters which I think are just worthy of note. The suggestion is that there should be a common definition of domicile. What this means of course is a common definition of domicile for natural persons because there is already in the Regulation a common definition of corporate domicile. In a way one has to say yes but I am not sure it is strictly necessary. My own experience is that although national laws may in fact differ in terms of idiom and terminology, the practical effect is actually the same. So yes, but it perhaps makes no difference. On a related theme is the idea that there should be a common definition of the seat of a corporation. I suppose in English law we are immediately struck by the impossibility of this since the concept of a seat is not one which exists in English law. I am not at all sure why that should be suggested because although we do not have a common definition of a seat we do of course have a common definition of corporate domicile already in the Regulation so one wonders why that should be thought to be of importance. I think the third thing which is striking is the reference to the possibility of awards made in support of fiscal authorities being embraced within the rules of recognition and enforcement. Of course such a thing—the enforcement of tax laws—is not something which we would normally regard as falling within the definition of a civil and commercial matter which is the normal scope of the Regulation as we understand it.

  Q52  Chairman: That is quite a political subject.

  Mr Fentiman: Very much so.

  Q53  Chairman: I think they extend it to other sorts of penalties as well, not just fiscal.

  Mr Fentiman: Yes.

  Q54  Chairman: Unless there are any other questions by members of the Committee or points that you want to mention, we are very grateful for extremely fluent and clear evidence and it is going to help us a lot.

  Mr Fentiman: Thank you.

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