European Commission to cut red tape in cross-border court cases for businesses and consumers

IP/10/1705

Strasbourg, 14 December 2010

European Commission to cut red tape in cross-border court cases for businesses and consumers

A France-based company has a construction contract with a Poland-based entrepreneur to build a factory near Paris. The two firms agree that a Warsaw court will deal with any contract disputes. The Polish firm sues the French company because it is behind in payments. The Warsaw court rules that the French company must pay the outstanding amount. The Polish company then wants this judgement to apply to the French company’s assets in France. This currently requires the Polish company to first go through a time-consuming procedure in a French court called “exequatur” – which may cost up to €3,000. The “exequatur” procedure, which is carried out more than 10,000 times a year in the EU, is outdated given the development of Europe’s Single Market and the level of trust between the Member States’ legal systems in civil and commercial matters. This is why the European Commission today proposed abolishing the “exequatur” procedure, a move that could save up to €48 million a year and facilitate cross-border business, particularly for small and medium-sized firms (SMEs). The cost saving is part of the Commission’s proposal for a sweeping reform of the so-called “Brussels I” Regulation of 2001, a set of EU rules that determine which court has jurisdiction in cross-border cases and how court judgements issued in one EU Member State are recognised and enforced in another EU country. The reform is meant to strengthen the Single Market and cut red tape. It will also reinforce the protection of European consumers when they deal with businesses in third countries, enhance legal certainty for choice of law agreements among businesses, and improve the competitiveness of Europe’s arbitration industry.

"Today the Commission is proposing to eliminate a complicated and costly procedure for recognition and enforcement of judgements in civil and commercial matters between Member States. This is good news for Europe's citizens and SMEs. Our proposals will deliver faster and cheaper settlement of cross-border disputes, with savings between 2,000 and 12,000 € in individual cases," said José Manuel Barroso, President of the European Commission.

"In a true Single Market, judgements in civil and commercial matters issued in one Member State should be given full faith and credit in all other Member States of our European Union. This is why we act today to abolish the old-fashioned and overly bureaucratic exequatur procedure, thereby removing an important deterrent for cross-border transactions in Europe,” said Viviane Reding, Vice-President of the European Commission and the EU’s Justice Commissioner. “My goal is that by 2013 judgements in civil and commercial matters can be executed effectively, speedily and inexpensively across the EU, whether they are made by a domestic court or a court in another EU Member State.”

Even though the EU's Single Market gives businesses access to a market of 500 million consumers, only a quarter of Europe’s 20 million SMEs are involved in cross-border trade. A recent survey found that almost 40 percent of businesses would be more inclined to trade outside their home market if the procedures for settling court disputes abroad were simplified. Removing bureaucratic obstacles that impose extra costs and legal uncertainty on businesses is therefore a key part of the Commission’s drive to make life easier for companies and citizens (see IP/10/1390 and MEMO/10/525).

The Commission agreed today on a reform of the “Brussels I” Regulation of 2001. This Regulation is fundamental to cross-border litigation because it determines which court has jurisdiction in cross-border cases. It also allows for court judgements in one Member State to be recognised in another.

The reform proposed by the Commission today includes four key changes:

• Abolition of the cumbersome “exequatur” procedure: Under the current rules, a judgement in one Member State does not automatically take effect in another. It first has to be validated and declared enforceable in a special intermediate step by a court in the Member State of enforcement – the so-called “exequatur” procedure. In complex cases, this procedure may cost up to €12,700 in lawyers' fees, translation and court costs. It could also take several months in some countries to have a judgement recognised and enforced. This procedure is a pure formality in almost 95% of cases. The Commission therefore proposes to abolish it. In the future, judgements in civil and commercial matters rendered by a court in one Member States will thus be automatically enforceable across the EU. The execution of the judgement could still be stopped by a court, but only under exceptional circumstances (such as a violation of fair trial rights by the court which made the judgement abroad).

• Enhancing consumer protection with regard to legal disputes involving non-EU countries: At the moment, national rules on jurisdiction for third-country defendants vary widely between Member States. National laws of one country may allow a citizen or company to sue a defendant from outside the EU in the national court, while this may not be a possibility in another country. The reform proposed today will change this. Notably in relations between a consumer domiciled in the EU and a business established outside the EU, the courts of where the consumer is domiciled will in future have jurisdiction, regardless of the Member State.

• Bringing legal certainty to choice of court agreements between companies: In business-to-business relations, companies often agree to settle all disputes in one particular court. However, litigation tactics have led to a situation where the validity of such choice of court agreements is challenged in a court in another EU Member State in order to delay the settlement of the dispute – a practice sometimes referred to as “Italian torpedo”. The Commission proposed today measures to end such abusive tactics by ensuring that the court chosen in the choice of court agreement is always first to determine whether the agreement is valid or not.

• Strengthening the competitiveness of Europe’s arbitration industry: The Commission’s reform proposals will bring clarity to arbitration, which so far is not covered by the “Brussels I” Regulation. More than 60% of large European companies prefer arbitration over court litigation to resolve business dispute. Europe’s arbitration centres in London and Paris handle cases with a total value of more than €50 billion. This is a €4 billion a year business in the EU. However, currently, a company that wants to escape from an arbitration agreement can relatively easily claim that the deal is invalid and file a lawsuit in the court of a Member State in which it is likely to get a favourable decision questioning the validity of the arbitration agreement. This is why the Commission proposed today to give companies certainty that the choice of the arbitral tribunal will be protected against abusive litigation.

Background

The Brussels I Regulation facilitates civil judicial cooperation in the EU by identifying the most appropriate jurisdiction for solving a cross-border dispute and ensuring the smooth recognition and enforcement of judgements issued in another Member State. This helps the Single Market function properly.

Eight years after the original Regulation came into force, the Commission’s reform proposals are now seeking to make it more efficient.

The proposal to abolish the “exequatur” procedure follows earlier moves such as the European Payment Order (a simplified procedure for uncontested cross-border claims), the European Small Claims Procedure for cross-border claims of less than €2,000 and the EU’s Maintenance Obligations Regulation.

The Commission issued a report on the application of Brussels I in April 2009, along with a paper that outlined various policy options.

The Commission also published a Green Paper today with several options on facilitating the free circulation of civil status documents (See IP/10/1704).

Next step

It is now for the European Parliament and the Council of Ministers to agree on the Commission’s proposal for a reform of the “Brussels I” Regulation.

For more information

MEMO/10/677

Justice Newsroom:

http://ec.europa.eu/justice/news/intro/news_intro_en.htm

Homepage of Viviane Reding, Vice-President of the European Commission and EU Commissioner for Justice:

http://ec.europa.eu/commission_2010-2014/reding/index_en.htm

ANNEX

Chart 1: Relevance of rules on jurisdiction and enforcement for cross-border commercial activity

"To what extent would you be inclined to engage in (more) cross-border commercial activity if, in the event of a dispute, a judgement obtained in one Member State would be enforceable in another without additional procedures?"

Source: CSES study, Text box 3.3, p. 61

Chart 2: Number of exequatur applications and success rates (2009)

Chart 3: Cost and length of exequatur proceedings in the EU Member States

Source: CSES study, p. 42.