Cross-Border Litigation in the EU: Simplifying Dispute Resolution for Businesses

Authors: Clyde Bonnici & Annah Chapelle Paleologo

Cross-border disputes have become increasingly common, and this can often lead to complex challenges when litigation extends across multiple jurisdictions. As a means of ensuring fair and consistent dispute resolution when businesses operate across borders, the need for clear and efficient legal frameworks has never been greater.

This article delves into the evolution of cross-border litigation in the EU and focuses on key regulations such as the Brussels Recast Regulation, the Rome I and Rome II Regulations, and the Unified Patent Court (UPC), which collectively offer businesses clarity and efficiency when handling cross-border disputes.

Evolution of Cross-Border Litigation in the EU

The EU’s approach to cross-border dispute resolution began with the original Brussels Convention, concluded in 1968. This was the first significant EU treaty aimed at regulating jurisdiction and the enforcement of judgements in civil and commercial matters. This convention laid the groundwork for resolving disputes between multiple EU Member States, though room was still left for confusion in determining jurisdiction and applicable law.

Approximately 20 years later, the Lugano Convention was concluded. This was effectively a parallel convention to the former, however, it extended its jurisdiction and enforcement provisions to EFTA Countries, which were not eligible to subscribe to the Brussels Convention.

Over time, as the legal landscape continued to evolve, businesses faced challenges that paved the way for the introduction of the Brussels Recast Regulation and the need for clear rules on applicable law, achieved through the Rome I and Rome II Regulations.

The Brussels Recast Regulation

The Brussels Recast Regulation (1215/2012) replaced the Brussels 1 Regulation and remains the cornerstone of EU cross-border litigation. This regulation concerns jurisdiction in cross-border cases and the recognition and enforcement of foreign judgements in civil and commercial matters.

The necessity for this regulation is evident: it ensures access to justice for all EU citizens, facilitates the enforceability of judgements across Member States, and provides a clear legal framework to eliminate confusion regarding applicable laws in cases spanning multiple jurisdictions.

Prior to the Brussels Recast Regulation, the Brussels I Regulation required an Exequatur – derived from the Latin phrase ‘let it execute’. This was a formal process to recognise and enforce foreign judgements, however, it was subsequently eliminated under the Brussels Recast Regulation to promote the principle of mutual recognition of judicial and extra-judicial decisions in civil matters.

Jurisdiction and Enforcement of Judgments

Jurisdiction: Under the Brussels Recast Regulation, jurisdiction is primarily determined by the defendant’s domicile in an EU member state, however, other factors may also apply, such as jurisdiction being determined by the location of the disputed contract or the place where a tort occurred, and the rules applicable to insurance, consumer, and employment contracts,. By having jurisdictional rules in place, businesses are provided with certainty as to where they are to bring/receive their claims.

Recognition and Enforcement: One of the most significant changes brought about by the Recast Regulation is the abolition of the Exequatur process for most judgements. This means that judgements issued in one EU Member State are automatically enforceable in other Member States. Previously, the Exequatur process – required for a foreign judgement to be recognised and enforceable – was complex and time-consuming. The Brussels Recast Regulation simplified the process by eliminating the need for proceedings before the national courts to have foreign judgements recognised before they can be enforced in that jurisdiction. Therefore, this streamlines the process for businesses that operate in multiple jurisdictions and serves as a critical development for businesses that face the challenge of navigating different legal systems within the EU.

Rome I and Rome II Regulations: Defining the Applicable Law in Cross-Border Disputes

Rome I and Rome II play a critical role in defining the applicable law in cross-border disputes. These regulations govern the law applicable to contractual and non-contractual obligations respectively.

The Rome I Regulation governs the law applicable to contractual obligations within the EU. It provides businesses with clarity and certainty regarding the law that will apply to their contracts when parties are based in different EU countries. Generally, Rome I allows parties to choose the applicable law for their contracts, however, if no choice is made, the regulation outlines the default rules that link the contract to the country with the closest connection.

The Rome I Regulation distinguishes between situations where parties have chosen the applicable law and those where they have not. This is referred to as a Choice of Law agreement or lack thereof. Article 3 of the Rome I Regulation addresses this Freedom of Choice, stating that “A contract shall be governed by the law chosen by the parties.” Article 4 deals with the applicable law in the absence of choice, considering factors like the law of the country where the characteristic performer of the contract has his habitual residence, or the country most closely connected to the contract. The Rome II Regulation applies to non-contractual obligations, such as torts or claims arising from unlawful acts. According to article 4, the general rule for determining the applicable law is the law of the country where the damage occurs – the Lex Loci Damni. However, exceptions to the general rule exist. For example, if both the victim and the tortfeasor have the same habitual residence, the law of their habitual residence applies. Additionally, the law of the country most closely connected to the tort or delict, based on the circumstances, may also apply.

Similar to Rome I, Rome II provides businesses with clear guidelines on determining which law applies to such disputes. This makes it easier for EU businesses to understand which EU member state’s law will apply to any non-contractual disputes they may face.

Together, these regulations offer businesses the predictability needed when engaging in cross-border trade because it allows them to be aware of the laws which will govern disputes and how to structure their contracts accordingly.

The Unified Patent Court (UPC)

The Unified Patent Court (UPC), launched on the 1^st of June 2023, represents a significant shift in cross-border litigation, particularly for businesses dealing with intellectual property (IP) rights, and specifically, patents. The UPC provides a single hub, in the form of a centralised court system, to handle patent infringement and validity issues. This provides businesses with a single forum for resolving patent disputes, rather than requiring litigation in multiple national courts. This reduces the risk of inconsistent outcomes and eliminates expensive parallel litigations in different jurisdictions. The UPC applies to all EU Member States that have ratified the agreement establishing the court.

Key features of the UPC

1. Jurisdiction: The UPC handles disputes related to European patents and European patents with unitary effect, which offer protection across all participating EU Member States.
2. Single forum for patent disputes: The UPC serves as a single forum for resolving patent disputes related to unitary patents and European patents. This means that businesses no longer need to initiate proceedings in multiple national courts, thus reducing the risk of inconsistent rulings and minimizing costs. Having said this, national courts will still have jurisdiction over cases that fall outside the exclusive authority of the UPC.
3. Opt-out option: According to the Unified Patent Court Agreement, owners of traditional European patents may choose to exclude their patents from the UPC’s jurisdiction. However, Unitary Patents (single patents offering uniform protection across participating Member States of the European Union) cannot be excluded from the UPC’s jurisdiction.

The establishment of the UPC creates advantages for businesses, particularly those involved in innovation and technology. It simplifies patent litigation, reduces costs, and facilitates fast, more efficient dispute resolution. This enables businesses to protect their intellectual property more effectively.

Interestingly, on the 28^th of January, 2025, the Court of First Instance (CFI) in Düsseldorf ruled that the UPC could handle an infringement case related to the UK portion of a European patent, even though the UK is not part of the UPC. This ruling helps avoid parallel litigation in non-UPC countries but also raises questions about the UPC’s jurisdiction and its interplay with non-UPC court proceedings. This suggests that UPC jurisdiction and non-UPC courts are becoming more intertwined.

Practical Insights for Businesses engaged in Cross-Border Trade

For businesses operating in the EU, understanding the nuances of cross-border litigation is essential for mitigating legal risk.

Firstly, being aware of jurisdictional rules under the Brussels Recast Regulation is of utmost importance. It is essential for businesses to know where legal disputes will be handled, based on factors like the defendant’s domicile or where the contract was executed. This ensures that businesses are able to avoid unexpected legal challenges or costly surprises.

Secondly, businesses must ensure that contracts contain clear forum selection clauses that designate a specific jurisdiction and the applicable law in the event of a dispute. This helps to avoid costly and unpredictable jurisdictional battles.

Furthermore, familiarisation with the Rome I and Rome II regulations is also essential. This allows businesses to understand how applicable laws are determined in their industry. In this regard, having properly structured contracts outlining the applicable law under the Rome I Regulation eliminates confusion and reduces legal risks.

Finally, understanding the enforcement of foreign judgements within the EU is key. Under the Brussels Recast Regulation, judgements made in one EU member state are generally automatically recognised and enforceable in other EU member states. This makes it easier for businesses to enforce legal decisions across borders within the EU. However, there are certain exceptions and grounds for refusal of enforcement, such as issues relating to public policy or lack of jurisdiction. Therefore, it is vital for businesses to be aware of these when drafting contracts or managing potential disputes.

Conclusion

Over the years, cross-border litigation has evolved significantly in the EU, with the Brussels Recast Regulation, the Rome I and Rome II Regulations, and the Unified Patent Court which all provide businesses with the tools necessary to simplify dispute resolution. These regulations offer clarity on jurisdiction, applicable law, and enforcement, which, in turn, creates a predictable and efficient environment for businesses engaged in cross-border trade.

By understanding and utilising these legal frameworks, businesses can minimise the risks associated with international disputes. This saves time and costs while ensuring a clear path to resolve conflicts. As the legal landscape continues to harmonise across the EU, businesses can look forward to an even more integrated and accessible system for resolving cross-border disputes.