As previously reported, at a meeting on 7 and 8 June 2012, the Council for the European Union adopted a general approach on the European Commission's proposal to amend the Brussels Regulation (see Legal update, Reform of Brussels Regulation: EU Council adopts general approach and Council documents 10609/12 and 10609/12 ADD 1). This update focuses on the Council's general approach to the proposed treatment of the arbitration exception in article 1(2)(d) of the Regulation. We understand that this general approach will inform the Council's negotiations with the European Parliament (EP) on the amendments to the Commission's proposal.

To recap, in December 2010, the European Commission published its draft legislative proposals for the reform of the Brussels Regulation. The draft text proposed to retain the arbitration exception, but to clarify it with a rule requiring a court seised of a dispute to stay proceedings if its jurisdiction is contested on the basis of an arbitration agreement and an arbitral tribunal has been seised of the case, or court proceedings relating to the arbitration agreement have been commenced in the member state of the seat of the arbitration (see Legal update, Brussels Regulation reforms: European Commission proposes to retain arbitration exception). The Commission's proposals regarding the arbitration exception are contained in recitals 11 and 20 and articles 1(2)(d), 29(4) and 33(3) of the draft amended Regulation.

The position of both the EP's Legal Affairs Committee (LAC) and the Council is that arbitration should remain excluded from the Brussels Regulation, as arbitration is satisfactorily dealt with by the New York Convention and the Geneva Convention, to which all member states are party. However, the LAC and the Council take a slightly different approach to the presentation of their position.

The LAC has proposed amendments to several of the draft recitals and article 1(2)(d) itself, all of which are intended to clarify that the arbitration exception covers any dispute, litigation or application (including concerning the existence or validity of an arbitration agreement) that is subject to an arbitration agreement or which relates to arbitration by virtue of an international treaty. It also proposes a new article 84a, which specifies that the Regulation shall not prejudice the application of international conventions on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. Although it does not expressly say so, insofar as it applies to arbitration, this proposed amendment is clearly intended to refer to the New York Convention and the Geneva Convention (see Legal update, European Parliament Committee report on proposed amendment of Brussels Regulation).

By contrast, the Council's approach is to retain and clarify the arbitration exception by:

Both the Council and the LAC proposals, one way or another, appear to have the aim of undoing the effect of the ECJ's decision in Allianz SpA v West Tankers Inc (Case C-185/07).

In West Tankers, the ECJ held that, because the substantive proceedings before the Italian court fell within the Regulation, so did the incidental issue of the scope of the arbitration agreement. Because the Italian court was the court first seised, it (rather than the English court) had jurisdiction to decide that incidental issue (see Legal update, West Tankers ECJ judgment: full report). If that case were to be decided under a Regulation with the wording proposed by the Council or the LAC, the result could be very different, as the Regulation would expressly preserve the power of any member state court seised (first or second) of that issue (whether as a principal or incidental issue) to determine it.

The Council and LAC proposals reinstate the possibility of conflicting judgments on issues regarding the validity of arbitration agreements. Furthermore, where a court rules that there is no valid arbitration agreement and proceeds to give a substantive judgment on the merits, with an arbitral tribunal in parallel making a (conflicting) award on the merits, the Council's approach also appears expressly to enable the enforcing court (if it considers that there was a valid arbitration agreement) to enforce the award under the New York Convention. The enforcing court could also refuse to enforce the substantive judgment on the merits, on grounds of public policy under the Regulation.

It will be interesting to see the progress of negotiations between the EP and the Council on the proposed wording of the amended Regulation. We will continue to monitor developments.

The European Parliament is currently scheduled to vote on the proposed amendments on 25 October 2012. Progress can be tracked on the Procedure File for the Brussels Regulation on the Legislative Observatory website. Further information on the proposals can be found in Practice note, Reform of the Brussels Regulation: tracker.