Brussels IV – the Draft EU Succession Regulation

By Michael Parkinson, Partner, Russell Cooke LLP (02/03/2010)

On 14 October 2009, the long awaited draft European Union (EU) Regulation on jurisdiction, applicable law, recognition and enforcement of decisions and authentic instruments in matters of succession and the creation of a European Certificate of Succession – better known as ‘Brussels IV’ – was finally published1.

The Background to Brussels IV

Succession law within the EU is extremely diverse; compare for example the common law principle of testamentary freedom which applies in England, Wales and Northern Ireland (subject to some statutory intervention to safeguard the position of dependants) and the forced heirship provisions which apply in France and other civil law jurisdictions. Brussels IV will not alter that position; the internal succession law of individual member states will be unaffected.

The key issue which Brussels IV addresses is the diversity within the EU of the rules of private international law (PIL) which apply to succession issues. The draft regulation also deals with various related issues (including jurisdiction, recognition and enforcement of decisions, authentic instruments and the creation of a European Certificate of Succession) but the focus of this article is on applicable law.

The PIL rules which apply in the United Kingdom (UK), for example, operate on the principle of scission under which moveable and immovable assets are treated differently. In the UK, succession to immovable assets is governed by the law of the jurisdiction where the assets are situated and succession to moveable assets is governed by the law of the jurisdiction in which the deceased was domiciled on his death.

By contrast, German PIL rules do not distinguish between moveable and immovable assets (the principle of unity) and succession to all assets is governed by the law of the deceased’s nationality. PIL rules in other jurisdictions use the concept of habitual residence as the relevant connecting factor.

Identifying the applicable law under the relevant PIL rules is not the end of the process.

Where the PIL rules of one jurisdiction refer to the ‘law’ of a second jurisdiction, this could simply mean the internal law of that jurisdiction. However, the PIL rules of many jurisdictions apply the doctrine of renvoi so that the reference to the law of the second jurisdiction means all of the law of that jurisdiction including its PIL rules.

If renvoi applies, the PIL rules of the second jurisdiction may refer the matter back to the law of the first jurisdiction, in which case the first jurisdiction may accept the ‘remission’ and apply its internal law. Alternatively, the second jurisdiction may refer the matter on to the law of a third jurisdiction and the first jurisdiction, if it accepts this ‘transmission’, will apply the internal law of the third jurisdiction. This is the ‘single’ renvoi doctrine.

Alternatively, the first jurisdiction may apply the ‘double’ renvoi doctrine. This requires the first jurisdiction to deal with the matter in exactly the same way as it would be decided by a court in the second jurisdiction. The outcome therefore turns on whether the second jurisdiction rejects the renvoi doctrine altogether or whether it applies single or double renvoi. If both the first and second jurisdictions apply double renvoi, the result could be an intextricable circle where the matter is referred back and forth between the two jurisdictions.

The approach to renvoi differs within the EU and in some jurisdictions the position is less than clear – in England and Wales, for example, the doctrine of double renvoi in the context of succession was introduced in a High Court decision2 without any apparent authority or reasoning and the issue has not since been considered by the higher courts.

The case for introducing a uniform set of PIL rules to govern succession matters throughout the EU is therefore clear; the present divergent rules give rise to uncertainty, complexity and expense for the increasing number of individuals with cross-border issues.

The Proposed Applicable Law Rules

The proposed new PIL rules are set out in Chapter III of the draft Regulation and are very straightforward.

Article 16 provides for a new general rule under which the succession to the whole estate (i.e. with no distinction between moveable and immovable property) will be governed by the law of the state in which the deceased had his habitual residence at the time of his death. The term ‘habitual residence’ is not defined; this has been the subject of much criticism and a definition may emerge as Brussels IV progresses towards its final form.

This general rule is subject to Article 17 which gives a testator the option to elect for the law of his nationality to apply instead of the law of habitual residence.

Article 26 provides that a reference to the applicable law under Brussels IV excludes the PIL rules of the relevant jurisdiction and so abolishes the doctrine of renvoi.

Scope of the Applicable Law Rules

Article 19 provides that the applicable law determined by Brussels IV will govern all aspects of the succession, although it is important to note that this does not extend to the formal validity or creation of wills.

Inheritance contracts are specifically dealt with by Article 18, which provides that they will be governed by the same law which would have applied under Articles 16 or 17 if the person whose succession the contract relates to had died on the day on which the contract was completed.

The making of gifts is outside the scope of Brussels IV (but falls within the ambit of the Rome I Regulation on contractual obligations which came into effect on 17 December 2009). However, under Article 19(j) the applicable law under Brussels IV will govern ‘any obligation to restore or account for gifts and the taking of them into account when determining the shares of heirs’; this includes the ‘clawback’ regimes which operate in most forced heirship jurisdictions.

The Clawback Problem

Broadly speaking, clawback operates by bringing back into account certain lifetime gifts made by the deceased in calculating the portion of the estate which is not subject to forced heirship. If the disposable portion is exceeded by the relevant lifetime gifts and testamentary gifts, the forced heirs may be able to reclaim the excess by limiting the testamentary gifts and/or clawing back the lifetime gifts.

Clawback regimes differ widely between different jurisdictions; gifts to heirs and to non-heirs may be treated differently, time limits vary and the claim may be to the gifted asset itself or it may be for a monetary amount based on the value of the asset (in some cases at the date of the gift, in others at the date of death).

The recognition and application of such clawback regimes in the UK would be a new development, although the concept is not entirely foreign; a form of clawback already exists under UK insolvency legislation and under the Inheritance (Provisions for Families and Dependants) Act 1975 and the equivalent Northern Irish legislation. From the UK’s perspective, this issue is perhaps the most controversial aspect of Brussels IV.

However, the main difficulty with the clawback provisions is not limited to the UK. As currently drafted, the applicable law for clawback will be the applicable law under Brussels IV at the date of the deceased’s death. It would therefore be impossible to determine which clawback regime, if any, applies to a particular lifetime gift until the death of the donor.

The clawback issue is therefore certain to be the subject of further negotiations. An obvious solution would be to adopt the same approach as for inheritance contracts so that the applicable law for clawback purposes is determined and fixed as at the date of the gift.

Separate Jurisdictions Within the UK

The UK does of course comprise three separate territorial units each having its own rules of succession. The effect of Article 28.1 is that England & Wales, Scotland and Northern Ireland will be considered as separate states for identifying the applicable law under Brussels IV.

However, whilst that deals with the position under the habitual residence rule, it does not deal with the position of a UK citizen who wishes to make an election to apply their national law under Article 17 – can they choose the law of any one of the three UK territorial units without any further connection?

A further issue is that under Article 28.2, Brussels IV will not apply as between England & Wales, Scotland and Northern Ireland. It would be absurd for Brussels IV to apply as between the UK and the rest of the EU but not within the UK itself.

The Next Steps

Brussels IV has a long way to go. There are a variety of technical and other issues in addition to those identified above which will need to be addressed and the Regulation as a whole is subject to negotiation between member states, a process which has begun but which may take up to two years to complete. The European Parliament will also be considering the draft and introducing its own amendments.

The Regulation will not become effective until a further year after the draft has been agreed and finalised between the Parliament and the Commission so it may be 2012 or 2013 before it begins to operate. However, as currently drafted, the transitional provisions in Article 50 will give effect to choices of law made in accordance with Brussels IV before it comes into effect.

It also remains to be seen whether Brussels IV will be applicable within the UK. It will not be applicable here unless the UK decides to opt in, either within three months of the publication of the draft Regulation or when the Regulation is finally agreed and adopted. At the time of writing, the initial three month deadline has not yet expired but it seems clear that the UK will not opt in at this stage, although it may seek to participate in the negotiations and consider opting in at the end of the process.

Even if the UK does not opt in, Brussels IV will apply in all other EU member states except Ireland (which is subject to the same opt in provisions as the UK) and Denmark. However, the Regulation’s indirect impact will be global; if the PIL rules of a jurisdiction outside the scope of Brussels IV refer to the law of an EU member state to which the Regulation applies, the applicable law will be determined by the rules in Brussels IV.

Individuals with cross-border issues and their advisors must therefore get to grips with the potential impact of Brussels IV and consider making pre-emptive choices of law in wills and inheritance contracts.

Re Annesley [1926] Ch. 692