News

21 Apr 2017

How effective are asymmetric jurisdiction clauses that name EU member states?

Asymmetric jurisdiction clauses are those which restrict one party to a contract to where it can bring court proceedings, but not the other party. They are common in international loan agreements, since banks want to be able to sue the borrower in the chosen court and to ensure that the borrower must also sue there, but they also want to have the choice of suing the borrower in other countries in case that is better to enforce against the borrower's assets. 

However, although the parties can agree where they can sue, ultimately it is up to the courts where proceedings are started, applying the conflict of laws rules that apply to their country. Most do recognise exclusive jurisdiction clauses agreed by the parties, but there has been some concern about whether EU member state courts would recognise asymmetric jurisdiction clauses. 

The conflict of laws rules that EU member state courts apply is the Recast Brussels Regulation (RBR). A key aim of the RBR is to avoid conflicting EU judgments, and to address this it contains a general rule that it is the EU member state’s court that is first seised of a dispute that will hear it and any proceedings started subsequently in another EU member state’s court must be stayed (Article 29, called the ‘lis pendens’ rule). However exclusive jurisdiction clauses are recognised under the RBR (Article 25), and if there is an exclusive jurisdiction clause naming an EU member state but proceedings are issued in another EU member state’s court then those in that non-chosen court must be stayed, even if they were first in time (Article 31(2)). 

Why might asymmetric jurisdiction clauses not be deemed exclusive jurisdiction clauses for the purposes of the RBR? Arguments for this were put forward by a Greek borrower and guarantor in the recent case of Commerzbank Aktiengesellschaft & Anor v Liquimar Tankers Management Inc [2017] EWHC 161 (Comm). Pauline as the borrower and Liquimar as the guarantor had issued proceedings in Greece in breach of an asymmetric jurisdiction clause which only allowed them to issue proceedings in England. The banks then issued proceedings in England and Liquimar and Pauline applied for the English proceedings to be stayed.

Liquimar and Pauline’s main argument was that because asymmetric jurisdiction clauses only allowed one party to issue court proceedings anywhere, they did not satisfy the notion of exclusivity that was required by Article 31(2). This argument was rejected – the natural meaning of the words “an agreement [which] confers exclusive jurisdiction” did include asymmetric jurisdiction clauses, and the fact that it applied only in respect of claims made by the borrower did not detract from this effect. 

Liquimar and Pauline also pointed out that even if Article 31(2) was engaged, it only required the non-chosen EU court to stay its proceedings, it did not specifically allow the English courts as the chosen court to continue with the proceedings. Although this was correct, the court held that it must be able to continue with the proceedings as to do otherwise could make a ‘nonsense’ of Article 31(2).

Finally Liquimar and Pauline argued that asymmetric jurisdiction clauses were not valid exclusive jurisdiction clauses under Article 25 of the RBR in any event and so could not trigger Article 31(2).  It relied in particular on the French case of Mme X v. Société Banque Privé Edmond de Rothschild 13, First Civil Chamber, 26 September 2012, Case No. 11-26022, where the Cour de cassation held that an  asymmetric jurisdiction clause was invalid because it was ‘potestatif’ (contrary to the French law of obligations, which provides that obligations conditional upon an event that one party entirely controls is void) and therefore not a valid exclusive jurisdiction clause under the Brussels 1 Regulation (the previous incarnation of the RBR). However the court dismissed this argument, stating that this argument overlooked the fact that the parties had designated the English court as having exclusive jurisdiction, there was nothing in Article 25 which said that an exclusive jurisdiction agreement had to exclude any courts, and that it would need a strong indication that the RBR would somehow render what is a regular feature of financial documentation in the EU ineffective. In any event, the concept of potestatif was a French concept, not an autonomous EU concept, and later French cases (as well as those in other EU member states) supported asymmetric jurisdiction clauses. 

Although this is a welcome decision on the effectiveness of asymmetric exclusive jurisdiction clauses under the RBR after detailed submissions and argument, the issue is not free from doubt until there is an authority from Court of Justice of the European Union on the point.

 

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