In a robust and important judgment on the Jurisdiction Regulation handed down in May, the ECJ has effectively eliminated the ability of parties to avoid the effect of a jurisdiction clause in a contract by claiming that their decision to enter into the contract was in breach of their constitution and therefore invalid.
Background
EC Regulation No 44/2001 sets out provisions in relation to
jurisdiction and the recognition and enforcement of judgments in
civil and commercial matters in the EU (the Jurisdiction
Regulation, also known as the Brussels Regulation).
Article 22(2) of the Jurisdiction Regulation provides that, in
proceedings which have as their object the validity of the
constitution of companies (or other legal persons) or of the
validity of the decisions of their organs, the courts of the Member
State in which the company (or the legal person) has its seat shall
have exclusive jurisdiction to deal with the matter.
In a recent reference for a preliminary ruling by the German
courts, the European Court of Justice (ECJ), held that Article
22(2) does not apply to contractual disputes in which a company
pleads that the contract cannot be enforced against it because a
decision of its organs, which led to the conclusion of the
contract, infringed its constitution and was therefore
invalid.
Article 22(2), the ECJ stated, only covers proceedings whose
"principal subject-matter" comprises the matters
listed in Article 22(2).
Facts
JPMorgan Chase Bank NA (JPM) had entered into a financial
derivative contract with Berliner Verkehrsbetriebe (BVG), which
conferred jurisdiction on the English courts. As a result of
non-payment, JPM issued proceedings against BVG in England. BVG in
its defence submitted that the contract was invalid because it had
acted contrary to its constitution in entering into the contract
and that the decision of its organs to do so were therefore void.
On this basis, BVG requested the English courts to decline
jurisdiction in favour of the German courts pursuant to Article
22(2). The English High Court and the Court of Appeal denied
BVG's request.
BVG appealed to the English Supreme Court and issued proceedings in
the German courts, which led to the reference to the ECJ. The
German courts asked whether the scope of Article 22(2) extends to
proceedings in which a company or legal person objects, with regard
to a claim made against it arising from a legal transaction, that
the decision of its organs which led to the conclusion of the legal
transaction are ineffective as a result of infringements of its
constitution.
Decision
The ECJ held that Article 22(2) should be interpreted
"by taking account of matters other than its wording, in
particular of the purpose and the general scheme of that
regulation". Accordingly, the ECJ held that Article 22(2)
should be interpreted narrowly.
The ECJ held that in a dispute of a contractual nature, questions
relating to the validity, interpretation and enforceability of the
contract itself are at the heart of the dispute, whereas questions
relating to validity of the decision to conclude the contract
"must be considered ancillary". The ECJ
recognised that while the validity of the decision to conclude the
contract may form part of the overall analysis, it does not
constitute the "sole, or even the principal, subject of
the analysis".
Comment
As the ECJ noted, if all disputes in relation to a decision by a
company's organ were to fall within the scope of the Article
22(2), then it would be sufficient for a party to argue, as a
preliminary issue, that the decision that led to the conclusion of
the contract or the harmful act is invalid in order to ensure that
the courts where it has its seat are conferred with exclusive
jurisdiction to deal with the dispute – that is not the
purpose of Article 22(2).
The ECJ's important ruling provides clarity and certainty in
relation to an aspect of the Jurisdiction Regulation that has been
deployed by parties (especially in relation to financial
transactions), in more recent times, as a means to avoid the
express choice of jurisdiction agreed upon between the parties and
cause delay and inconvenience. It limits the scope of Article 22(2)
to those proceedings which truly relate to the validity of a
company's constitutions and decisions and, in other cases,
allows parties' express choice of jurisdiction to
triumph.
Case reference: Berliner Verkehrsbetriebe (BVG),
Anstalt des Offentlichen Rechts v JP Morgan Chase Bank
NA (C-144/10)
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 25/07/2011.