The War On Asymmetric Jurisdiction Clauses

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Ganado Advocates

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Ganado Advocates is a leading commercial law firm with a particular focus on the corporate, financial services and maritime/aviation sectors, predominantly servicing international clients doing business through Malta. The firm also promotes other areas such as tax, pensions, intellectual property, employment and litigation.
Asymmetric jurisdiction clauses – or so-called ‘lop-sided' jurisdiction clauses – have become market practice in many industries.
European Union Corporate/Commercial Law

Asymmetric jurisdiction clauses – or so-called 'lop-sided' jurisdiction clauses – have become market practice in many industries. Most loan facilities give lenders the power to sue not only in the court specified, but also any other competent court of its choosing, while the borrowers are limited to only one.

The Brussels Regulation Recast introduced a specific conflict-of-laws rule to govern the substantive validity of jurisdiction agreements in favour of the courts of a Member State. Article 25 provides that such agreements must be substantively valid according to "the law of that Member State" chosen in the clause. What constitutes an issue of 'substantive validity' has never been defined, and it is not clear where 'asymmetry' falls on the spectrum between substantive and material validity. Nevertheless, English courts have not hesitated to confirm that asymmetric jurisdiction clauses are valid and enforceable, and prior to Brexit the Commercial Court went so far as to classify such clauses as 'exclusive' for the purpose of Article 25 of the Brussels Regulation Recast.1

While asymmetric jurisdiction agreements have not been specifically challenged before Maltese courts, it is common for our courts to look to their English counterparts for guidance in commercial matters, and in general our courts do tend to uphold jurisdiction agreements where it is evident that they reflect the intention of the parties on the basis of the principle pacta sunt servanda.

French courts have expressed their discomfort with these clauses for years. On the 4th November 2021 in Agora vs SPA Italiana Lastre, the Court of Appeal of Rennes in France struck down the following jurisdiction agreement as illicit under French law:

The jurisdiction of the court of Brescia will apply to any dispute which arises out of or in relation to this contract. Societa Italiana Lastre reserves the right to proceed against the buyer before another competent court in Italy or abroad.2

SPA Italiana Lastre appealed to the Cour de Cassation, arguing that the validity of this asymmetric jurisdiction clause had to be assessed in accordance with Italian law, being the law of the Member State court chosen in that agreement. On the 13th April 2023, the Cour de Cassation referred the following questions to the Court of Justice of the European Union:3

  1. Is the question of validity of an asymmetric jurisdiction agreement a material issue, or one that affects substantive validity? In other words, is validity to be determined by an autonomous uniform rule of EU law, or by reference to the national law of the Member State court chosen in accordance with Article 25(1) of the Brussels Regulation Recast?
  2. If an autonomous rule of EU law, are asymmetric jurisdiction agreements considered to be valid?
  3. If the question is one of substantive validity, how is Article 25(1) to be interpreted? Which chosen Member State law should be applied, when several jurisdictions are designed by the clause at the choice of one party?

This preliminary reference comes over ten years after the Ms X v Banque Privée Edmond de Rothschild decision, where the French Cour de Cassation struck down a jurisdiction agreement exclusively in favour of Luxembourg courts that reserved broad rights for the lending bank to bring proceedings before the courts of the borrower's domicile as well as 'any other competent court.' The court found that this clause was 'potestative', and therefore null and void under French law since it comprised of one restrictive limb, and one liberal limb, with the outcome entirely dependent on an event which only one of the contracting parties had to power to make happen.

It has been suggested that the French iron fist on lop-sided jurisdiction agreements has been fuelled by the rising concern for 'imbalance' in consumer law, which has now permeated business and general contract law, particularly where standard form contracts are concerned. However, this remains concerning for sophisticated commercial parties who value the certainty that their arrangements will be respected.

The decision of the Court of Justice of the European Union will have a significant impact on market practice. With the English position clearly anchored in favour of the validity of asymmetric jurisdiction agreements, we may even see the creation of a post-Brexit divergence in the EU and the English approach. Commercial players, and financial institutions in particular, should closely monitor these developments, as the flexibility that asymmetric jurisdiction agreements offer may ultimately have to give way to contractual effectiveness.

Footnotes

1.Etihad Airways PJSC v Lucas Flother [2020] EWCA Civ 1707. See also Commerzbank Aktiengesellshcaft v Liquimar Tankers Management and another [2017] EWHC 161 (Comm)

2. Translated from: « La compétence du tribunal de Brescia s'appliquera à tout litige qui surgirait du présent contrat ou qui aurait un rapport avec ce dernier. Societa Italiana Lastre se réserve la faculté de procéder à l'égard de l'acheteur devant un autre tribunal compétent en Italie ou à l'étranger. »

3. Cour de cassation, civile, Chambre civile 1, 13 April 2023, 22-12.965, accessible here: https://www.legifrance.gouv.fr/juri/id/JURITEXT000047454833?fonds=JURI&page=1&pageSize=10&query=soci%C3%A9t%C3%A9+agora&searchField=ALL&searchType=ALL&tab_selection=all&typePagination=DEFAULT

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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