In the recent case of Case C-537/23 Società Italiana Lastre SpA v Agora SARL, the Court of Justice of the European Union (CJEU) decided that an asymmetric choice of court clause is valid under Article 25 of the Brussels Recast Regulation if (i) it is limited to EU or Lugano State courts and (ii) it identifies objective factors that are sufficiently precise to enable the court seised to decide if it has jurisdiction.
In this article we consider the key aspects of the judgment, the questions that remain unresolved, and the implications for finance parties when drafting jurisdiction clauses in international finance transaction documents.
Why are jurisdiction clauses important?
Jurisdiction clauses are used to determine how and where any disputes relating to the agreement will be resolved. If there is no effective jurisdiction clause, the correct forum for the determination of a dispute will be decided by reference to rules of private international law. This can cause uncertainty and lead to additional costs and delay in progressing any proceedings.
Parties may wish to litigate where it is most convenient or they may have a preferred judicial system (and language) in which to conduct litigation. Additionally, the state in which any judgment is obtained (as well as the location of the defendant’s assets) will affect how easily it can be enforced and, ultimately, the commercial worth of a judgment depends upon its enforceability.
What is an asymmetric jurisdiction clause?
Asymmetric jurisdiction clauses are contractual clauses (particularly common in international cross-border finance arrangements) that restrict one party (typically the borrower and /or other obligor) to bringing proceedings before a court in one jurisdiction, while the other party to the contract (typically the lender and /or other finance party) has a choice as to where it may elect to bring proceedings.[1]
Article 25 of the Brussels Recast Regulation sets out the requirements for a valid jurisdiction agreement, including providing at Article 25(1) that:
“if the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State.”
Article 25 is silent as to the validity of asymmetric jurisdiction clauses and, as a result, whether an asymmetric jurisdiction clause falls within Article 25 has been the subject of some uncertainty, with the French courts[2] having previously taken differing approaches to such clauses, and the English courts (pre-Brexit)[3] having held that such clauses are valid under the Brussels Recast Regulation. Asymmetric jurisdiction clauses have not been considered to date by the Irish courts.
Background to the case
The case concerned the jurisdiction of the French courts to hear an action for damages brought under a supply agreement between an Italian company, Societá Italiana Lastre SpA (“SIL”) and a French company, Agora SARL (“Agora”). The agreement included an asymmetric jurisdiction clause, conferring jurisdiction on the court of Brescia, Italy, with SIL reserving the right to bring proceedings against Agora, the purchaser, “before another competent court in Italy or elsewhere”.
Agora brought an action against SIL in Rennes, France, and SIL opposed the action on jurisdictional grounds. The French courts rejected the challenge, holding that the jurisdiction agreement was unlawful because it gave SIL a wider choice of courts to bring proceedings than it gave to Agora, without providing for objective factors to determine which court could be seised, and so was contrary to the objective of foreseeability that jurisdiction clauses must meet. The case was brought before the French Supreme Court (Cour de Cassation), which in turn sought guidance from the CJEU via a preliminary reference, including: (i) whether the validity of an asymmetric clause under Article 25 should be determined by applying autonomous rules of EU law derived from Article 25 or the law of the Member State designated by the clause; and (ii) whether such clauses were inconsistent with Article 25.
Key aspects of the decision
Application of EU Law for the validity assessment of jurisdiction clause
The CJEU said the validity of an asymmetric clause must be examined in light of the autonomous rules derived from Article 25 as well as the objectives of foreseeability and legal certainty pursued by the Brussels Recast Regulation, as reflected in Recitals 15 and 16 (rather than from the national laws of the Member State of the designated court).
Precision requirement
The CJEU determined that asymmetric jurisdiction clauses will be valid under Article 25 where the following criteria are met:
- The courts designated are courts of EU Member States or of Lugano Convention States. A clause conferring jurisdiction on a third state within a contract between two parties both domiciled in the EU or EEA would violate requirements of foreseeability, transparency and legal certainty under the Brussels Recast Regulation;
- In order for the mandatory provisions of the Brussels Recast Regulation to apply, the clause must identify objective factors which are sufficiently precise to enable the court seised to ascertain whether it has jurisdiction. This also assists in the attainment of the objectives of foreseeability, transparency and legal certainty, set out in Recitals 15 and 16 of the Brussels Recast Regulation; and
- The clause should not be contrary to the provisions of Articles 15, 19 or 23 of the Brussels Recast Regulation (which relate to consumer, employment and certain insurance contracts respectively and individually provide for an asymmetric approach to jurisdiction) and should not derogate from an exclusive jurisdiction under Article 24 (which provides for exclusive jurisdiction in certain circumstances or types of claims).
Implications of the decision
Questions remaining
The CJEU ruling provides some clarity on the validity of asymmetric jurisdiction clauses. However, it still leaves room for uncertainty.
Firstly, it does not entirely settle the debate on the validity of asymmetrical jurisdiction clauses due to a lack of clarification from the CJEU regarding the fulfilment of the requirement of precision (ie the "objective factors" criteria and what precisely is meant by that term).
Furthermore, questions still remain as to the validity of asymmetric clauses that designate courts of states other than EU Member States or Lugano Convention States (including the English courts), particularly where a combination of EU / Lugano State courts and third state courts are provided for. A national court may, in line with the rules of private international law, still give effect to such a clause, but it will not fall within Article 25 of the Brussels Recast Regulation. This leaves uncertainty as to whether an EU court seised of a dispute in apparent breach of the clause could stay its proceedings or decline jurisdiction in favour of a court of a third state (such as England or New York). EU courts have a discretion (under Articles 33 and 34 of the Brussels Recast Regulation) to stay an action in favour of identical or related proceedings instituted before a non-EU court where those non-EU proceedings were commenced first in time. No other express provision permitting (or even requiring) a stay of proceedings in favour of a non-EU court is in the Brussels Recast Regulation.
How national courts apply this ruling when interpreting asymmetric jurisdiction clauses will therefore remain of interest to contracting parties going forward, particularly in the context of finance arrangements.
Drafting considerations
When drafting jurisdiction clauses, care should be taken to meet the criteria laid down by the CJEU to avoid undermining legal certainty and predictability. To comply with the CJEU ruling, asymmetric clauses must (i) clearly specify the courts that have jurisdiction, including objective factors that are sufficiently precise to enable any court seised to determine whether it has jurisdiction; and (ii) limit the choice of courts to those within EU or Lugano Convention states.
Parties negotiating a jurisdiction clause which gives the option to litigate in, for example, England or New York, and where there is scope for the obligor to bring the dispute before an EU court other than the designated court, will need to balance the potential advantages of an asymmetric clause against the potential uncertainties as to whether such a clause will be upheld by an EU court. Parties seeking more certainty negotiating such clauses may wish to avoid the risk of invalidity by prioritising certainty over flexibility and opt instead for a mutual exclusive jurisdiction clause, or consider arbitration as an alternative.
Although the CJEU’s decision did not consider asymmetric arbitration clauses - where one party may elect between arbitration and litigation - some reassurance may perhaps be taken that the CJEU would be willing to uphold such inequality of party rights. Otherwise the ruling is of no application to such circumstances.
Conclusion
The CJEU ruling marks a significant development in the interpretation and enforcement of asymmetric jurisdiction clauses within the EU and suggests that the autonomous will of the parties prevails.
However, the ruling nevertheless leaves room for uncertainty. Parties should therefore continue to monitor how national courts implement the CJEU decision and exercise careful judgment when drafting and negotiating asymmetric jurisdiction clauses.
For further guidance, please contact Commercial Litigation and Dispute Resolution partner, Julie Murphy-O'Connor, associate Hazel Madden or your usual Matheson contact.
[1] For purely domestic finance arrangements, with no cross border elements, there is often limited benefit to including an asymmetric jurisdiction clause.
[2] See for example: in the Banque de Rothschild case in 2012, the French court held that the asymmetric jurisdiction clause was invalid because, by allowing Rothschild to impose its choice of forum, it was "potestative" (entirely within the control of one party, which would make it void under the French Civil Code) and also contrary to the objectives and purpose of the prorogation of jurisdiction in Article 23 of the Brussels Regulation (which contains equivalent wording to Article 25 of the Brussels Recast Regulation). In the Danne Holding case in 2015, the French Supreme Court again found an asymmetric jurisdiction clause invalid because it failed to provide predictability and certainty by not setting out objective factors against which the designated courts could be identified by the other party. The same focus on objectivity and certainty applied again in 2015 in EBizcuss.com v Apple, where the French Supreme Court upheld the clause because it was possible to identify, based on objective elements, which courts could have jurisdiction in the event of a dispute. In the Credit Suisse case in 2018, the court found that the asymmetric jurisdiction clause was not valid because it did not provide the required level of certainty.
[3] Etihad Airways PJSC v Flöther [2020] EWCA Civ 1707.