Asymmetric jurisdiction clauses upheld by Commercial Court

The English High Court has held that asymmetric jurisdiction clauses are valid and are exclusive jurisdiction clauses for the purposes of Brussels 1 Recast overriding previous uncertainty following a decision of the French courts.

Background

Asymmetric jurisdiction clauses contain different provisions regarding jurisdiction depending on which party initiates proceedings. Under these clauses, party X (normally a financial institution) and party Y (a borrower) agree that Y may bring proceedings against X in one jurisdiction whereas X may bring proceedings against Y in any court of competent jurisdiction. Such clauses are widely used in finance transactions and have historically been upheld by the English courts.

Doubt was cast on the validity of such clauses by the French courts in the case of Mme X v Societe Banque Prive Edmond de Rothschild [2012]. This case held that asymmetric jurisdiction clauses are contrary to the precursor to Article 25 of the Brussels 1 Recast. Article 25 requires the parties to provide certainty as to the forum under which a possible defendant can be sued. The effect of this was that jurisdiction clauses were at risk of being held to be invalid. This is particularly problematic in the case of jurisdiction clauses that provide for arbitration because it invalidates the agreement for arbitration. This creates added risk for enforcement of arbitral awards in jurisdictions that do not recognise such clauses. For example, in the Russian Supreme Commercial Court’s decision in Russian Telephone Company v Sony Ericsson Mobile Communications (Case: No. А40-49223/11-112-401) a clause requiring only one party to refer disputes to arbitration was deemed invalid.

The Facts

In Commerzbank Aktiengesellschaft v Pauline Shipping and Liquimar Tankers Management Inc. [2017] EWHC 161 (Comm), the English court considered whether asymmetric jurisdiction clauses confer exclusive jurisdiction on the court for the purposes of Article 31(2) of the Brussels 1 Recast. Article 31(2) states that where there is an exclusive jurisdiction clause, the court of another Member State shall stay the proceedings until the court given jurisdiction under the agreement declares that it has no jurisdiction.

An asymmetric jurisdiction clause was agreed under a loan agreement between Commerzbank Aktiengesellschaft (the Bank) and a ship management company, Liquimar Tankers Management Inc (Liquimar) which confined Liquimar to commence proceedings in England only. Following a default under the loan agreement, Liquimar commenced proceedings against the Bank in Greece. The Bank later commenced parallel proceedings in the English court.

Liquimar applied for a stay of the Bank’s claim under Article 29(1) of Brussels 1 Recast until the Greek proceedings had been heard on the basis that Article 31(2) did not apply.

Its three main arguments were:

1. Asymmetric jurisdiction clauses do not qualify as exclusive jurisdiction clauses within Article 31(2) of Brussels 1 Recast as they expressly permit one party to bring proceedings in any court of competent jurisdiction.
2. Even if asymmetric jurisdiction clauses come within Article 31(2), the court must apply Article 29(1) and stay the proceedings until the first seized court determines whether it has jurisdiction (i.e. the Greek court).
3. Asymmetric jurisdiction clauses are not compatible with Article 25 of Brussels 1 Recast, which requires parties to identify the jurisdiction under which a putative defendant can expect to be sued and so such clauses cannot trigger Article 31(2).

The Decision

In dismissing Liquimar’s application to stay proceedings, the English court held that:

1. An asymmetric jurisdiction clause did qualify as an exclusive jurisdiction clause for the purposes of the Brussels 1 Recast. On its face, Article 29(1) is without prejudice to Article 31(2), meaning that Article 29(1) gives way to Article 31(2) when the latter applies. The two articles need to be read in conjunction with each other, and be given effect according to their language and purpose. The Judge further noted that it would undermine the agreement of the parties, and foster abusive tactics if asymmetric jurisdiction clauses were to be treated as non-exclusive.
2. As Article 29(1) is without prejudice to Article 31(2), if the English court has jurisdiction under the agreement it should be able to proceed with the case irrespective of how far advanced the Greek proceedings are.
3. In the asymmetric jurisdiction clause in question, the parties had designated the English court as having exclusive jurisdiction when the defendants sued. There is nothing in Article 25 stating that a valid jurisdiction clause has to exclude all other courts and the asymmetric jurisdiction clause is therefore compatible with Article 25.

This recent decision reinforces the validity of such clauses as per the earlier decision in Mauritius Commercial Bank v Hestia Holdings Limited and another [2013] EWHC 1328 (Comm).

Parties to finance documents will welcome this decision (which along with the decision in Banco Santander Totta SA v Companhia de Carris de Ferro De Lisboa SA & Ors [2016] (see our previous Law-Now)) gives further certainty to the validity of the parties’ choice of law and jurisdiction in finance documentation. However, consideration should be given to where enforcement of judgments/arbitral awards made pursuant to asymmetric jurisdiction clauses will be sought. This is because if the jurisdiction where enforcement is sought does not recognise such clauses it may give grounds to challenge enforcement on the basis that the agreement as to jurisdiction was invalid and therefore the court/tribunal that made the order/award did not have jurisdiction.