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04 Aug 2023

Asymmetric jurisdiction clauses: A European conundrum - France's referral to the CJEU

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Asymmetric jurisdiction clauses generally give one party - usually a bank - the liberty to choose where it brings proceedings. The other party - usually the borrower - is restricted to sue in only one specific jurisdiction.

While the English courts have upheld the validity of asymmetric jurisdiction clauses, their enforceability has been a subject of debate within the French courts. This uncertainty has prompted certain lenders to consider using an exclusive, as opposed to asymmetric, clause, particularly when borrowers or their assets are located in or have ties to France.

On 13 April 2023, the French Supreme Court (Cour de cassation) referred three core questions to the Court of Justice of the European Union (CJEU)1:

  1. What law governs the validity of the jurisdiction clause – EU law or that of the national court considering the issue?;
  2. If EU law, is an asymmetric clause valid?; and
  3. If national law, how should a court decide which member state's law should apply?

Background

This referral follows a decade-long series of judgments by the French courts that have attempted to grapple with whether or not asymmetric jurisdiction clauses are valid, a question which the Recast Brussels Regulation (which came into force in January 2015) left open2.

The French Supreme Court's scrutiny of asymmetric jurisdiction clauses began with the Banque de Rothschild case in 20123, in which the court held that the jurisdiction clause was invalid. The claimant brought a claim in France, despite a clause in her contract with Rothschild that she could sue the bank only in Luxembourg, whereas Rothschild could choose whether to bring proceedings in the claimant's country of domicile or "any other competent court". The court determined that the jurisdiction clause was not valid because, by allowing Rothschild to impose its choice of forum on the claimant, it was "potestative" (entirely within the control of one party, which would make it void under the French Civil Code) and hence "contrary to the object and purpose of the prorogation of jurisdiction" in Article 23 of the Brussels Regulation4.

The French Supreme Court again found an asymmetric jurisdiction clause invalid in Danne Holding5 in 2015 based on Article 23 of the Lugano Convention 20076, but for a different reason. It found that, in order to be valid, a jurisdiction clause needed to provide predictability and certainty for borrowers to know where proceedings might be brought against them, by 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 Apple7, where the clause at issue permitted Apple to bring proceedings in the reseller's jurisdiction or any jurisdiction where Apple experienced loss. The French Supreme Court upheld this clause because it was possible to identify, based on objective elements, which courts could have jurisdiction in the event of a dispute.

The French Supreme Court followed similar reasoning in Credit Suisse8 in 2018. Here, the jurisdiction clause stipulated that the borrower could only bring proceedings in Zurich whereas Credit Suisse could bring proceedings in any competent jurisdiction. The court found that clause was not valid because it did not provide the required certainty and so it did not comply with Article 23 of the Lugano Convention 20079.

Implications

The decision of the CJEU is likely to be significant. Should the court rule that EU law dictates the validity of asymmetric clauses, it will have to determine if such clauses are indeed valid under EU law. In the (perhaps unlikely) event that the CJEU rules asymmetric clauses are invalid – even in the context of sophisticated commercial transactions - this would necessitate a shift in market practice.

Alternatively, if the law of the relevant member state determines the clause's validity, the CJEU will still need to clarify how to decide which member state's law should apply. The uncertainty involved in analysing the countries in which such clauses will be upheld may mean that asymmetric clauses lose their attraction altogether. While the aim is to afford flexibility, finance parties may conclude that reliability and effectiveness are more important.

Brexit and beyond

English parties, particularly financial institutions, should closely monitor these developments. While decisions of the CJEU will not be binding on the English courts, contracting parties need to know where their jurisdiction clauses will be respected. If a borrower is not bound by an asymmetric jurisdiction clause in France, for example, it may be preferable to opt for an exclusive jurisdiction clause which would be binding. Further, the enforceability of such clauses may affect the English court's ability (and inclination) to grant anti-suit injunctions upholding asymmetric clauses.

The CJEU's decision could also mean a divergence between English and EU law, potentially leadi ng to complex jurisdiction battles in cases involving asymmetric jurisdiction clauses. Whether or not all these questions are resolved, the referral to the CJEU marks an important milestone in the interpretation of asymmetric jurisdiction clauses. 

   
      

1 The French court's referral relates to its judgment in the in the Banque de Rothschild case (Cass., civ. 1ère, 26 September 2012, No. 11-26.022), in which it held that an asymmetric jurisdiction clause was invalid.

2 Article 25 of the Recast Brussels Regulation specifies that the jurisdiction clause stipulated in a contract applies "unless the agreement is null and void as to its substantive validity under the law of that Member State". In addition, recital 20 of the Recast Brussels Regulation reads: "Where a question arises as to whether a choice-of-court agreement in favour of a court or the courts of a Member State is null and void as to its substantive validity, that question should be decided in accordance with the law of the Member State of the court or courts designated in the agreement, including the conflict-of-laws rules of that Member State".

4 "If the parties, one or more of whom is domiciled in a Member State, 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. Such jurisdiction shall be exclusive unless the parties have agreed otherwise", now Article 25 of the Recast Brussels Regulation which is similar (see note 2 above) but applies even if none of the parties are domiciled in a Member State.

 6 which is similar to Article 23 of the Brussels Regulation above.

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