Are asymmetric jurisdiction clauses the antithesis of exclusive jurisdiction clauses under Brussels I recast?

Any lawyer involved in international commercial transactions will be familiar with a jurisdiction clause by which the parties agree to the exclusive jurisdiction of the courts of a particular country in the event of disputes arising.

An asymmetric jurisdiction clause is a variant of the standard exclusive jurisdiction clause model. As its name suggests, it refers to a clause in which the jurisdictional choices made by the parties to a contract are not identical. As explained by Cranston J. in the recent High Court decision this article is concerned with, (Commerzbank v Liquimar Tankers Management Inc [2017] EWHC 161), such clauses contain different provision as to jurisdiction depending on whether proceedings are initiated by X on the one hand or by Y on the other. In an asymmetric jurisdiction clause Y is limited to jurisdiction A but X may proceed in that jurisdiction or in other courts which have competent jurisdiction. X can sue anywhere under such a clause but only if and to the extent that a court other than in A has jurisdiction. Moreover if Y sues in A, X is not able to challenge the court's jurisdiction since it has agreed to it. In this situation X may not be able to sue elsewhere.

In Commerzbank the High Court considered the status and effect of this form of jurisdiction clause in the light of various provisions in Regulation (EU) 2015/2012 also known as the Brussels I re-cast regulation. This is the latest in a trilogy of instruments from the EU intended to regulate issues of jurisdiction in civil and commercial litigation between parties located in multiple EU member states.

The factual context concerned loan Agreements entered into by a German bank having a presence in London for four decades and a ship management company having its principal place of business in Athens, Greece.

The loan Agreements provided that the Defendant borrowers and guarantors of the loan Agreements agreed that the Courts of England were to have exclusive jurisdiction to determine any disputes arising out of the guarantees that were given. A further clause provided that this did not prevent the lender from commencing proceedings against the guarantor in any other jurisdiction and nor would the commencement of proceedings in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not.

Thus the Defendant borrower agreed to the exclusive jurisdiction of the courts of England whilst the lender was free to commence proceedings additionally in any other court of competent jurisdiction.

Default occurred under the loan Agreement resulting in forbearance Agreements and disputes resulted from this. The Defendant issued proceedings in a Greek court (Piraeus Court of First Instance) seeking an order that the guarantee had been discharged and it had no liability to the lender. There was a related action for damages against the bank in tort and under the Greek civil code for damages resulting from the arrest of a vessel and for reputational loss.

Subsequently the bank commenced proceedings in England in respect of amounts outstanding under the loans and damages for breach of the jurisdiction clauses in the loan Agreements.

There were in total 4 sets of proceedings comprising two pairs of parallel proceedings before the Greek and English courts.

The Greek parties sought stays of the English proceedings. Their right to a stay of those proceedings turned on the application of various provisions of the Brussels I recast Regulation.

Article 29

1. Without prejudice to Article 31(2) , where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seized shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seized is established…"

It was accepted that Article 29 applied to the respective proceedings before the Greek and English courts, save for the additional element that the English proceedings concerned damages for breach of the jurisdiction clauses. It was also not disputed that the institution of the proceedings in Greece were a breach of the jurisdiction Agreement.

Article 31

(2) Without prejudice to Article 26, where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seized, any court of another Member State shall stay the proceedings until such time as the court seized on the basis of the agreement declares that it has no jurisdiction under the agreement.

(3) Where the court designated in the agreement has established jurisdiction in accordance with the agreement, any court of another Member State shall decline jurisdiction in favour of that court."

Article 25

(1) 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. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing;

(b) in a form which accords with practices which the parties have established between themselves; or

(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned."

Against these provisions the Defendants argued that

-The Court in England should apply the ordinary lis pendens rule at Article 29 and stay the proceedings in England as the Piraeus court was first seized of the proceedings.

-Asymmetric jurisdiction clauses do not come within Article 31(2) of the Brussels recast regulation but even if they do the English court must apply Article 29 (1) and stay the proceedings before it

-Article 31 (2) only applies to what the first seized court, in this case the Greek court must do

-In any event asymmetric jurisdiction clauses are invalid under the Brussels I Recast.

If the correct position in law was that asymmetric jurisdiction clauses are exclusive jurisdiction clauses for the purposes of Article 31 (2) then the English court would have jurisdiction to hear the claims brought by the bank and would not be obliged to stay the proceedings until the court in Greece had determined its jurisdiction.

The Greek Shipping company argued that the notion of an exclusive jurisdiction clause is that it creates a single exclusive jurisdiction for the determination of all disputes. The asymmetric jurisdiction clause in this case did not satisfy that notion of exclusivity. Rather they permitted the lender to use in any competent jurisdiction and by contemplating concurrent proceedings, they did not exclude the standard basis of jurisdiction under EU legislation. Indeed they argued that asymmetric jurisdiction clauses are the antithesis of exclusive jurisdiction agreements. They further argued that the default rule under Brussels I is that the first seized court takes priority and that as an exception to that default rule Article 31 (2) fell to be narrowly construed.

The High Court (Mr Justice Cranston) rejected the argument that asymmetric jurisdiction clauses do not qualify as exclusive jurisdiction clauses. Essentially his view was that such clauses must be taken as a whole and the fact that exclusivity of jurisdiction is afforded to one only of the parties to the Agreement does not render the Agreement non-exclusive.

The Court drew support for this conclusion from decision of the Court of Justice in Meeth v Glacetal Sarl [1979] CMLR 520  a case in which the jurisdiction clause in issue was asymmetric in nature, providing that if Meeth sued Glacetal the French courts would have exclusive jurisdiction whilst if Glacetal sued Meeth the German courts had exclusive jurisdiction. Applying Article 17 of the Brussels Convention 1968 (what is now Article 25 of Brussels recast) it held that this asymmetric clause was an exclusive jurisdiction clause even though which court had exclusivity depended upon which party sued. The point was that exclusivity did not require that a single court alone had exclusive jurisdiction over disputes arising.  Rather the court accepted that a clause designating the courts of two states could nevertheless be designated as one where a court or courts of one contracting state had exclusive jurisdiction.  Clearly the Court of Justice did not consider asymmetry a fatal objection to the exclusive nature of the clause in that case.

The High Court also considered that treating asymmetric jurisdiction clauses as conferring exclusive jurisdiction was consistent with the aim of the Regulation as identified at recital 22., namely the necessity for an exception to the lis pendens rule to ensure the effectiveness of exclusive choice of court agreements.

On the facts in Commerbank the defendant’s initiation of proceedings in Greece was clearly abusive. They had agreed to sue only in the courts of England. If the jurisdiction Agreement was to be treated as non-exclusive by virtue of its asymmetric form, this would foster abusive tactics in matters of international commercial litigation. The protection against abusive tactics which Article 31 (2) affords would be stripped away.

The High Court was undeterred in its conclusion on this matter by the provision at Article 3(a) of the Hague Convention on Choice of Court Agreements which defines an exclusive choice of court agreement as one that designates the courts of one contracting state or one or more specific courts of one contracting state to the exclusion of the jurisdiction of other courts. The court found that there were important divergences between these two instruments, notably that whereas the Hague Convention contains a definition of what an exclusive jurisdiction clause is, no such definition is contained in Brussels I recast. The court also expressed the view, without examining the matter in detail, that there were good arguments that the wording of Article 3 (a) of the Hague Convention extended to asymmetric jurisdiction clauses.

The High Court was dismissive of the defendant’s further argument that Article 31 (2) applies only to what the non designated must do but had no application to a what the designated court (in this case the English court) must do. They submitted the English court should apply the oridinary lis pendens rule and stay further proceedings pending the Greek court making a determination of its jurisdiction. The court rejected this, holding that if the English court decided it had jurisdiction it was able to proceed irrespective of how far the concurrent proceedings in Greece had advanced.

Finally the court rejected the final string in the defendant’s bow to the effect that asymmetric jurisdiction clauses are generally incompatible with Article 25 of Brussels I recast and therefore cannot trigger Article 31 (2). The court noted that there is nothing in Article 25 which requires that an exclusive jurisdiction clause has to exclude any courts in particular the courts of non EU member states.

Against this it might be argued that the jurisdiction clause of the type in Meeth v Glacetal although it contemplated more than one court having exclusive jurisdiction depending on which party sued, was a very different creature to the jurisdiction clause in Commerzbank in which potentially there was no limit on the courts in which the bank could sue. It is hard to accept an interpretation of exclusivity in a choice of court when one party may sue in any jurisdiction it chooses and even if this leads to a concurrency of courts having jurisdiction.

The court further rejected arguments from the defendant that it should stay the proceedings under Article 30 (2) allowing a court to decline jurisdiction where an action is pending in a first seized court (in this case Greece). A key factor it took into account was that the parties had previously agreed to the jurisdiction of the second seized court (in this case the English court.

Summary

This decision clarifies an important issue regarding the scope of Article 31 (2) and the situations in which a court in England can avoid the application of the normal lis pendens rule forcing it to stay proceedings over which it would otherwise have jurisdiction. Its effect is that any choice of court clause which has the effect of affording a court or courts exclusive jurisdiction over disputes arising will fall within Article 31 (2).

Brussels I recast does not contain a definition of exclusivity for this purpose and the interpretation of the High Court contrasts markedly with the definition of an exclusive jurisdiction clause in the Hague Convention on Choice of Court agreements. It might be said that a result of this decision non exclusive jurisdiction clauses under Brussels I recast will be narrowly defined as applying only to agreements which allow both parties a free hand as to which courts they will usue in.