Posts Tagged unilateral jurisdiction clauses
LIC Telecommunications et al v VTB Capital et al. High Court suggests autonomous EU approach to asymmetric choice of court. Also discusses contract and tort distinction, and abuse of process.
In  EWHC 1747 (Comm) LIC Telecommunications et al v VTB Capital et al Moulder J suggests an unorthodox interpretations of Article 25 of the Brussels Ia Regulation. (Note also her very critical view at 22 of one of the experts, whom she found having confused his role as expert with a role as advocate). Much of the lengthy judgment is devoted to intricate discussions of Luxembourgish corporate law (hence the need for expert evidence) and the jurisdictional issues are, somewhat illogically, discussed towards the end of the judgment, at 245 ff.
Maze, one of the defendants, acts as a manager of V2 pursuant to a directorship agreement dated 26 May 2015 (the “Directorship Agreement”). It relies on the effect of clause 19 of the Directorship Agreement and submitted that claims against it are subject to the exclusive jurisdiction of the courts of Luxembourg pursuant to Article 25 Brussels Ia. Clause 19 provides:
“for the benefit of the Manager, the Shareholder and the Company hereby irrevocably, specially and expressly agree that the courts of Luxembourg city have jurisdiction to settle any disputes in connection with this Agreement and accordingly submits to the jurisdiction of the courts of Luxembourg city. Nothing in this clause limits however the rights of the Manager to bring proceedings against the Company in connection with this Agreement in any other court of competent jurisdiction or concurrently in more than one jurisdiction.”
The clause is asymmetric aka hybrid aka unilateral. (See e.g. my discussion of Rothschild etc.). These clauses as I have noted elsewhere highlight the clear insufficiency of Brussels Ia’s new lex fori prorogati (including renvoi) rule for choice of court. Which court has been prorogated, hence also lex fori prorogati, is not clear when the clause is asymmetric.
Moulder J discusses  EWHC 161 (Comm) Commerzbank v Liquimar Tankers as precedent: I reviewed it here and signalled at the time that it would not be the last we would hear of the issue. In that case Cranston J held ‘There is nothing in Article 25 that a valid jurisdiction agreement has to exclude any courts, in particular non EU Courts. Article 17, penultimate paragraph, of the Brussels Convention recognised asymmetric jurisdiction clauses. To my mind it would need a strong indication that Brussels 1 Recast somehow renders what is a regular feature of financial documentation in the EU ineffective.‘ I was never taken by that conclusion viz the Brussels Convention: its Article 17 reference to a party having ‘benefit’ from choice of court does not relate entirely to the same discussion on asymmetric clauses (Peralla v Codere  EWHC 1182 (Comm) which I discussed here illustrates that difference).
At any rate I disagree with Moulder J’s statement at 254 that
It is now common ground that it is a question of autonomous EU law and not a question of national law. (It was I believe accepted that the proviso “unless the agreement is null and void as to its substantive validity” refers to issues such as capacity, fraud and mistake, not whether particular kinds of “choice of court” agreements are permitted under the Regulation).
Asymmetric clauses are the first example often given when highlighting the limited cover of Article 25 Brussels I a (and the need for certainty on the lex causae for choice of court). There is no autonomous interpretation there at all. I do agree however with the conclusion at 261: that Luxembourg courts, applying EU law, would not uphold such clauses was not made out on the evidence. Luxembourgish courts at least when they apply Luxembourgish law, generally uphold the validity of asymmetric choice of court.
At 263 ff then follows discussion of Article 7(1) and 7(2). Much of the authority discussed has been reviewed on this blog. (Including Bosworth (Arcadia) which in the meantime has been held by the CJEU but without the contract /tort element – the CJEU found against a contract of employment). Moulder J holds that Article 7(2) is engaged, not 7(1), and on the former discusses locus delicti commissi with reference to JSC BTA Bank v Khrapunov. At 295: it is not sufficient that there are meetings in England to implement the conspiracy, it is the making of the agreement in England which is to be regarded as the harmful event. Claimants have not supplied a plausible evidential basis that the agreement was made in England. Their evidence is consistent with a case that the conspiracy was implemented in England but that is not sufficient.
As for locus damni, at 298: Even though the share purchase agreement was under English law, it is the loss of the shares in the Luxembourg company which is the pleaded damage not the agreement to sell or the auction. The Vivacom group consists of Bulgarian telecommunications companies which were held by InterV through Viva Luxembourg Bulgaria EOOD (paragraph 3 of the Agreed List of Agreed Issues). Locus damni is Bulgaria, perhaps Luxembourg. But not England.
Finally, abuse of process considerations are linked to English procedural law (whether claims should have been brought sooner).
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.9, Heading 126.96.36.199, Heading 188.8.131.52 .
Turkish Supreme Court rejects choice of court agreement on basis of ‘good faith’. Accepts asymmetric clauses.
Koray Söğüt and Suha Yılmaz reported recently on Turkish Supreme Court case-law in the area of choice of court. The report is very much worth a read. On choice of court agreements, what the Supreme Court seems to say is that when choice of court is made away from Turkey, Turkish law will make that choice subject to a de facto forum conveniens assessment: if Turkey is a suitable forum especially when the eventual judgment will be easily enforced against Turkish assets, a defendant’s insistence on exercising the clause must be seen as violating Turkey’s general provision on bad faith (a form of fraus omnia corrumpit).
It is also reported that the Supreme Court accepted a unilateral /asymmetric jurisdiction clause – the issues surrounding these clauses are a regular feature on this blog.
More cases for the comparative law class! (At least if and when I get hold of an English translation).
Assymetric jurisdiction clauses. Their existence and (obiter) their neutralising effect in Perella v Codere.
Apologies for late posting. I had tweeted and linked and done all sorts of other things when the judgment came out but as readers tell me, that is not quite the same as a review on this blog.
Walker J decided Peralla v Codere  EWHC 1182 (Comm) at the end of July. His views on Article 25 and exclusivity in the event of asymmetric jurisdiction clauses, are very much dicta. On their neutralising effect under Article 31, he suggested obiter. Let me explain. The jurisdiction clause which Perella alleged to have been breached by Codere comprises a single sentence of a clause of their letter of engagement. That sentence states:
“[Codere] agrees for the benefit of [Perella] that the courts of England wil have non-exclusive jurisdiction to settle any dispute which may arise in connection with this engagement.”
Codere sued in Spain alleging breach of contract. Perella countersues in England. The English proceedings are very much necessitated by one or two awkward consequences of the wording of Article 31 of the Brussels I Recast. This Article was specifically included to neutralise the torpedo which the Court of Justice had armed in its Gasser judgment, C-116/02: following Gasser, lis alibi pendens applies even if there is exclusive choice of court and a court other than the court assigned in that clause, has been seized. The Brussels I Recast neutralises the torpedo but only if there is exclusive court of choice, and if the court designated by that clause has been seized.
The first consideration in the case was whether the clause was exclusive. It was pertinently not. Perella suggested the language indicates that the benefit to be conferred upon Perella is an entitlement to insist that Codere must regard itself as bound by the exclusive jurisdiction of the English courts. Walker J (at 30) rejects this justifiably: it would have been simplicity itself verbatim to indicate exclusivity. As Ken Kaar notes, the inclusion of ‘for the benefit of’ is an old, now redundant boilerplate provision in choice of court: in the original Brussels and Lugano Conventions, ‘If the agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention.’ This proviso meant there was plenty of discussion in court whether only one party had procured such benefit, lest one state in so many words that it had. The current version of the Brussels I Recast (and the 2001 version before it) and Lugano 2007 have both dropped the provision, and it would be best dropped from the boilerplate clause, too.
Having held that the clause was not exclusive, the Court could have stopped there. Obiter however Walker J offered his view on whether Article 31(2)’s protection extends to asymmetric choice of court clauses – the notion of which I have reported on before. Walker J (at 18) suggests that it does. The party invoking Article 31(2) pointing to an exclusive forum which the counterparty who is suing elsewhere, had committed itself to, need not be itself subject to a symmetric duty only to sue in that court. The point has not been argued before the CJEU yet, but I agree that the High Court’s position is the correct one, with the important caveat of course that such clause needs to be valid in accordance with the lex fori prorogati. This also means that asymmetric clauses where such lex cannot be identified, would have trouble disarming the recalcitrant party’s torpedo.
Well, we are going to miss this type of judgment following Brexit. Better make conflict of laws part of the continuing relations with the UK.
(Handbook of) European Private international law, 2nd ed. 2016, Ch.2, Heading 2.2.9, Heading 184.108.40.206.1, Heading 220.127.116.11.
The French Cour de Cassation’s in Banque Privee Edmond de Rothschild Europe v X held that a unilateral jurisdiction clause was invalid under (doubtful) reference to (then) Article 23 of the Brussels I Regulation. The clause was held not to be binding under the French doctrine of clauses potestatives, even though the agreed forum was Luxembourg (whence the validity of the clause was judged under the lex fori derogati, not prorogati; that will no longer be possible under the recast Jurisdiction Regulation). In Credit Suisse, it extended this view (without reference this time to clauses potestatives) to choice of court in the context of the Lugano Convention.
In Apple Sales international v eBizcuss.com, the Cour de Cassation effectively qualifies its Rotschild case-law. The Court of Appeal held as unacceptable, under the theory of clauses potestatives, choice of court obliging eBizcuss to sue in Ireland, while allowing Apple Sales International to sue either in Ireland, or the place of registered office of eBizcuss, or any place where Apple Sales would have suffered damage. The Cour de Cassation now held that this clause is perfectly acceptable under Article 23 (now 25)’s regime for it corresponds to the need of foreseeability. (Which more extreme unilateral clauses arguably do not have). As always, the judgment is scant on details of the underlying contract whence it is not entirely clear whether French law was lex contractus or whether the Cour stuck to lex fori as determining validity of choice of court.
There is an obvious downside to the European Court of Justice’s judicial economy. The Court often leaves unanswered many questions asked by national courts without an answer to them being strictly necessary for the case at hand. Evidently quite a few of those resurface in later practice. Owusu is a case in point. Many postings on this blog have entertained the unanswered questions left by the ECJ’s seminal rejection of Forum Non Conveniens. UK courts in particular have leapt on the opportunity to distinguish Owusu, effectively now leading to a fairly narrow context in which Owusu is applied. As recently as Jong v HSBC on which I reported last week, the High Court professed sympathy for vacating a case pending in the UK and having it joined to proceedings in Monaco, on ‘case management’ grounds.
In Plaza v The Law Debenture Trust, Proudman J dealt with a UK fallout of longstanding litigation inter alia in Australia, following the insolvency of the Australian Bell group in the 1990s. Curacao is COMI. Secondary or ancillary proceedings were opened in Australia. A variety of litigation mostly concerning priority of claims and timely (or not) execution of securities, led among others to a 2013 Deed of Settlement between parties to the current litigation. The Law Debenture trust (LDTC) is trustee for a number of bonds issued by Bell, some of which are held by Plaza (these bonds contain a non-exclusive choice of court in favour of England). Others are held inter alia by the Insurance Commission of Western Australia (ICWA).
The 2013 Deed contains an exclusive choice of court clause in favour of Western Australia. Plaza, incorporated in Curacao, sues LDTC, domiciled in the UK, in England, basically questioning its suitability as a trustee for the bonds, citing alleged conflicts of interest (LDTC may or may not be acting under instruction of ICWA).
Proudman J essentially had to decide whether Article 23 (now Article 25) of the Jurisdiction Regulation in its original version (the recast does not apply) ought to be applied reflexively (protecting choice of court in favour of non-EU courts); alternatively, whether Article 28 of the same Regulation (the lis alibi pendens rule) may be so applied; and what the impact of the ECJ’s rejection of forum non conveniens is on this all.
Ferrexpo in particular assisted her in holding that reflexive application of Article 23 (now 25) of the Brussels I Regulation is not barred by Owusu. The main argument for this approach lies in the judicial economy which I cite above: the ECJ was asked but did not entertain the question. Moreover Article 23 is a more dominant rule in the Regulation than Article 2 (now 4)’s rule referring to domicile of the defendant: a mandatory exception to the rule of Article 2 rather than, in the words of Proudman J, a discretionary exception such as forum non conveniens.
Subsidiarily, the High Court also suggests Article 28’s lis alibi pendens rule ought to apply reflexively, although it expressly suggests more discussion of that point is needed and the Article need not be laboured in the case at issue, given its finding on Article 23.
To heap further pressure on the Owusu pile, a further potential for undermining finding in Owusu is suggested in the shape of ‘case management powers’, also suggested in Jong and hinted at as potentially introducing forum non conveniens through the back door.
With Plaza v Debenture, application of Owusu by the English courts now is so distinguished, arguably little is left of the ECJ’s original intentions. One assumes: for as I noted above, judicial economy allowed national courts to be creative in their application of the rule. The issue is bound to end up again at the ECJ at some point.
Jong v HSBC. Unilateral jurisdiction clauses, anchor defendants viz parties ex-EU and evading Owusu.
Postscript 30 October 2015: the Court of Appeal confirmed (rejecting appeal) on 22 October 2015.
Often, progress is assisted by assimilation hence I shall not repeat the excellent review of  EWHC 4165 (Ch) Jong v HSBC by Andy McGregor and Daniel Hemming. (It will be posted here soon, I imagine). Nor indeed will I simply regurgitate how Purle J eloquently dealt with the various jurisdictional issues in the case. Let me instead highlight the main issues:
Plaintiff, Ms Jong, has a contractual dispute with HSBC Monaco SA concerning the proper execution of foreign exchange orders. That the law of Monaco applies does not seem under dispute. HSBC Monaco’s standard terms and conditions, which may or may not apply, contain inter alia a classic unilateral jurisdiction clause: “Any litigation between the client and the bank shall be submitted to the exclusive jurisdiction of the competent Monaco courts at the offices of the bank location where the account is open. Nevertheless the bank reserves the right to take action at the place of the client’s residence or in any other court which would have been competent in the absence of the preceding election of jurisdiction“.
The bank so far has not exercised the clause. (No proceedings are as yet pending in Monaco). Monaco evidently is not covered by the Brussels I Regulation (nor indeed by the Lugano Convention).
Co-defendants are the HSBC Holding and HSBC Private Bank. Ms Jong did have contact with these over the alleged level of service. Perhaps unusually, Ms Jong (or rather, her lawyers) decided to issue proceedings against HSBC Monaco first. The English co-defendants were only added later, quite clearly in an effort to support the exercise of jurisdiction over HSBC Monaco.
The Brussels I-Regulation’s rules on anchor defendants (Article 6; now Article 8 in the recast. Note that the recast does not apply to the case at issue) do not apply to non-EU defendants: whether or not these can be drawn into the procedural bath with the EU defendants, depends therefore on residual national conflicts law. Purle J takes parties and readers through the relevant case-law and holds that while there may be objections to Monaco as a jurisdiction, none of them carries enough weight to override the exclusive choice of court clause.
Of particular note is that Purle J considers (at 26), again with reference to precedent, whether the case against the English defendants may potentially be stayed in favour of having them joined to proceedings in Monaco. (In that precedent, it was suggested that the clear rejection of forum non conveniens in Owusu, may not stand in the way of a stay on ‘sensible case management’ grounds, rather than forum non conveniens grounds). Purle J justifiably hesitates (‘the court must be careful not to evade the impact of Owusu v Jackson through the back door’), before dismissing the suggestion given that no case is as yet pending in Monaco. It is noteworthy that the latter would, incidentally, be a condition for the (strictly choreographed) lis alibi pendens rule of the Brussels I recast to apply (Article 33). I would certainly argue that Owusu and the ECJ’s reasoning behind it, would exclude such recourse to a de facto forum non conveniens rule.
Unilateral jurisdiction clauses valid under English law – The High Court in Mauritius Commercial Bank Limited v Hestia Holdings Limited
The High Court (England and Wales) has upheld a so-called ‘unilateral’ or ‘one-sided’ jurisdiction clause (choice of court agreement) on 17 May last. The finding is in contrast with the French Cour de Cassation’s stance in Banque Privee Edmond de Rothschild Europe v X – which had some calling in the case by virtue of defendants arguing that the jurisdiction agreement ought to be subject to Mauritian law, which is anchored on French civil law. In that case, the Cour de Cassation held that the unilateral clause was invalid under (doubtful) reference to Article 23 of the Brussels I Regulation – the clause was held not to be binding under the French doctrine of clauses potestatives, even though the agreed forum was Luxembourg (whence the validity of the clause was judged under the lex fori derogati, not prorogati; that will no longer be possible under the recast Jurisdiction Regulation).
It is noteworthy that claimant was based in Mauritius; first defendant a Mauritius-registered company; and second defendant the first defendant’s parent company and registered in India. Under the current Brussels I Regulation (this however will change once the new regime applies as of 2015), for the choice of court clause to be covered by the Brussels Regime, at least one of the parties has to be domiciled in the EU.
The contract at issue, read:
‘Clause 23 – Governing Law. This Agreement and any dispute or claim arising out of, or in connection with, it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with English Law.
Clause 24 – Enforcement.
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).
(b) The Parties agree that the courts of England are the most appropriate and the most convenient courts to settle Disputes and accordingly no Party will agree [sic, obviously a typographical error for argue] to the contrary.
(c) This Clause 24.1 is for the benefit of the Lender only. As a result the Lender shall not be prevented from taking proceedings related to a Dispute in any other courts in any jurisdiction. To the extent allowed by law the Lender may take concurrent proceedings in any number of jurisdictions.
24.2 Service of Process
(a) The Borrower and the Guarantor shall irrevocably appoint ‘Progress Corporate Services Private Limited’ presently located at 2, Lansdowne Road, Croydon, Surrey, London CR9 2ER.’
The Defendants argued that clause 24.1 is invalid under its proper law, whether that of Mauritius or England, and that in the absence of a valid English jurisdiction agreement, the court does not have jurisdiction over Hestia and Sujana. The Defendants’ challenge to the validity of clause 24.1 rested on two alternative grounds. They allege that the jurisdiction agreement contained in clause 24.1 remained subject to Mauritian law, notwithstanding clause 23; and that under Mauritian law the jurisdiction agreement is ineffective, as a result of the decision of the French Cour de cassation in Rothschild Europe v X, because it is one sided: it allows MCB to sue, or insist on being sued, in any jurisdiction in the world, but binds Hestia and Sujana to litigate in England if MCB so choose. Alternatively, it is submitted that if clause 24.1 is governed by English law, it is too one sided to be compatible with fundamental principles regarding equal access to justice and should not be upheld under English law.
The High Court rejected Mauritian law as the applicable law to the clause (although it did entertain the validity under Mauritian law obiter and was not convinced that Rotschild Europe would be applied by Mauritian courts) and saw no problem whatsoever for the validity of the clause under English law. Popplewell J referred to scholarship:
‘As Professor Fentiman has observed in a recent article in the Cambridge Law Journal entitled “Universal jurisdiction agreements in Europe” (CLJ (2013) 72 (1) 24-27) :
“Such unilaterally non-exclusive clauses are ubiquitous in the financial markets. They ensure that creditors can always litigate in a debtor’s home court, or where its assets are located. They also contribute to the readiness of banks to provide finance, and reduce the cost of such finance to debtors, by minimising the risk that a debtor’s obligations will be unenforceable. Such agreements are valid in English law . . . Indeed despite their asymmetric, optional character it is difficult to conceive how their validity could be impugned or what policy might justify doing so . . .” ‘
Arguments based on the ECHR were rejected:
‘If, improbably, the true intention of the parties expressed in the clause is that MCB should be entitled to insist on suing or being sued anywhere in the world, that is the contractual bargain to which the court should give effect. The public policy to which that was said to be inimical was “equal access to justice” as reflected in Article 6 of the ECHR. But Article 6 is directed to access to justice within the forum chosen by the parties, not to choice of forum. No forum was identified in which the Defendants’ access to justice would be unequal to that of MCB merely because MCB had the option of choosing the forum.’
Note Popplewell J’s reference to ‘improbably’: for any chosen forum would have to uphold jurisdiction on the basis of its own conflict of laws rules.
The material validity of unilateral choice of court agreements is not addressed by the recast Brussels I Regulation (in other words there is no EU rule determining their validity; the Cour de Cassation’s view on this is disputed) – and choice of court agreements continue to be exempt from the Rome I Regulation. The decision in Mauritius Commercial Bank certainly indicates a very favourable approach by the English courts. With the recast Regulation providing for lex fori prorogati as the law destined to rule on the validity of the choice of court agreement, this leads to clear instruction to counsel.