In a landmark judgment delivered in Societa Italiana Lastre v Agora, the CJEU opened the door wide for asymmetric jurisdiction clauses in the European Union and in the European Free Trade Area. Have the CJEU given green light to every asymmetric jurisdiction agreements? Has it become clear what conditions an asymmetric clause shall fulfil to be valid under the Brussels Ia Regulation and the Lugano Convention? We address these issues in this article.
Smartlegal Schmidt&Partners reports from Hungary:
Background
Asymmetric jurisdiction clauses, offering one of the parties (the beneficiary) the choice among courts in multiple jurisdictions, while binding the other (the restricted party) to litigate in front of a given forum, have divided the legal practice in Europe for a while.
Courts in the United Kingdom and Germany tended to enforce such clauses: the positive approach of the judiciary of these countries is shown by the recent decisions rendered by the English Court of Appeal in Etihad v. Flöther[1], and the German Bundesgerichtshof in Flöther v. Etihad.[2]
In the above cases both courts enforced the same asymmetric clause under the Brussels Ia Regulation, by not allowing the restricted party to litigate in front of a non-chosen forum.
At the same time, the picture was not so clear in France, where after the infamous decision of the Cour de cassation in Rothschild[3] rendered in 2012, the case law produced contradictory results. While the Commercial Chamber of the French Supreme Court took a permissive attitude[4], the Civil Chamber sticked to a more conservative position[5] in relation with asymmetric jurisdiction clauses. Some other European jurisdictions followed the conservative approach, by rejecting the enforcement of asymmetric clauses.[6]
The litigation between an Italian and French company provided an opportunity for the Cour de cassation to refer the issue of validity of asymmetric jurisdiction clauses to the Court of Justice of the European Union in the framework of a preliminary ruling procedure.
Facts
In a contract for the supply of building materials between Societa Italiana Lastre (SIL), an Italian-seated seller, and Agora, a French-seated purchaser the following jurisdiction clause was included:
“[…] Any dispute arising out of or in connection with this contract shall be subject to the jurisdiction of the courts of Brescia. Societa Italiana Lastre reserves the right to bring proceedings against the purchaser before any other competent court in Italy or elsewhere.”
After a dispute between the parties, Agora sued SIL in France, which unsuccessfully challenged jurisdiction, as the French courts of first and second instance held that the jurisdiction clause gave the Italian seller too wide a choice, a so-called discretionary choice (un choix discrétionnaire) that violated the requirements of foreseeability and legal certainty under Article 25(1) of the Brussels Ia Regulation. SIL eventually referred the case to the Cour de Cassation, which, stayed the proceedings and made a reference for a preliminary ruling to the Court of Justice of the EU.
The questions of the French Supreme Court
Three questions were raised by the Cour de Cassation in the preliminary ruling procedure.
By the first question the French Supreme Court asked whether the imprecision or imbalance of the clause must be assessed based on the Brussels Ia Regulation, or on the basis of the national law of the Member State designated by the clause. In case imprecision or imbalance of the clause should be determined based on the Regulation, the second question asked whether the clause at hand was valid.
In case the imprecision or imbalance of the clause was to be assessed under national law, the third question asked how the reference to the law of the designated court should be interpreted where the clause designates several courts or where the clause designates one court but allows a party to choose another and where that choice has not yet been made at the time the court is seised.
Decision of the CJEU
As a preliminary remark, the CJEU laid down that the reference to national law of Article 25 (1) of the Regulation is merely a conflict-of-laws rule which shall be interpreted strictly to cover only general causes of nullity of contract, enabling the applicant to identify easily the court before which proceedings can brought and the defendant to reasonably foresee the court before which he or she may be sued.
Then the CJEU went on to recall its decision made in Coreck[7], stressing that the requirement of precision, which can be derived from Article 25 (1) of the Regulation, assists the achievement of the objectives of foreseeability, transparency and legal certainty which call for autonomous criteria derived from the Regulation itself, not from national law.
In addition, the Court stressed that in case of jurisdiction agreements included in insurance, consumer and employment contracts, asymmetry is regulated by the Brussels Ia Regulation which also supports the latter view. For this reason, the CJEU answered to the first question by holding that the issue of imprecision or asymmetry of the jurisdiction clause shall be interpreted in the light of Article 25 (1) of the Regulation.
As regards the second question, the CJEU highlighted that based on party autonomy, which is underlying principle of Article 25 (1) of the Brussels Ia Regulation, the clause is not invalid because it allows the party to bring proceedings in front of courts of different EU Member States or State that are parties of the Lugano Convention.
However, according to the CJEU the requirement of precision shall be interpreted in the framework of the general rules of jurisdiction of the regulation and the convention, therefore allowing the designation of courts of third countries would be contrary to the principles of foreseeability, transparency and legal certainty of the Brussels Ia Regulation.
Finally, the Court also highlighted that asymmetric jurisdiction clauses shall respect the grounds for exclusive jurisdiction in Article 24 of the Brussels Ia Regulation, and the provisions related to weaker parties (Article 15, 19 and 23 of the regulation). In the light of the above answers, the CJEU held that there was no need to answer the third question of the Cour de cassation.
Comment
First, it shall be pointed out that by qualifying the issue of asymmetry of a jurisdiction clause as a question to be decided under not national laws, but according to the autonomous criteria of the Brussels Ia Regulation, the Luxembourg court made a definitive step towards the enforcement of asymmetric jurisdiction clauses.
Allowing the national laws of the 27 EU Member states to control the validity of asymmetric jurisdiction clauses would have practically marginalised these clauses in international commerce.
Second, when it comes to the sufficient precision of the objective factors enabling the court seised to evaluate its jurisdiction, the CJEU applied a territorial limitation regarding the courts that available for the beneficiary of the jurisdiction clause. To be valid, the clause may not confer jurisdiction on courts of thirds states i.e. only the courts of the Member States of the European Union and the European Free Trade Association (except Lichtenstein which is not party to the Lugano Convention), may be available for the beneficiary.
It is true that allowing asymmetric jurisdiction clauses to confer jurisdiction on third State courts would go beyond the scope of the Brussels Ia Regulation and the Lugano Convention. Furthermore, this territorial limitation seems to be logic, if we accept that the basic function of jurisdiction clauses is to decrease the jurisdictional risk for the parties i.e. to limit the number of the potential fora in front of which the party may be brought as defendant.
However, based on the operative part of the judgment, it seems that besides the above territorial limitation, to be valid, asymmetric jurisdiction clauses shall provide additional objective factors allowing the court seised to evaluate its jurisdiction.
In this respect the decision of the CJEU seems to be incomplete, because when setting the conditions of the requirement of precision, it only sets a negative condition (i.e. it is not possible to confer jurisdiction on third State courts). However, the judgment fails to provide any positive requirements.
In other words, it is clear when an asymmetric jurisdiction clause does not fulfil the requirement of precision, but it is still unclear when asymmetric clauses do comply with that requirement.
Based on the wording of the judgment, it can be inferred that the CJEU left open, whether the asymmetric clause in the underlying case complied with the requirement of precision, at all.
The CJEU could have given further guidance in this respect, especially it could have clarified whether the reference by the clause to a given legal source (i.e. courts competent under the Brussels Ia Regulation) or to a given legal system (i.e. courts competent under French law), or to a factual circumstance (i.e. courts where damage is suffered) would amount to an appropriate objective factor?
Given that the judgment of the CJEU opened the door wide in front of asymmetric clauses in the EU and EFTA, but failed to answer the above fundamental questions, more cases in relation to asymmetric jurisdiction clauses can be predicted in the future, where the CJEU shall further precise its approach.
In this article we analysed judgement C-537/23 of the CJEU.
Written by Dr. Richard Schmidt
SMARTLEGAL is a team of agile business & litigation lawyers in Budapest, Hungary, helping international corporate clients and individual entrepreneurs doing business in Hungary. For more information please visit our website at smartlegal.hu
[1] Etihad Airways PJSC – Prof Lucas Flöther [2020] EWCA Civ 1707.
[2] BGH 2021.06.15. II ZB 35/20.
[3] Cour de cassation 26 septembre 2012 – Chambre Civile 1ére 11-26.022
[4] Cour de cassation, Chambre commerciale, 11 mai 2017 15-18.758 (Diemme c. Chambon)
[5] Cour de cassation, Chambre civile 1, 25 mars 2015. 13-27.264. (ICH [Société Danne] v. Crédit Suisse I) ; Cour de cassation Chambre civile 1, 7 février 2018. 16-24.497. (ICH [Société Danne] v. Crédit Suisse II)
[6] See for example decision No. 1193/2010. (2 September 2021) of the Bulgarian Supreme Court
[7] Case C‑387/98. Coreck Maritime GmbH v Handelsveem BV and Others. Judgment of the Court (9 November 2000) ECLI:EU:C:2000:606.