English Commercial Court upholds asymmetric jurisdiction clauses

Asymmetric jurisdiction clauses, which allow one party to sue in any jurisdiction whilst restricting the other party to only one jurisdiction, have been common in commercial contracts, and particularly financial agreements, since the 1960s. In 2012, however, the validity of such clauses under EU law was called into question when the French Cour de Cassation appeared to hold that they were ineffective under the Brussels I Regulation (the Recast Regulation).

In the recent case of Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc and another [2017] EWHC 161 (Comm) the English courts considered the validity of asymmetric jurisdiction clauses for the first time, holding that the jurisdiction clause was, in that case, effective and conferred exclusive jurisdiction on the English courts.

Facts of the case

The case concerned an asymmetric jurisdiction clause in a loan agreement between the Claimant, a German bank (Commerzbank), and the Defendant, a shipping company (Liquimar). The clause required Liquimar to commence proceedings in England only, whilst giving Commerzbank the option to bring proceedings in any jurisdiction.

Following a default under the loan agreement, Liquimar issued proceedings in Greece. Commerzbank subsequently issued a claim in the English Commercial Court relating to the same cause of action.  Liquimar applied to have the English proceedings stayed, relying on Article 29 of the Recast Regulation, which provides that where proceedings involving the same cause of action are brought in the courts of two different Member States, any court other than the first seised shall stay its proceedings until such time as the jurisdiction of the court first seised is established.

Commerzbank argued that the asymmetric jurisdiction clause was an exclusive jurisdiction clause for the purposes of Articles 25 and 31(2) of the Recast Regulation, which provide that:

• Where the parties have agreed that the courts of a specific Member State are to have jurisdiction over a dispute, such courts shall have jurisdiction (Article 25)
• Such jurisdiction shall be exclusive unless the parties have agreed otherwise (Article 25)
• Where such courts are seised, any court of another Member State shall stay proceedings until such time as the court seised on the basis of the parties’ agreement declares that it has no jurisdiction (Article 31(2)

Judgment

Previously it was unclear whether an asymmetric jurisdiction clause would be regarded as an exclusive jurisdiction clause for the purposes of Articles 25 and 31(2) of the Recast Regulation, given that one party still has a choice of jurisdiction.

In Commerzbank v Liquimar, the English Commercial Court held that:

1. An asymmetric jurisdiction clause is an exclusive jurisdiction clause for the purposes of the Recast Regulation, it would undermine the freedom of the parties to negotiate and enter a commercial agreement of their choosing if it was considered otherwise.
2. Articles 29(1) and 31(2) need to be read in conjunction with each other. Article 29(1) is expressed to be without prejudice to 31(2). In the circumstances, as the asymmetric jurisdiction clause was an exclusive jurisdiction clause, the Greek courts were obliged to stay proceedings until such time as the English courts declared that they did not have jurisdiction.
3. There is no provision in Article 25 of the Recast Regulation which states that a valid jurisdiction clause has to exclude all other courts or non-EU courts.

Comment

In his judgment, Cranston J considered Recital 22 of the Recast Regulation, which notes that one of the aims of the Regulation was to ‘enhance the effectiveness of exclusive choice-of-court agreements and to avoid abusive litigation tactics’. He concluded that such aims would only be achieved if asymmetric jurisdiction clauses were treated as exclusive for the purposes of Articles 25 and 31(2) of the Regulation.

The decision will be welcomed by practitioners and commercial parties, in particular lenders who typically benefit from asymmetric clauses. Nevertheless, the question of whether these clauses are exclusive jurisdiction clauses for the purposes of the Recast Regulation ultimately lies with the Court of Justice of the European Union, and until such time as the matter is considered by Europe’s highest court, it remains possible that courts in other Member States will reach a different conclusion.