28/03/2017

Asymmetric result?

The Commercial Court finds that asymmetric jurisdiction clauses are valid exclusive jurisdiction clauses for the purposes of the Brussels Recast. Given their prevalence in financial contracts,  a contrary decision could have produced significant instability.

Commerzbank Aktiengesellschaft v Pauline Shipping and Liquimar Tankers  [2017] EWHC 161

Background Facts

Two sets of proceedings were brought before the Commercial Court by Commerzbank, a German bank, in the context of shipping loan agreements and related guarantees. In the first action, the Defendant was Liquiamr Tankers Management Inc (Liquimar), who had acted as guarantor of a loan made by the bank. In the second action, the Defendants were (i) Pauline Shiping Ltd, the borrower under a second loan made by the bank, and (ii) Liquimar, the guarantor of the second loan.

The loan and guarantee agreements contained similarly worded law and jurisdiction clauses. These were asymmetric jurisdiction clause: that is, a clause requiring one party to sue in one jurisdiction only, but allowing the other party to sue in that jurisdiction but also in any other court of competent jurisdiction. In this case, either party could bring proceedings in England, but the Bank was also entitled to sue in any other court of competent jurisdiction.  Asymmetric jurisdiction clauses are commonplace in financial contracts.

After events of default by the borrowers, the bank advised the Defendants that it would commence proceedings in England. Before the bank had the chance to do so, the Defendants commenced their own proceedings against the bank in Greece for declarations that they had no liability and seeking damages for reputational loss.

The bank then commenced its claims in London. Apart from the bank’s claims for breach of jurisdiction clause, the causes of action in the Greek and London proceedings were essentially the same, mirroring each other.

The Defendants sought a stay of the English proceedings in favour of the Greek Court, on the basis that it had been first seized of the matter under either Article 29 or  Article 30(1) Brussels Recast.   The Bank argued that the asymmetric jurisdiction clause was an exclusive jurisdiction agreement within Article 31(2) Brussels Recast.

 The Judgment

Mr Justice Cranston found that the English courts had exclusive jurisdiction, and thus declined to stay the English proceedings.

He found that asymmetric jurisdiction clauses were not invalid under the Brussels Regulation Recast.   This point was controversial:  in 2012, the French Cour de Cassation held asymmetric jurisdiction clauses invalid under the Brussels 1 Regulation in a case called Mme X v Société Banque Privé Edmund de Rothschild. This case met a mixed reception across European jurisdictions.  Mr Justice Cranston considered that the French Cour de Cassation’s reasoning had been based on specific legal concepts particular to French law, and not on autonomous reasoning in EU law.

Having accepted the validity of the clause, it was necessary to determine whether an assymetric jurisdiction clause could be an exclusive jurisdiction clause within the Brussels Recast. Again, this was a matter for autonomous interpretation of the Recast. English authorities were not determinative of the matter.

The wording of the Recast itself did not greatly assist, containing no wording at all about asymmetric jurisdiction clauses and lacking any definition of “exclusive jurisdiction”.   Mr Justice Cranston considered that the natural meaning of the words in Article 31(2) – “an agreement [which] confers exclusive jurisdiction” – included asymmetric jurisdiction clauses. He found that the underlying policy and purported aims of the Recast supported this conclusion, and placed specific reliance on Recital 19 (party autonomy) and Recital 22 (exception to lis alibi pendens to ensure efficacy of exclusive jurisdiction clauses and prevent abusive tactics). The clauses in the agreements between the Bank and the Defendants were therefore exclusive jurisdiction clauses.

Thus, in reliance on Article 31(2), given that the English court had determined that it had jurisdiction, it could continue on with its own proceedings, regardless of how advanced the Greek proceedings might be.  Mr Justice Cranston therefore declined to stay the English proceedings, under Article 30 (1). Judicial comment was also made on the factors relevant to stays in the context of Article 30 (1).

Comment

This is an extremely significant case on the significance of asymmetric jurisdiction clauses within the Brussels Recast. Mr Justice Cranston was robust in finding for the validity of such clauses, and in considering them to be exclusive jurisdiction clauses for the purposes of the Recast. Given their prevalence in financial contracts,  a contrary decision could have produced significant instability.

Absent any appeal, the status of asymmetric jurisdiction clauses should now be settled as a matter of English law.  Other jurisdictions may reach different conclusions, but to do so might encourage abusive litigation tactics (contrary to the stated aims of the Recast).

Mr Justice Cranston also provisionally considered that asymmetric clauses would also be fall within the remit of the Hague Convention, and be valid thereunder. However, he did not need to reach a definitive answer on this point.    In the event that the Hague Convention gains increasing significance in English jurisprudence (a possibility depending on how Brexit ensues), these obiter dicta may be of importance.