Asymmetrical jurisdiction clauses in international dispute resolution
Locations
The dispute resolution team has recently seen an increased use of asymmetrical jurisdiction clauses (also known as unilateral jurisdiction clauses) in commercial contracts. Parties should consider the impact of these clauses should a dispute arise.
An asymmetrical jurisdiction clause binds one party to commence proceedings in one particular jurisdiction, whilst allowing the other party to commence proceedings before any competent court. These clauses are typically (but not exclusively) used in financial contracts where a creditor wants the flexibility of suing the debtor in any jurisdiction where the debtor has assets.
The risk of including such clauses in commercial contracts lies in how different jurisdictions approach them, which can be illustrated by comparing the French and English law perspectives.
The French perspective
The 2012 French Supreme Court decision in BanqueRothschild[1] suggested that asymmetrical jurisdiction clauses were inequitable and therefore unenforceable. The Court held that an asymmetrical jurisdiction clause is void by reason of it being a “potestative condition”. A potestative condition is one for which satisfaction is completely within the power of one party, with no mutuality of obligation. The decision was controversial and found criticism both in France and abroad.
At the end of 2015, however, the French Supreme Court reconsidered the question and clarified the law. In Apple Sales International v eBizcuss[2], a contract was concluded between Apple, registered in Ireland, and its French authorised reseller, eBizcuss. The governing law of the contract was Irish law. The contract included an asymmetrical jurisdiction clause under which, in the event of a dispute, eBizcuss was bound to commence proceedings before the Irish Courts; in contrast, the clause allowed Apple to commence proceedings in France or any other jurisdiction within which Apple sustained a loss.
Inevitably, a dispute arose. Despite the express limitation on eBizcuss to start proceedings in the Irish Courts, it issued in France. Apple objected to the French Court’s jurisdiction and argued that the correct forum for the claim was the Irish Courts. eBizcuss countered that the asymmetrical jurisdiction clause was unenforceable and the question was ultimately referred to the French Supreme Court.
The French Supreme Court held that asymmetrical jurisdiction clauses are valid under French law, provided that each party can identify, in advance of starting legal proceedings, the jurisdictions which may be competent to hear a potential dispute (in this case, the jurisdiction in which eBizcuss was registered, and those within which Apple had sustained a loss). On the condition that asymmetrical jurisdiction clauses comply with this foreseeability requirement, they are enforceable.
The English perspective
The principle clarified by the French Supreme Court provides an interesting contrast to the English law position. In Mauritius v Hesta,[3] the Commercial Court held that asymmetrical jurisdiction clauses are valid even without the foreseeability requirement described above.
In Mauritius v Hestia, a loan agreement was entered into by a Mauritian lender and debtor guaranteed by a parent company incorporated in India. The contract included an asymmetrical jurisdiction clause which gave the English Courts exclusive jurisdiction, but stated that the lender “shall not be prevented from taking proceedings related to a dispute in any other courts in any jurisdiction”.
A dispute arose and the lender issued proceedings before the English courts. The debtor contested the validity of the asymmetrical clause, asserting that it was unenforceable and contravened its right to equal access to justice under Article 6 of the European Convention on Human Rights (“ECHR”).
The English Court held that the asymmetrical jurisdiction clause is valid and enforceable. Typical of the English law approach, the Court placed considerable weight on the contractual bargain made by the parties, which included the asymmetrical jurisdiction clause. Further, the Court held that Article 6 of the ECHR was not engaged because that article provided access to justice within a dispute resolution forum, and not access to a choice of forum.
Practical Implications
By overturning the Rothschild decision, the French Supreme Court has, for the most part, aligned the position under French law with English law. Still, there remains some divergence between the French and English approaches, namely whether or not foreseeability of forum is a precondition for validity.
There are further differences in jurisdictions such as Russia, Poland and China which do not, at present, recognise asymmetrical jurisdiction clauses.
There may be implications for the enforcement of Judgments in EU member states post-Brexit. Once the UK is no longer a party to the Recast Brussels Regulation, it may not enjoy a straightforward procedure for reciprocal enforcement of Judgments in all EU member states. If a similar agreement is not reached post-Brexit, then the enforcement of Judgments will be subject to the applicable conflict of law rules in the country of enforcement. The varying approach to asymmetrical jurisdiction clauses may then become more problematic.
Before including an asymmetrical clause in a contract, therefore, parties should obtain local law advice on their enforcement in all jurisdictions where legal proceedings or enforcement might take place. In respect of existing contracts, parties may wish to review jurisdiction clauses, with a view to renegotiating or implementing risk management strategies.
An alternative solution (if appropriate for the nature of the contract) is to include an arbitration clause, which can avoid some of the difficulties faced by parties when entering judgment in foreign national courts.