Update on Undercover Torpedoes and Unilateral Jurisdiction Clauses

Published: 27/2/2017

In a previous blog post last year, consideration was given to whether or not unilateral jurisdiction clauses qualified as exclusive jurisdiction clauses for the purposes of Article 31(2) of the Recast Brussels Regulation (the 'Regulation').

As a recap, Article 31(2) is the new provision introduced in the Regulation which extinguished the “court first seised” rule where the parties to a contract have agreed an exclusive jurisdiction clause.  The case of Perella Weinberg Partners UK LLP v Codere SA [2016] EWHC 1182 (Comm)) had suggested that one-sided/unilateral jurisdiction clauses (e.g. where the borrower has to sue in the courts of country X but where the lender can sue in the courts of one of several countries) should fall within the description of Article 31(2).  However, the comments were obiter and therefore established no legal rule or precedent.

More recently, the English court has directly addressed this very question in the case of Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc [2017] EWHC 161 (Comm)

It was argued by the defendants in that case that asymmetric (i.e unilateral or one-sided) jurisdiction clauses did not qualify within Article 31(2) as conferring exclusive jurisdiction on a court of a Member State.  Cranston J considered that the natural meaning of the words in Article 31(2) - "an agreement [which] confers exclusive jurisdiction"- did include asymmetric jurisdiction clauses (such as those in the various agreements in that particular case). He decided that when considered as a whole, it had been the intention of the parties that the jurisdiction clauses would be treated as exclusive, notwithstanding their asymmetrical nature.  He therefore concluded that they conferred exclusive jurisdiction on the courts of an EU member state (in this case, England).

The judge noted that this conclusion would be consistent with the aims of the Regulation as set out in the relevant Recitals, in particular Recital 22 which is the specific background to Article 31(2) and which makes clear that there needs to be an exception to the general lis pendens rule to enhance the effectiveness of exclusive choice of court agreements and to avoid abusive tactics.   However, he accepted that the question of whether an asymmetric jurisdiction agreement can be characterised as conferring exclusive jurisdiction on a court of a Member State within the terms of Article 31(2) is ultimately a question not of English law but the autonomous interpretation of the Regulation, in other words EU law.  Therefore, until such time as the CJEU makes a ruling on this point, the risk of torpedo actions in respect of clauses containing unilateral jurisdiction clauses remains alive.

Also of note from the judgment is consideration of recent European decisions in respect of the more fundamental question of whether asymmetric jurisdiction clauses are valid under the Regulation at all.  Although such clauses have been held to be valid and enforceable by the English court for some time, the 2012 case of Mme X v. Société Banque Privée Edmond de Rothschild 13  (in which the French court ruled that an asymmetric jurisdiction clause in a loan agreement was invalid) generated concern among commercial parties and practitioners that the same may not be true in civil jurisdictions.  Cranston J observed that recent cases from, Greece, Italy, Luxembourg, Spain and also a more recent decision from France itself, in which asymmetric jurisdiction clauses have been upheld, suggest that the issue may no longer be of concern.

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