Undercover Torpedoes and Unilateral Exclusive Jurisdiction Clauses

Published: 9/8/2016

Before the recast Brussels Regulation came into effect in January 2015, a party was able to delay proceedings in the Member State court chosen by both parties in their jurisdiction clause by commencing parallel proceedings (in breach of that clause) elsewhere.  Given that the Italian courts are reputed to be particularly slow in processing claims, they became a popular jurisdiction in which this tactical manoeuvre was deployed; known - somewhat infamously - as the “Italian torpedo.”

Frequently, in the European context, parties would engage in a “race to jurisdiction” if they sought to inject delay (or, instead, to prevent it) in the commencement of legal proceedings. The party which “lost” this race to issue proceedings was faced with the prospect whereby the proceedings issued by them (even if issued in the parties’ chosen court) were stayed pending a declaration by the court first seised that it did not have jurisdiction – a process that can take not inconsiderable time.

The recast Brussels Regulation sought to dismantle this anachronism through the introduction of Article 31(2) which extinguished the “court first seised” rule where the parties had agreed an exclusive jurisdiction clause and proceedings had been commenced in that agreed jurisdiction.

However, it was questionable as to whether Article 31(2) applied where the jurisdiction clause was a unilateral jurisdiction clause, i.e. on one side of the commercial agreement only. Such clauses are not uncommon in commercial contracts (commonly banking and shipping agreements). For example, a loan agreement may give exclusive jurisdiction to the court of one Member State (for example England) in respect of proceedings commenced by the borrower, but the clause may enable the lenderto commence proceedings in any jurisdiction. It is unclear whether the English court would be seised on the basis of exclusive jurisdiction which engaged Article 31(2) since it only had exclusive jurisdiction in respect of proceedings commenced by the borrower but not the lender, in other words it was only a one-sided exclusive jurisdiction clause.

However, obiter comments in a recent decision of the Commercial Court (Perella Weinberg Partners UK LLP v Codere SA [2016] EWHC 1182 (comm)) may have given greater clarity on this point.  In that case, the court was concerned with a non-exclusive jurisdiction clause (whereby the English Court had non-exclusive jurisdiction).  Unsurprisingly, when asked to consider whether Article 31(2) applied in such circumstances, the court concluded that it did not; the clause was clearly non-exclusive.

However, the court did consider (in passing) whether had the clause been one of unilateral exclusive jurisdiction (i.e. one-sided), Article 31(2) could or would have applied. The judge commented that he saw no reason why there should be symmetry in respect of an exclusive jurisdiction clause (i.e. that both parties had to agree to the exclusive jurisdiction of the court of a particular Member State). Indeed, the judge commented that in circumstances where a party had agreed that proceedings would be brought in the court of one Member State, there appeared good reason to hold the party to that obligation to sue in the court of that named Member State.

It appears, therefore, that the scope of Article 31(2) may well extend to unilateral exclusive jurisdiction clauses provided the party seeking to rely on it is the party with the benefit of the relevant clause and prevent what might otherwise be the reintroduction of the Italian torpedo through the back door of a unilateral exclusive jurisdiction clause. This would be a welcome and progressive development.

Brexit will, of course, have a significant impact on the applicability of the recast Brussels Regulation in this jurisdiction. However, even in the event that the regulation ceases to apply in England and Wales, it is inconceivable that materially similar reciprocal arrangements will not be put in place as part of the negotiations. In such circumstances, it is hoped and expected that developments such as this will not be lost or built upon.

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