Enforcing English law judgments in the EU following Brexit
Recognition and enforcement of exclusive jurisdiction clauses and asymmetric jurisdiction clauses post Brexit
Global | Video | September 2021 | 8:34
|Nick Grandage||Hello, my name is Nick Grandage and I am here with Adam Sanitt, our knowledge director in the disputes team. In the first video of this series, we talked about the legislative backdrop and the launch of our EU cross-border guide. In this video we are going to focus more specifically on recognition and enforcement of exclusive jurisdiction clauses and asymmetric jurisdiction clauses post Brexit.
So Adam in the last video we talked about the Hague Convention to which the UK is a signatory and its application to exclusive jurisdiction clauses. Like many lawyers I’ve grown up used to asymmetric jurisdiction clauses i.e. one sided jurisdiction clauses where particularly, traditionally a financial institution has the right to take proceedings in any Court, assuming it has competent jurisdiction but restricting obligors to taking proceedings in typically the English Courts only. That continues to be the default position in the LMA industry standard documentation and I think it is fair to say it’s also the default position in most of the cross-border secured financing transactions that we see in practice. Why is this do you think and should clients be concerned about recognition of asymmetric clauses in EU member states post Brexit? This is one of the question covered in our cross-border guide.
|Adam Sanitt||Yes, well firstly asymmetric clauses are a useful and powerful tool. You talked about particularly financing arrangements that’s typical for lenders say who want to have the flexibility to be able to take action in a particular jurisdiction (where that has been chosen by both parties and where they know that jurisdiction will be accepted by the Courts) but also on top of that, to have the option to take proceedings directly in other jurisdictions where borrowers or related parties might be located or where there might be assets. So that is the reason that those clauses exist and are used and valued and so therefore any risk to the efficacy of those clauses is something that counter-parties should be concerned about.
We discussed before how the Hague Choice of Courts Convention provides a safe harbour for exclusive jurisdiction clauses and allows those jurisdiction clauses to be accepted by Courts and to be enforced in the different jurisdictions but unfortunately the Hague Choice of Courts Convention doesn’t necessarily apply to asymmetric jurisdiction clauses. In particular, there are cases going one way and the other way (it hasn’t been definitively decided either in the English Courts or in the Courts of EU member states) and so therefore a cautious approach is probably to assume that asymmetric clauses would not fall within that safe harbour. That doesn’t mean that they wouldn’t then be enforced, or that the contracts that contain those clauses, that the Courts wouldn’t take account of them. It just makes the analysis more complex. In fact, there have been question marks over the years in relation to asymmetric clauses, even independently of Brexit, so parties are used to conducting that sort of analysis but now they will have to do it in light of Brexit as well and if you are not able to use the Hague Choice of Courts Convention, then instead you will look in EU member states to the Brussels regime and through to the local laws of particular member states and exactly the sorts of issues that are in fact dealt with in our cross-border guide on this topic.
|Nick Grandage||The Loan Market Association have also provided for an optional two-way jurisdiction clause also known as a Hague Convention clause even though as we’ve discussed, an asymmetric clause is normally more appropriate for cross-border secured finance deals. What are the limited circumstances where that clause might be more appropriate?|
|Adam Sanitt||So as we have said, an asymmetric clause is a useful and powerful tool. When might you nevertheless want to go for the symmetric clause? One that will definitely fall within the Hague Convention and the safe harbour there so that you know that it works. Well there might be certain specific practice areas (aviation is an example where due to international treaties or technical reasons they might want to depart from the asymmetric standard) but apart from that they are two general questions: firstly, is there a problem in enforcing a judgment that has been obtained in the Court that is actually named in the exclusive part of the asymmetric jurisdiction clause? For instance, if you name England as the choice so you can go to the English Courts, is there a problem enforcing that in an EU member state where a borrower is located or there is security or some other reason you want to enforce there? That is probably going to be a question of the local law of that country which again, we cover in our cross-border guide. Only if that is a problem, then you would then ask another question which is can you then under the asymmetric clause go directly to that country, to that EU member state and proceed there? Because of course, you have the benefit of the asymmetric clause, which allows you to go in directly in other jurisdictions and not via the specific one that’s been chosen. It’s only if you’ve got a problem with that as well which again is going to be a question of the local law of the country, that in both those situations where there’s a problem, you might consider defaulting back down to the symmetric Hague Convention clause. So it’s a sort of multifaceted complex question. It depends on the particular circumstances and it’s only quite a narrow set where you will actually go to a symmetric clause.|
|Nick Grandage||One of the interesting things that we talk about in the guide is exactly when the UK became a signatory to the Hague Convention and the divergence of views of the UK and the EU on this point. What’s the issue at debate and does it matter in practice?|
|Adam Sanitt||This is another really good example of how we are now having to deal with slightly more complexity that might not make a difference in practice. It’s only a limited set of circumstances. There’s essentially a difference of opinion as to the starting date of the UK’s accession to the Hague Convention. The competing dates are 1st October 2015 and the start of this year (the end of the Brexit transition period). From the UK perspective, it is quite clear that the appropriate date is 1st October 2015 (that is in the relevant legislation and it’s mentioned in the notes of the accession that the UK has made to the Convention) but from the EU side there are suggestions (and the EU Commissioner has expressed the opinion) that in fact 1st of January this year is the appropriate date and that’s yet to be decided by Courts in the EU. It could ultimately go to Court of Justice of the EU.
What that then actually effects is contracts that have been entered into between those dates; contracts entered into between 1st of October 2015 and this year. For those contracts (and only those contracts) there is a question mark as to whether they would fall within the Hague Convention and be able to take advantage of that safe harbour. If they don’t, you’re back to that more complex analysis using the Brussels regime and local laws. So it’s a sort of limited effect in practice but it’s a good example of the added complexity that we are dealing with now.
|Nick Grandage||Thank you Adam and thanks for watching. Of course, you can find more detail about the issues we have talked about today in our cross-border guide.|
Head of Disputes Knowledge, Innovation and Business Support, Europe, Middle East and Asia