Exclusive jurisdiction clauses are key to effective cross-border trade. The existing regime for enforcement of exclusive jurisdiction clauses in the UK and throughout the EU contains some areas of uncertainty but is, overall, sufficiently robust to be used with confidence. Similarly, while any new regime post-Brexit will not be perfect, it will be robust enough for everyday use and may even avoid some of the problems of the existing regime.
Exclusive jurisdiction clauses are recognised in the UK (and throughout the EU) by virtue of Article 25 of the Brussels Regulation. This requires courts in the EU to recognise a submission to jurisdiction agreed in a prescribed form by the parties in favour of the courts of a Member State. Even though Article 25 and its predecessors have been relied on by commercial and banking counterparties for many years, it is not free from legal risk. For instance:
- asymmetric jurisdiction clauses: following decisions by the French courts, there is some doubt as to the efficacy of jurisdiction clauses that benefit only one party to a contract, as a matter of European law as well as French law. This is a legal risk for banks that commonly incorporate these types of clauses in their loan agreements.
- choice of non-Member State courts: although Article 25 only explicitly refers to the courts of a Member State, it has been accepted by the courts at European and national level that a choice of the courts of a non-Member State is also effective. However, the basis for this rule is still not entirely clear – it may be that the Brussels Regulation must be interpreted so as to apply to this situation, or it may fall to individual national rules that, in turn, generally respect choice of court agreements.
- prospectus liability: as a result of recent decisions of the Court of Justice of the European Union (CJEU), investors are often able to sue issuers and arrangers in their home courts. Although the CJEU has also attempted to set out criteria for exclusive jurisdiction clauses to bind third parties, it is unclear how these criteria apply to investors in securities held through the international clearing systems. This is a significant legal risk for banks arranging and issuing securities in the European capital markets.
- torpedoes: under the predecessor to the Brussels Regulation, an exclusive jurisdiction clause could be ‘torpedoed’ by starting proceedings in the courts of another Member State, so that the chosen Member State would have to wait until the first court decided that it did not have jurisdiction, a process that could take years. Although this loophole is now closed, a new provision of the Brussels Regulation may give a similar timing advantage for proceedings started in a non-Member State (Article 33 – 34).
- anti-suit injunctions: this is an injunction granted by the court given exclusive jurisdiction to prevent other proceedings from commencing or continuing. The Brussels Regulation is based on equal competence – courts in different countries should agree on which country has jurisdiction – and so Member States are largely prevented from granting anti-suit injunctions in respect of proceedings in other Member States. This applies also to arbitrations, even though arbitration is outside the scope of the Brussels Regulation. The limits of this ban have been considered several times by the CJEU – currently, a court may grant an anti-suit injunction to restrain proceedings in another Member State where it is enforcing an arbitral award, even though it would not have the power to do so otherwise. This is a slightly tortuous dividing line that may still be revisited by the CJEU.
These current imperfections cannot be compared with the future post-Brexit arrangements because, of course, those arrangements have yet to be determined. Nevertheless, the parameters of negotiations to agree those arrangements are foreseeable. In particular, they will involve a triangulation between three possibilities:
- the UK remaining in the current Brussels Regulation regime (or the closely related Lugano Convention);
- a fallback to the Brussels Convention (which would probably apply in the absence of any agreement) possibly supplemented by signing up to the Hague Choice of Courts Convention;
- opting out of all international agreements so that the UK applies its previous common law rules and other countries apply their existing rules, treating the UK as a non-Member State or equivalent non-signatory country.
Wherever the UK ends up within this triangle, in general, English courts will continue to respect an exclusive choice of the courts of another country and courts within the EU will continue to respect the choice of English courts.
Any of the Brussels Convention, the Lugano Convention, the common law or some amalgam of those will provide for English courts to stay their proceedings in favour of another country chosen by the parties. The modalities of expressing that agreement and allowable exceptions may vary slightly from the current position. For instance, if English courts were no longer bound by international conventions, there might be more scope for stays to be refused on discretionary grounds – although the English courts would no doubt take a commercial approach to the exercise of any discretionary powers.
Similarly, whether the UK is a Brussels Convention state, a Lugano Convention state, or simply a non-Member State within the ambit of the Brussels Regulation, EU Member States will, in general, continue to respect exclusive jurisdiction clauses selecting the English courts. It may be that this is via their own national conflicts of law rules rather than international convention. It may be that this leads to increased scope for ‘torpedoes’ or other delaying tactics if the UK becomes just another non-Member State. However, if the UK’s negotiated position is outside the Brussels regime, then it is likely that it will once again be able to use anti-suit injunctions. This powerful weapon to compel compliance with an exclusive jurisdiction clause was largely removed from the arsenal of the English courts by the Brussels Regulation, as set out above.
To the extent that the UK ends up within the Brussels Regulation or Convention or a similar regime, the English courts may be restricted in their ability to grant anti-suit injunctions, but foreign courts will be compelled to recognise English exclusive jurisdiction clauses in accordance with uniform international norms substantially similar to those in force today. To the extent that the UK ends up outside any of those regimes, foreign courts may be more variable in respecting English exclusive jurisdiction clauses – although most countries will still do so, in accordance with their own rules, most of the time – but the English courts will have far more power to compel compliance using anti-suit injunctions. The net effect is that wherever the UK ends up, the legal risk of foreign non-compliance with English exclusive jurisdiction clauses will be little changed.
The other legal risks identified above – that is, the imperfections in the current system – may actually be reduced by any post-Brexit arrangement. English courts have supported asymmetric jurisdiction clauses of all types. If English courts post-Brexit are not subject to decisions of the CJEU, that entirely removes the risk that they will be bound by a future CJEU decision not to enforce those clauses. The extension of prospectus liability set out above only applies when the court that would otherwise have jurisdiction is located in a Member State. If UK issuers and arrangers are located in a non-Member State, this risk is inapplicable.
There is a trade-off. A position close to the status quo accepts the legal risks in the current consensual system. Moving towards a less consensual, more competitive, approach gives the opportunity to eliminate the existing risks but might create new awkward situations. Taking advantage of other international conventions adds another dimension to any negotiations that could help preserve freedom of action while limiting any new risks.
In short, exclusive jurisdiction clauses will continue to operate in the post-Brexit world. There will be uncertainties and inconsistencies – but these will be of a similar order of magnitude to those in the existing international regime and will not prevent the continuing orderly use of these clauses in international trade.