Exclusive jurisdiction clauses are a common feature of 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.
How does the existing regime work?
- 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. The series of French decisions in the cour de cassation, the highest French court, culminating in Apple (Cass.1ere Civ., October 7, 2015, No 14-16.898), mean that an asymmetrical clause will be enforced by a French court providing that there is an objective standard which limits the choice of jurisdictions covered by the clause. The French courts base this restriction explicitly on purported compliance with the Brussels Regulation, as opposed to issues of purely French law. Courts of other European Member States have not taken a similar view and the English courts have pronounced these clauses as consistent with both English law and the Brussels Regulation. Given the difference of opinion, there is a possibility that
the issue may be referred to the Court of Justice of the European Union (the CJEU). A decision by the CJEU would be binding on all Member States, so that the English courts could be prevented from taking their commercial approach to asymmetrical jurisdiction clauses. 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 remains unclear – 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 CJEU, investors are able to sue issuers and arrangers in their home courts when they have suffered a financial loss in their home jurisdiction. In Kolassa v Barclays Bank plc (Case C-375/13), the CJEU held that where an investor had a securities account with his
bank in his home jurisdiction, that was sufficient for him to suffer the loss there. The CJEU has recently sought to limit this principle, for example in Universal Music v Schilling (Case C-12/15), stating that something above the mere presence of an account is required. Nevertheless, in the absence of clear criteria, there is still a risk that investors could start proceedings in multiple jurisdictions and leave the issuer battling on several fronts.
- 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 proceedings in other jurisdictions from commencing or continuing. The Brussels Regulation is based on equal competence – courts in different countries should all 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. It is up to the court in the other Member State to determine whether it has jurisdiction under the common set of rules set out in the Brussels Regulation and it would not be appropriate for courts in the first Member State to attempt to usurp this jurisdiction by granting an anti-suit injunction. This applies also to arbitrations, even though arbitration is outside the scope of the Brussels Regulation. That is, by being a member of the EU subject to the Brussels Regulation, the English courts have lost the power to grant anti-suit injunctions to restrain proceedings in other Member States in breach of arbitration clauses, 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, as decided in Gazprom (Case C-536/13), 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. So if an arbitral tribunal in London grants an anti-suit injunction, the English courts may then enforce that injunction. This is a slightly tortuous dividing line that may still be revisited by the CJEU.
Negotiating the new regime
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 likely involve a triangulation between three possibilities.
- The UK remaining in the current Brussels Regulation regime (or subject to 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 nonsignatory country.
Wherever the UK ends up within this triangle, in general, English courts will in all probability 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.
If the UK seeks an arrangement that is close to the status quo, it may request a special status as a non-Member State within the Brussels Regulation regime. If this is not politically feasible, perhaps because it would require accepting the continued primacy of the CJEU, the Lugano Convention would be a near alternative. But the EU may not be willing to allow the UK to remain within the existing regime, or something close to it. In that case, the UK could unilaterally decide to sign the Hague Choice of Courts Convention and to rely on its prior membership of the Brussels Convention. This gives a regime that includes a fair degree of reciprocity, especially for exclusive jurisdiction agreements.
The Brussels Convention remains in effect for territories excluded from the Brussels Regulation, but otherwise the Brussels Convention was ‘superseded’ by the Brussels Regulation (see Article 69 of the Brussels Regulation). As a result, it is not entirely clear that the UK would automatically fall back to the Brussels Convention if it is no longer bound by the Brussels Regulation. But, in a sense, it is irrelevant whether there is some doubt over this fallback position: it still gives the UK leverage in any negotiation, in that it would argue that there is a viable network of international agreements that could apply and so any agreement with the EU should be pitched somewhere between the existing regime and what could replace it.
The UK may prefer a solution that allows it to retain its freedom of manoeuvre, at the cost of a looser relationship with the existing international regime. This is the third option, where the UK opts out of international agreements and relies on its domestic rules of conflicts of law and the corresponding rules of other countries. It replaces the deficiencies of the Brussels regime with the limitations of a unilateral position that avoids reciprocity. It is not only an alternative fallback position for the UK in any negotiation – it may be a favoured option if the UK wishes to prioritise control over co-operation.
These three positions represent the likely outer limits of what might be agreed. We consider how exclusive jurisdiction agreements will work for regimes falling within these limits.
How will the new regime work?
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 surely, 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.
The net effect is that wherever the UK ends up, outside or within the Brussels Regulation or Convention or a similar regime, 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 removes the risk that they will be bound by a future CJEU decision not to enforce those clauses. Note that this does not improve the outlook for asymmetric jurisdiction clauses in courts outside the UK and these clauses fall outside the scope of the Hague Choice of Courts Convention. 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.
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.
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