Asymmetric jurisdiction clause confers exclusive jurisdiction

Asymmetric jurisdiction clause confers exclusive jurisdiction

Published:

Author: Adam Chamberlain and Daniel Barrett-Nembhard

Applies to: England and Wales

The High Court has ruled that the asymmetric jurisdiction clauses in a series of finance documents confer exclusive jurisdiction for the purpose of the Recast Brussels Regulation.

Background

Common in international financial agreements, including standard Loan Market Association documentation, the efficacy of the asymmetric jurisdiction clause ('AJC') has recently been uncertain. Save for variances in drafting, generally speaking, the AJC provides that in the event of a dispute, Party A can bring a claim in any 'competent jurisdiction', meaning they are not confined to one. Conversely, Party B can only bring a claim in one specified jurisdiction.

Concerns surrounding the AJC are twofold. Its overall validity has been questioned in several jurisdictions namely, France, Bulgaria and Poland. Additionally, it is uncertain whether the AJC is considered to confer 'exclusive jurisdiction' for the purpose of the Recast Brussels Regulation ('RBR') given that one party remains at liberty to bring proceedings in other jurisdictions.

The Regulation

Under Article 29 of the RBR, where concurrent proceedings relating to the same cause of action are brought in different member states, all other courts but the first court seised must stay their proceedings in favour of the first.

However, Article 25(1) provides for exclusive jurisdiction where parties have agreed that a court (or courts) of a member state should have jurisdiction to settle a dispute. Exclusive jurisdiction would mean that, by virtue of Article 31(2) and (3), all other courts shall stay any parallel proceedings and decline jurisdiction, even though the court with exclusive jurisdiction may not have been the first court seised.

Central to the RBR is the idea of party autonomy and that, where parties have contractually agreed for exclusive jurisdiction, the law should ensure it is upheld.

Facts

The High Court case of Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc and another [2017] EWHC 161 (Comm) considered whether an AJC conferred exclusive jurisdiction for the purpose of the RBR.

The claimant, Commerzbank Aktiengesellschaft ('C'), entered into a number of loan agreements with ship owning companies managed by Liquimar Tankers Management Inc. ('L') including Pauline Shipping Ltd ('P'). Some of these loans were guaranteed by L.

The guarantee and finance documents contained AJCs in broadly similar terms which provided that in the event of a dispute raised by L, the English courts have exclusive jurisdiction. C, conversely, was at liberty to commence proceedings in any court with 'competent jurisdiction'.

Following events of default, a forbearance agreement led to the sale of vessels financed by the loans but amounts remained outstanding to C and in June 2015 C warned L of its intention to commence proceedings.

In June and December 2015, prior to C bringing proceedings, two proceedings were brought in Greece by L and P against C. The first sought an order that a guarantee given by L was discharged and the second was a claim for damages in relation to a ship's arrest which prevented P's use of the ship and, allegedly, caused reputational loss to both P and L.

In May and September 2016, C issued proceedings in England enforcing the terms of the guarantee. C also sought declarations from the English court and damages on the basis that L and P had breached the AJCs in the loan agreement / guarantee / forbearance agreement by pursuing a claim in Greece.

L and P applied to the English courts to stay the claims contending, as their core argument, that the AJCs did not confer exclusive jurisdiction for the purpose of Article 31 RBR and therefore all claims subsequent to the first were to be stayed under Article 29.

Decision

L's application to stay the proceedings was refused on the basis that the AJCs were exclusive jurisdiction agreements for the purpose of the RBR and accordingly, the English courts were at liberty to continue to adjudicate.

Considered holistically, the parties agreed that UK courts should have exclusive jurisdiction, the fact that this only applied to claims by one party did not detract from its overall effectiveness or ability to confer exclusivity.

Cranston J considered that the issue was not one of English law, it was one of 'autonomous interpretation of the RBR'. The High Court saw no reason to apply a narrow interpretation to the RBR and, in any event, this finding was consistent with 'party autonomy' - being an aim of the RBR by virtue of Recital 19.

Comment

AJCs are, and will continue to be, a popular type of jurisdiction clause in financing agreements. The decision indicates that, in the context of the RBR, the UK courts are likely to interpret AJCs in commercial agreements as exclusive jurisdiction agreements. For this reason, the decision will be most welcomed by all forms of institutional and retail lender.

It's important that lenders who continue to use these types of clauses are mindful of the courts on which exclusive jurisdiction is conferred and the jurisdictions in which obligors are domiciled as, in the continued absence of a binding decision by the European Court of Justice, courts across the Members States may continue to differ in their approach to AJCs.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.