Guidance Paper on the use of Sanctions Clauses 2014

Unilateral Jurisdiction Clauses in International Financial Contracts

Unilateral (or asymmetrical) jurisdiction clauses may vary in form and nature. However, such clauses all provide an option to only one of the parties allowing it to choose the forum for resolving disputes between the parties.

Some unilateral jurisdiction clauses offer one party the ability to bring an action against the other party in any national or state court. Other clauses may contain an arbitration option, allowing only one party the ability to require arbitration of disputes.

The enforceability of unilateral jurisdiction clauses has been upheld in many jurisdictions. However, their validity has been brought into question in a number of European jurisdictions in recent court decisions.

The most significant of those decisions was rendered by the French Supreme Court in Mme X v. Rothschild on 26th of September 2012. It ruled that a unilateral jurisdiction clause was “potestative” and therefore void according to Article 23 of the Brussels Regulation on Jurisdiction, recognition and enforcement of judgments in civil and commercial matters (“Brussels I”). This decision is significant because Brussels I is applied in all 29 Member States of the European Union (“EU”).

The decision by the French Supreme Court has been criticized on a number of grounds. Although the issue has never been considered by the European Court of Justice (the “ECJ”), some commentators are of the view that, had the matter been referred to the ECJ, it may well have concluded that the French Supreme Court misinterpreted Article 23 of the Brussels Regulation for the following reasons:

  • The French Supreme Court did not indicate the respect in which the clause in dispute violated Article 23 of the Regulation, making the basis for its judicial reasoning unclear.
  • The validity of Article 23 should be assessed by reference to the autonomous requirements of this Article, not in reference to concepts of member state laws.3
  • In relation to the validity of a unilateral jurisdiction clause, Article 23 of the Regulation explicitly states that the parties may agree on a type of jurisdiction other than exclusive jurisdiction.
  • Furthermore, commentators have found it to be remarkable that the French Supreme Court has relied on the concept of “potestativité” as this does not relate to jurisdictional issues per se. In addition to this, the use of domestic legal principles of member states to interpret an EU provision has been described as “regrettable”, especially since the purpose of European regulations is to provide for an uniform and predictable legal framework.
  • In its plea against the invalidity of the unilateral jurisdiction clause, it was argued that the court should not invalidate the entire clause even if it concluded that a portion of the clause was invalid. The designation of the court of Luxembourg as the choice of forum was perfectly valid and enforceable by both parties. However, the French Supreme Court ruled out the possibility of partial invalidity and determined that the clause was void in its entirety. In that, its decision is similar to the ones previously rendered by the supreme courts in the Russian Federation and in Bulgaria and referred to earlier in this paper.

In a subsequent decision in 2013, in his defense of unilateral jurisdiction clauses, English High Court Justice Popplewell J. referred to the French decision in Mme X v. Rothschild as “controversial.” In 2014, the Luxembourg District Court also upheld the use of a unilateral jurisdiction clause under Article 23 of the Brussels Regulation, and refused to follow the reasoning of Mme X v. Rothschild, noting that the precursor to Brussels I, the Brussels Convention, expressly permitted such clauses.

In a decision in 2015 the French Supreme Court has decided, again, that unilateral jurisdiction clauses are unenforceable. The decision was given in the context of the Lugano Convention, which determines jurisdiction between EU member states and Switzerland, Norway and Iceland but which, so far as relevant, is the same as the Brussels I Regulation. In a very short judgment, the Court followed suit with its previous decision reached in 2012. The Court criticised the Court of Appeal in that it did not examine the respect in which the unbalance was contrary to the objectives of predictability and legal certainty in Article 23 of the Lugano Convention. The case is now sent back to trial with possibly the new decision to be rendered by the new Court of appeal being itself appealed again to the Court of Cassation. This latest ruling provides some clarity although much uncertainty remains . For example, the ruling does not refer to the protection of consumers (the dispute relates to an international financing agreement) but more in general a prohibition of imbalanced clauses , irrespective of the status of the contracting parties. However, it remains unclear whether forms of asymmetry are banned or whether a more restricted form of a unilateral option could be upheld. An example could be offering the bank, but not the borrower or the guarantor, the option of bringing action either at the place of performance or before its own home country courts.

Recommendations:
As discussed above, there are strong policy reasons for unilateral jurisdiction clauses to be upheld.

However, in light of the uncertainty arising out of recent rulings, the ICC Legal Committee proposes:

  • For the ICC Banking Committee to call on the competent European authorities to provide clarity on the validity of unilateral jurisdiction clauses
  • Meanwhile, for banks and their customers to exercise caution when relying on these clauses pending clarification by the European Court of Justice or a next revision of the Brussels 1 Regulation. Particularly where there is a continental European nexus, lenders should consider using asymmetrical clauses (i) only if necessary and (ii) after determining that these clauses are valid under the laws of the jurisdictions concerned i.e. the law of the agreement, the laws of the jurisdictions where claims can be filed under the agreement and the law of the jurisdictions where the award or the judgment are to be enforced.
  • Alternatively, other options than unilateral jurisdiction clauses could be considered, such as (i) symmetrical (mutual) submission by the lender and obligor to the exclusive jurisdiction of courts of a specified country or arbitration body; (ii) symmetrical (mutual) submission to non-exclusive jurisdiction of courts of a specified country or arbitration body and/or (iii) an option for either party to bring an enforcement action against the other party in any jurisdiction in which such other party has assets.