Asymmetric jurisdiction agreements – are they effective against “torpedo” actions in another court?

What is an asymmetric jurisdiction agreement?

An asymmetric jurisdiction agreement is a common type of jurisdiction agreement. It allows one party (normally a lender) to bring proceedings anywhere, while the other party (normally a borrower) is restricted to bringing proceedings in one jurisdiction only. 

Competing claims in Germany and England

Flother (the insolvency administrator of Air Berlin) started proceedings in Germany despite the asymmetric jurisdiction agreement, in a loan agreement between Air Berlin and Etihad, providing that the English court had exclusive jurisdiction over the related claim made against Etihad. Etihad then started proceedings in England, and Flother applied for the English proceedings to be stayed on the basis that the German court was first seised under the “first in time” provisions of the Brussels Recast (the Brussels Recast).¹

Etihad relied on Article 31(2) Brussels Recast which allows a court second-seised (such as the English court in this case) to proceed to hear a claim where it is the court specified in an exclusive choice-of-court agreement (and provides that the first-seised court shall (i) stay its proceedings until such time as the second-seised court determines that it has no jurisdiction and (ii) decline jurisdiction if the second-seised court establishes it). Etihad’s position was that an asymmetric jurisdiction agreement is “exclusive” for the purposes of Article 31(2). 

Asymmetric jurisdiction agreement is an exclusive jurisdiction agreement that trumps first-in-time provisions of Brussels Recast

The Court of Appeal noted that there is nothing in the wording of Article 31(2) Brussels Recast to suggest that asymmetric agreements fall outside the scope of an exclusive jurisdiction agreement. The Court of Appeal also referenced the policy objective behind the introduction of Article 31(2), noting that failing to view asymmetric agreements as being in the ambit of Article 31(2) would mean “the path remain[ed] wide open for the kind of abusive litigation tactics [this Article] was admittedly designed to counter”.

The Court of Appeal found Article 31(2) was engaged and accordingly the English High Court had been correct in dismissing Flother’s jurisdictional challenge and the English proceedings should continue. 

Asymmetric jurisdiction agreements and the Hague Convention

The Court of Appeal also made some obiter comments about whether asymmetric jurisdiction agreements fall within the scope of the Hague Convention. 

Until the UK is allowed to accede to the Lugano Convention post-Brexit, the only applicable multilateral regime on jurisdiction and judgments between the UK and the EU for new disputes is the Hague Convention. The Hague Convention requires Contracting State courts to respect exclusive jurisdiction agreements in favour of other Contracting State courts and to enforce related judgments, but it is more limited in scope than the Brussels Recast regime or the Lugano Convention. It applies only where parties have (after the date on which the Hague Convention came into force) chosen an exclusive jurisdiction agreement – whereas Brussels and Lugano recognise both exclusive and other jurisdiction agreements. 

Although asymmetric agreements have traditionally been considered by commentators to be outside the scope of the Hague Convention, Cranston J’s obiter comments in Commerzbank v Liquimar² as well as Jacobs J’s remarks at first instance in this case,³ had suggested a different view. While emphasising that it was not deciding the point, the Court of Appeal said that it was prepared to proceed on the basis that the Hague 2005 Convention should probably be interpreted as not applying to asymmetric jurisdiction agreements. The court cited Hartley and Dogauchi’s explanatory report⁴ as “a strong indication” that asymmetric agreements fall outside the Hague Convention. The Court of Appeal also observed that in the Diplomatic Minutes of the Meeting between delegates a proposed amendment to define an exclusive choice-of-court agreement as being “for some or all of the parties” was debated but withdrawn after receiving no support. 

Comment

A familiar complaint among commercial parties about the operation of the Brussels Regulation (the predecessor of the Brussels Recast) was about the rigid “first-in-time” rule, which required Member State courts to give priority to the courts “first seised”, even where those courts had been seised in breach of a jurisdiction agreement (the tactic became known as a “torpedo”).

The “torpedo busting” Article 31(2) of the Brussels Recast is an exception to the first-in-time rule where the court second seised has been chosen in an exclusive jurisdiction agreement. Given the extensive use of asymmetric jurisdiction agreements in finance contracts, this decision clarifies that as far as the English courts are concerned, this exception for exclusive agreements includes asymmetric agreements too.

Following the end of the transition period at 11pm on 31 December 2020, the Brussels Recast is no longer applied in the English courts, save for legacy cases. There is therefore unlikely to be much, if any, further litigation before the English courts concerning Article 31(2).⁵ The Court of Appeal’s decision will, though, be of interest to commercial parties litigating in Member State courts; its ruling is in line with previous decisions from other Member State courts on this exact same question. Etihad was successful in obtaining a stay of the German proceedings at both first instance and on appeal but a further appeal has been allowed and it is possible the issue of asymmetric jurisdiction agreements and Article 31(2) may be the subject of a reference to the CJEU.

The Court of Appeal’s obiter comments on asymmetric agreements and the Hague Convention are arguably of greater interest to commercial parties litigating before the English courts going forward than the findings on the Brussels Recast. We have already detected some parties moving from using asymmetric agreements to exclusive jurisdiction agreements to leave no room for doubt as to whether they fall within the Hague regime. This decision may encourage that trend.

One final Brexit-related point: the UK Government has applied to re-accede to the Lugano Convention and awaits the EU’s consideration of its membership. The Lugano Convention does not contain a torpedo exemption where there is an exclusive jurisdiction agreement, instead providing the unreformed “first-in-time” rules found in the Brussels Regulation. While we await news of the UK’s application, it may be said in this context that re-accession may turn out to be a case of two steps forward, one step back.

Read more about the impact of Brexit on jurisdiction and enforcement of judgments.

Footnotes

<sup>1. Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
2. Commerzbank Aktiengesellshcaft v Liquimar Tankers Management and another [2017] EWHC 161 (Comm).
3. https://www.allenovery.com/en-gb/global/news-and-insights/publications/asymmetric-jurisdiction-agreements-and-multiple-related-agreements 
4. Hartley and Dogauchi write in their report: “It was agreed by the Diplomatic Session that, in order to be covered by the Convention, the agreement must be exclusive irrespective of the party bringing the proceedings. So agreements of the kind referred to in the previous paragraph [ie asymmetric agreements] are not exclusive choice of court agreements for the purposes of the Convention”.
5. An application for permission to appeal to the Supreme Court has been made in this case.</sup>

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. If you wish to receive this publication, please contact Amy Edwards, amy.edwards@allenovery.com