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English jurisdiction agreement in bond prospectus: does it bind a secondary market purchaser?

The Court of Justice of the European Union (CJEU) has considered the circumstances in which an English jurisdiction clause contained in a prospectus concerning the issue of bonds might be enforceable against a purchaser of those bonds in the secondary market.  In Profit Investment Sim SpA (in liquidation) v Ossi (C-366/13), 20 April 2016 the CJEU provides some interesting observations as to what constitutes an effective exclusive jurisdiction clause for the purposes of Article 23 of EC Regulation No. 44/2001(Brussels Regulation). 

The Brussels jurisdictional regime in civil and commercial matters (ie the Brussels Regulation and its successor the Brussels Recast Regulation1) is founded on the principle that the rules of jurisdiction should be ‘highly predictable’ and generally based on the defendant’s domicile. This regime, however, acknowledges that exceptions to this general principle must be available ‘in a few well defined situations in which the subject matter of the dispute or the autonomy of the parties warrants a different connecting factor’.2

In Profit Investment, the CJEU considered one such exception: Article 23 of the Brussels Regulation. Article 23 provides that if parties (one or more of whom is domiciled in a Member State) have agreed that the courts of a  Member State are to have jurisdiction to settle any disputes which arise in connection with a particular legal relationship ‘those courts shall have jurisdiction’.3 Although the CJEU determined the issue under the old Brussels Regulation, the central provisions under consideration are materially unchanged in the Recast Regulation (the requirement that at least one of the parties to the jurisdiction clause be domiciled in a Member State has fallen away under the Recast Regulation).

Credit-linked notes sold on secondary market

This dispute concerned credit-linked notes (the Notes) issued by Commerzbank and subscribed for on the primary market by a financial intermediary, Redi. The Terms and Conditions of the Notes, which were in the  prospectus, included the provision that “[t]he Courts of England have exclusive jurisdiction to settle any dispute arising from or connected with the Notes”. The prospectus was approved by the Irish Stock Exchange and was available to the public on the website of the Irish Stock Exchange. Redi subsequently sold the Notes to Profit Investment, a company governed by Italian law, on the secondary market. When the entity to which the Notes were linked failed to meet a payment obligation, Commerzbank gave notice of a credit event, which brought about the compulsory administrative liquidation of Profit Investment.

Italian court refers jurisdiction questions to CJEU

Profit Investment issued proceedings in the Milan District Court against Commerzbank (and others) seeking (among other things) a declaration that the agreements under which Profit Investment acquired the Notes were a nullity on the grounds of an ‘imbalance of the contract, insufficient or lack of consideration’ and consequently sought restitution of the sum paid. In response, Commerzbank challenged the jurisdiction of the Italian court relying on the exclusive English jurisdiction clause in the prospectus.

The Italian court stayed its proceedings and referred three questions to the CJEU. Of primary relevance is the first part of the second question, which asked, in effect, whether the English jurisdiction clause in the terms and conditions set out in the prospectus bound a secondary market investor. The question posed was:

‘Can the requirement that the agreement conferring jurisdiction be in written form, as laid down in Article 23(1)(a) of Regulation No 44/2001, be said to be satisfied where such an agreement is inserted into the [prospectus] that has been created unilaterally by a bond issuer, with the effect that the prorogation of jurisdiction is made applicable to disputes involving any future purchaser concerning the validity of those bonds?’

Was a jurisdiction clause in a prospectus ‘in writing’?

Where parties have agreed that the courts of a particular Member State have jurisdiction to settle disputes, under Article 23 such a jurisdiction clause must satisfy one of three requirements.  One such requirement is that the agreement is ‘in writing or evidenced in writing’.4

As the CJEU noted, Article 23 does not indicate whether a jurisdiction clause may be transmitted beyond the parties to a contract, to a third party, who is party to a subsequent contract.5 It is that question that the CJEU sought to answer first.  Recognising that Article 23 gives primacy to an agreement between the parties, the CJEU asked whether it could be said that the parties to the primary market transaction (ie the issuer and the financial intermediary) had agreed to the English jurisdiction clause contained in a prospectus produced by one party. Referring to settled case law, the CJEU held that consensus between the parties must be ‘clearly and precisely demonstrated’6 and noted that the ‘in writing’ requirement was not met where a jurisdiction clause was included among one party’s general conditions of sale printed on the back of a contract, unless the contract contained an express reference to the general conditions.7 On that basis, the CJEU concluded that where a jurisdiction clause is included in a prospectus, the ‘in writing’ requirement of Article 23(1)(a) is satisfied only if the contract signed by the parties upon the issue of the bonds on the primary market expressly mentions the acceptance of that clause or contains an express reference to the prospectus.

Did the jurisdiction clause bind a secondary market purchaser?

The CJEU then went onto consider8 whether a jurisdiction clause, validly agreed in the contract concluded between the issuer of a bond and the subscriber for that bond (ie the primary market transaction), could be enforceable against a party who subsequently acquired the bonds from the subscriber without expressly consenting to the clause. To answer this question, the CJEU again turned to European case law.

In the context of bills of lading, it has been held that a jurisdiction clause can be relied upon against a third party if: (1) the clause is valid as between the carrier and the shipper; and (2) under the relevant national law, the third party on acquiring the bill of lading succeeded to the shipper’s rights and obligations.9 In the share subscription context, the CJEU has also held that, on becoming a shareholder, the shareholder is bound by a jurisdiction clause in the statutes of the company provided that the statutes are lodged in a place to which the shareholder has access.10

Having regard to this case law, the CJEU set out three requirements that it felt should be met for a secondary market purchaser of bonds from a financial intermediary to be bound by a jurisdiction clause in the issuing prospectus:

  • the clause is valid as between the issuer and the financial intermediary;
  • the third party, by acquiring those bonds on the secondary market, succeeded to the financial intermediary’s rights and obligations attached to those bonds under the applicable national law; and
  • the third party had the opportunity to acquaint himself with the prospectus containing that clause.

Where these three requirements are met, a secondary market purchaser will be deemed to have agreed to a jurisdiction clause in the prospectus and therefore will be bound by it should that purchaser later seek to bring any proceedings in relation to the bonds. The CJEU remitted the issues back to the Italian courts to consider these questions further.

The CJEU also considered an alternative requirement, namely, that in international trade or commerce, a jurisdiction agreement can be ‘In a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned’  (Article 23(1)(c)). The Court concluded that actual or presumed awareness of a usage on the part of the parties may be demonstrated by showing that parties had previously had commercial or trade relations between themselves, or with other parties operating in the sector in question, or that in that sector a particular course of conduct is sufficiently well known in that sector that bonds ‘generally and regularly accompanied by a prospectus containing a jurisdiction clause and whether that practice is established’.


In March 2015 we covered the CJEU’s decision on jurisdiction in another prospectus liability case, Kolassa v Barclays Bank plc11. Kolassa also concerned a claim brought against an issuer (Barclays Bank) by a secondary market investor (Mr Kolassa) who had purchased index certificates from a financial intermediary ( However, the CJEU’s consideration of jurisdiction in Kolassa focused upon different provisions of the Brussels Regulation; Article 23 was not in issue. This is because there was in that case no contractual nexus between the claimant and the issuer – the financial intermediary held the certificates, as covering assets, in its own name. Mr Kolassa was not the bearer of the bonds. In the absence of that contractual nexus, the court did not consider the jurisdiction clause in the prospectus, which explains the disparate approach taken by the CJEU to the question of jurisdiction in claims against issuers brought by secondary market purchasers.

The Profit case is an interesting decision of the senior European court considering documentation familiar to many clients. The CJEU guidance on the potential enforceability of a jurisdiction clause contained in a prospectus in a secondary market purchase certainly gives scope for argument that third parties are bound (although the ultimate decision was referred back to the Italian courts for further consideration) and hints at (perhaps unexpected) flexibility in the test.  Whilst dependent on the facts, the CJEU’s observations concerning trade usage may be helpful to those seeking to demonstrate a purchaser in the secondary market is bound by a jurisdiction clause included in the terms and conditions of notes. The decision also raises the prospect of a more detailed factual investigation by the courts at a preliminary stage of proceedings.


1.Regulation (EU) 1215/2012.
2. See Recital 15 of Brussels I Recast and Recital 11 of Regulation No. 44/2001.
The requirements of Article 23 of Regulation No. 44/2001 (Prorogation of Jurisdiction) are repeated in Article 25 of Brussels I Recast. However, the previous regulation continues to apply to proceedings (such as this one) commenced before 10 January 2015. For consistency with the judgment, we will refer to Article 23 but unless stated otherwise,  our comments are equally applicable to Article 25 of Brussels I Recast.
Article 23(1)(a). Alternatively, the agreement as to jurisdiction may be in a form which accords with practices which the parties have established between themselves (Article 23(1)(b)); or in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned: Article 23(1)(c).
See paragraph 23.
See paragraph 27.
Estasis Saloti di Colzani, 24/76, EU:C:1976:177, paragraph 10.
It is important to note that this second step will not be necessary if the secondary market contract expressly accepts or refers to the exclusive jurisdiction clause, in which case it will be enforceable against the third party.
See the judgments listed at paragraph 33, the most recent of which is Refcomp C-543/10, EU:C:2013:62.
See paragraph 34 and Powell Duffryn, C-214/89, EU:C:1992:115

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