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Luxembourg Court Upholds (1) Pledge Despite Conflicting Spanish Ruling and (2) Asymmetrical Jurisdiction Clause

Luxembourg District Court –Tribunal d'Arrondissement de et à Luxembourg, No 127/14 and No 128/14, 29 January 2014

The Luxembourg District Court has reinforced the effectiveness of financial collateral arrangements governed by Luxembourg law by ruling in favour of the enforceability of a pledge over shares in a Luxembourg bank account, despite concurrent and inconsistent Spanish court proceedings which purported to suspend the pledge. In the same case, the court also confirmed the validity of asymmetrical jurisdiction clauses under Luxembourg law, expressly disagreeing with the French Supreme Court's decision in Mme X v Rothschild. Asymmetrical jurisdiction clauses are commonly used in finance agreements.

Luxembourg has a reputation for the efficiency of its financial collateral arrangements and the favourable legal environment established by the Luxembourg law of 5 August 2005 on financial collateral arrangements, as amended (the Collateral Act).1 For example, Luxembourg courts have held that under the Collateral Act,2 a (Luxembourg) criminal attachment over pledged assets does not prevent the effectiveness of the pledge and its enforcement by the pledgee.3 In addition, courts are not permitted to impose provisional measures that interfere with the enforcement of financial collateral arrangements.4

Consistent with this approach, the Luxembourg District Court's recent rulings have further guaranteed the efficiency of Luxembourg financial collateral arrangements and the rights of secured creditors in an international context, in particular where there are related foreign proceedings.

Two Spanish companies (the Borrowers) granted a pledge over shares (the Pledge) held in accounts opened in the name of the Borrowers with a Luxembourg bank (the Account Bank) to a series of credit institutions (the Lenders) to secure a loan (the Loan). The Borrowers defaulted and went into bankruptcy. Spanish court suspends Pledge

At the request of the administrators, the Commercial Court of Madrid, on a provisional basis, ordered the suspension of the enforcement of the Pledge (the Suspension Order). If the Lenders failed to comply with the Suspension Order, they could face criminal sanctions. The administrators also challenged the validity of certain amendments to the Loan. If this claim succeeds, it will ultimately have an impact on the Pledge, although as at the date of the recent decisions of the Luxembourg District Court, the Spanish Court had not given its ruling.

Lenders serve enforcement notice

Notwithstanding the Spanish proceedings, (some of) the Lenders served a conditional enforcement notice on the Account Bank, stating that the pledge would be enforced through appropriation of the shares, as soon as and to the extent that either (i) the Suspension Order of the Commercial Court of Madrid was lifted, or (ii) a Luxembourg court confirmed that, under Luxembourg law, the Pledge may be enforced and/or the Suspension Order is not recognised under Luxembourg law. The Lenders sought an order from the Luxembourg District Court confirming the validity of the Pledge, that the conditions of enforcement of the Pledge were fulfilled and therefore that the Lenders were allowed to appropriate the pledged shares notwithstanding the Suspension Order.

Luxembourg District Court rules that Pledge is enforceable

In order to challenge the enforcement of the Pledge, the Borrowers argued that the Luxembourg Court could not rule in favour of the enforcement of the Pledge since inter alia (i) the Borrowers went into bankruptcy in Spain, thereby triggering the suspension of any actions against the Borrower, (ii) there are proceedings in Spain challenging the validity of (certain amendments to) the Loan which could ultimately have an impact on the Pledge itself (iii) the Spanish Suspension Order prohibited the Lenders from enforcing the Pledge, and (iv) the non-payment at maturity was not expressly defined as an enforcement event in the Pledge agreement, or in the Loan agreement, so the contractual conditions for enforcement of the Pledge were not fulfilled.

The Luxembourg District Court rejected the Borrowers' claims ruling that:

  • Spanish law concerning the suspension of enforcement actions against a bankrupt company does not affect the Lenders' claims before the Luxembourg Court, as the latter relates to a right in rem in Luxembourg.
  • Spanish proceedings do not affect the effectiveness of the enforcement of the Pledge. The Court emphasised that the Collateral Act was designed to immunise the enforcement of pledges from challenge. Only ex post liability claims as regards, for example, the conditions of enforcement are available.
  • the Suspension Order is provisional, pending a decision as to whether the conditions of enforcement of the Pledge are fulfilled. Such a decision is a matter for the Luxembourg Court anyway, on the basis of the jurisdiction clause in the Pledge.
  • a secured creditor's right to enforce a pledge where a debtor fails to pay is the very essence of a pledge. A secured creditor cannot be deprived of such a right. Any clause that provides for the contrary would be null and void.5

The Luxembourg District Court ruled that the Pledge is enforceable.


This decision reinforces the willingness of the Luxembourg District Court to protect financial collateral arrangements based on the Collateral Act, even in the face of concurrent and inconsistent foreign proceedings.

A novel feature of this case was the court's finding that any clause "depriving" a secured creditor of the right to enforce a pledge on default of payment at maturity must be considered null and void.

The only way for enforcement of a pledge to be challenged is "after the event", with a liability action against the creditor,6 for example a breach of a condition of enforcement of the pledge (eg the creditor enforced its pledge while the conditions of enforcement were not met, or a pledge enforced through an assignment by private sale in an unreasonable commercial manner). The Luxembourg District Court also recently ruled that in the presence of manifest abusive and fraudulent enforcement of a pledge, the return of the appropriated assets to the pledgor can be ordered (fraus omnia corrumpit).7

Validity of asymmetrical jurisdiction clauses

In the same decision, the Luxembourg District Court also contradicted the prominent French Supreme Court ruling in Mme X v Rothschild of 16 September 20128 (covered in the December 2012 European Finance Litigation Review) which struck down an asymmetrical jurisdiction clause governed by Article 23 of the Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation) considering it as potestative. The Luxembourg District Court ruled, to the contrary, that such clauses are valid.

An asymmetrical jurisdiction clause in the Pledge conferred jurisdiction on the Courts of Luxembourg and additionally gave the Lenders the right to initiate proceedings "before any competent court". Relying on the French Supreme Court's decision, the Borrowers argued that the asymmetrical jurisdiction clause was null and void.

The Luxembourg District Court dismissed this argument, finding that:

  • the French Supreme Court decision had been widely criticised;
  • asymmetrical jurisdiction clauses were expressly permitted by the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters of 27 September 1968. The Brussels I Regulation, which replaces the Brussels Convention, does not expressly prohibit such asymmetrical jurisdiction clauses; on the contrary, it implicitly admits them;9 and
  • the contracting parties had equivalent negotiating power so freedom of contract should prevail.


Prior to the French Supreme Court decision, the validity of asymmetrical jurisdiction clause had already been recognised in previous Luxembourg case-law.10 Regulation 1215/2012, recasting the Brussels I Regulation, will apply to proceedings commenced on or after 10 January 2015. It is perhaps a missed opportunity that the recast Regulation does not clarify whether hybrid (or one-way) jurisdiction clauses are permitted under the Brussels Regulation. The French Supreme Court decision invoked ferocious debate about whether or not such clauses are compliant with the Regulation. Given that such clauses are included in many commercial contracts, it would have been very helpful for the commercial sector if this could have been addressed to put the issue beyond doubt. 

See here for an outline of the key changes to the Brussels Regulation.

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