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Continuing uncertainty regarding hybrid jurisdiction clauses

Hybrid jurisdiction clauses (also known as asymmetric or one-way jurisdiction clauses) are widely used in international finance contracts, though there remains unwelcome uncertainty across Europe as to the validity of these ubiquitous clauses. Such clauses are enforceable in the English courts (and have been upheld in recent years by the courts of Luxembourg, Italy and Germany). However, as previously reported, the French Supreme Court has found a hybrid jurisdiction clause in commercial contracts invalid not just once, but twice (in 2012 Mme X v Rothschild and in 2015 ICH v Credit Suisse). In November 2015, the French Supreme Court again considered a hybrid clause, on this occasion finding it enforceable. As discussed below, this recent decision provides little reassurance to finance parties regarding the potential vulnerability of these clauses.  

Significantly, when the French Supreme Court ruled that hybrid clauses were invalid in 2012 and again in March 2015, it did so by reference to EU laws (the Brussels Regulation and the Lugano Convention) which bind all Member States, including the United Kingdom. The jurisdiction clauses under scrutiny were struck down in their entirety. Whilst the French Supreme Court decisions are not binding on the English courts (or the courts of other Member States), the decisions were unsettling and provoked debate in legal circles beyond France.

When the French Supreme Court again considered a hybrid jurisdiction clause in November 2015 (eBizcuss.com v Apple Sales International), the clause under scrutiny differed from those considered in earlier decisions. The clause provided: "…the parties shall submit to the jurisdiction of the courts of the Republic of Ireland. Apple reserves the right to institute proceedings against Reseller in the courts having jurisdiction in the place where Reseller has its seat or in any jurisdiction where a harm to Apple is occurring" (unofficial translation). The clause also differed from the standard formulation found in finance documents.
 
As background to this more recent decision, eBizcuss commenced proceedings against various Apple entities in France. Apple then challenged jurisdiction and the French Supreme Court upheld the challenge, concluding that the jurisdiction clause (which required the reseller to initiate proceedings in Ireland) was valid, stating: "the Court of Appeal validly found that this clause, which permitted the identification of the Courts that would potentially have to dispose of a dispute between the parties relating to the interpretation or performance of the contract, complied with the foreseeability principle that jurisdiction clauses must meet" (unofficial translation). The emphasis on the "foreseeability" principle suggests it was not the asymmetry in the clause that was the difficulty, but rather the court was concerned as to whether one could identify in advance which courts might have to resolve any dispute arising. Whilst the matter is not beyond doubt, it seems that to satisfy this "foreseeability principle" a clause would have to set out the criteria for determining which courts should have jurisdiction when a dispute arises and that those criteria should be objective, external criteria and not within the control of one party.  
 
However, there are difficulties with this reasoning. Is it really any more certain and foreseeable which courts will have jurisdiction in a clause formulated in this way rather than a clause that simply refers to "any court of competent jurisdiction" (a formulation which French Supreme Court has found invalid on two occasions)? In many financial contracts, it will be unclear where harm is sustained, and it may be sustained in multiple places. There are also complexities as to whether the courts in the jurisdiction in which the harm might be suffered would actually have jurisdiction and allow proceedings to be brought before them. 
 
The reformed (Recast) Brussels Regulation1 which has been applied by Member State courts from January 2015 does not address the issue of hybrid clauses. 
 
The perceived benefits of forum shopping seem undimmed in litigants' eyes – the number of jurisdictional disputes appears to continue on an upward trend. If a jurisdiction clause is found to be void, finance parties face unwelcome uncertainty over where they can sue and be sued. Banks may face the prospect of being sued by a borrower in an unfamiliar jurisdiction or having to pursue a borrower in the borrower's local courts under default EU jurisdictional rules which (broadly) require a claimant to sue in the defendant's place of domicile (although this rule is subject to a series of exceptions). 
 
Given the fragmented position across Europe and the continuing lack of CJEU authority, the inclusion of hybrid jurisdiction clauses in international transactions should not be a matter of routine, and should merit closer analysis. 

If you would like to receive a copy of our new paper on the risks associated with the use of complex disputes clauses in commercial contracts, please do not hesitate to contact us.

Footnotes

1. Regulation (EU) No 1215/2012.

Legal and Regulatory Risk Note
Europe