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Validity of one-way jurisdiction clauses: the French Supreme Court confirms the Rothschild decision

French Supreme Court, First Civil Chamber, 25 March 2015, ICH v Crédit Suisse, No 13-27264.

The French Supreme Court has invalidated a one-way (or "hybrid") jurisdiction clause in a loan agreement between a French borrower and a Swiss Bank under Article 23 of the Lugano Convention. This decision confirms an earlier ruling by the French Supreme Court in 2012 (the Rothschild case),1 in which it held that a one-way jurisdiction clause that was only binding upon a borrower (an individual) was potestative and thus contrary to the object and purpose of jurisdiction clauses in Article 23 of EU Regulation 44/2001 (the original Brussels Regulation)2. There remains much uncertainty about the use of such one-way jurisdiction clauses in transactions involving French parties or with a French nexus.

The claimant, a French company, entered into two facility agreements with a Swiss bank (the Swiss Bank) via an English company, acting as a financial intermediary, for financing repair works on a farming business. These facility agreements were secured by a first demand guarantee issued by a French bank (the French Bank).

The claimant considered that its financial arrangement with the banks was not yielding expected returns to ensure repayment of the loan. It started court proceedings in France against all the parties to the transaction for breach of their duty to inform and advise the borrower. The Swiss Bank and the French Bank however challenged the jurisdiction of the French court. In particular, the Swiss Bank relied on the jurisdiction clause included in the facility agreements, which provided:

"the borrower acknowledges that the exclusive forum for any judicial proceedings is Zurich or at the place where the relationship with the bank's branch is established. The bank is however entitled to bring a claim against the borrower before any other competent court".

The French Supreme Court, following the Rothschild ruling, held that this clause was invalid in its entirety, as it was contrary to the objectives of predictability and legal certainty in Article 23 of the Lugano Convention.

The Rothschild case was strongly criticised by commentators and practitioners, who considered that it left many questions unanswered. The recent Supreme Court ruling provides clarity on some issues, but much uncertainty remains.

For example, the ruling clarifies that the rationale underlying the Rothschild ruling is not the protection of the consumer, but a more general prohibition of imbalanced clauses, irrespective of the status of the contracting parties (in Rothschild the borrower was an individual, in this recent case it was a corporate entity).

It is not, however, clear whether all one-way clauses are now invalid, or only some. The French Supreme Court in the decision of 25 March 2015 stressed that the clause (i) "reserved the right to the bank to apply before any other competent court" and (ii) "did not specify the objective elements on which this alternative jurisdiction was based". This could be construed as a signal that the Supreme Court did not decide to invalidate all one-way jurisdiction clauses, irrespective of their wording, but only those that are particularly imbalanced, ie clauses that grant a broad discretionary right to one of the parties. This would be the case for a jurisdiction clause that allows one party (the lender) to sue another party (the borrower) in any other court in the world without any geographical limitation. Were this to be confirmed, this would mean that a one-way jurisdiction clause that gives one of the parties the option to sue another party before a limited number of courts could be valid.

It also remains unclear whether this jurisprudence applies only to one-way jurisdiction clauses governed by European law (ie the original Brussels Regulation, the Lugano Convention or the Recast Brussels Regulation) or could also affect the validity of clauses that fall outside its scope.

Impact on drafting

Commercial parties should carefully consider whether or not to use one-way jurisdiction clauses, in particular when dealing with French parties or in transactions with a French nexus. There is still too much uncertainty to be able to predict whether certain types of one-way jurisdiction clauses may be upheld by the French courts. It may therefore be prudent to provide for a jurisdiction clause that gives equal rights to all parties.

Footnotes

1. Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
2. French Supreme Court, First Civil Chamber, 26 September 2012, No 11-26022.

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