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Brussels Recast anti-torpedo protection for hybrid jurisdiction clauses

25 July 2016

In Perella Weinberg Partners UK LLP & anr v Codere SA [2016] EWHC 1182 (Comm) the High Court has held, albeit obiter, that an asymmetric (or hybrid) exclusive jurisdiction clause falls within the definition of “exclusive” for the purposes of the “anti-torpedo” provision in the recast Brussels Regulation (Brussels Recast Regulation). An asymmetric exclusive jurisdiction clause confers a right to invoke the exclusive jurisdiction of the courts of a given jurisdiction on one party only. The status of such clauses remains in doubt in certain jurisdictions and under certain treaties. The Explanatory Report on the 2005 Hague Convention on Choice of Court Agreements suggests that such a clause will not be considered exclusive under that agreement, and the French courts have refused to uphold them altogether.

In 2013, Codere SA, a Spanish company in financial difficulties, retained the services of Perella, a London-based restructuring specialist. In September 2015 Codere started Spanish proceedings against Perella claiming breach of contract by Perella. Perella challenged the jurisdiction of the Spanish court. Soon afterwards Perella commenced a separate set of proceedings in England and Codere challenged the jurisdiction of the English court. It was Codere’s jurisdiction challenge which was the subject of this judgment.

The jurisdiction agreement between the parties stated:

“Codere agrees for the benefit of Perella that the courts of England will have non-exclusive jurisdiction to settle any dispute which may arise in connection with this engagement.”

Exclusive and non-exclusive jurisdiction clauses

An exclusive jurisdiction clause is an agreement to litigate in the courts of a single, specified jurisdiction. In the event of a dispute, the claimant party must resort to the chosen court.  Both parties are prohibited from referring the matter to any other.

In contrast, a non-exclusive clause simply confers jurisdiction on a given court without affecting the right of any party to bring proceedings elsewhere. Why go to the trouble of building such non-exclusive language into a contract? Generally, its purpose is to reserve or guarantee a right to resort to the chosen court in situations where other parts of the Brussels Recast Regulation could prevent it.

Article 31 and defeating the “Italian torpedo”

Article 31 Brussels Recast Regulation says that where the court upon which jurisdiction is conferred by an exclusive jurisdiction clause is seised, a court in any other Member State must refuse to hear the matter until the “chosen” court declines jurisdiction. If Perella could convince the English court that the clause above gave exclusive jurisdiction to the English court then, under Article 31, the Spanish court would be required to stay the proceedings before it. If not, the two sets of proceedings could continue in parallel.

Under the original Brussels Regulation, there would have been no point in making such an application because exclusive jurisdiction clauses did not have similar protection to that under Article 31 Brussels Recast Regulation.  The seisin provisions of the original Brussels Regulation (giving priority to the Member State court first seised of a dispute) prevented the courts of the chosen Member State from hearing the matter until the other court had refused jurisdiction.  Exploiting this anomaly became known as the “Italian torpedo” because some prospective defendants realised that by commencing pre-emptive proceedings in Italy, lengthy delays in the Italian courts severely delayed the chosen court from proceeding to hear the claim.

Does a hybrid clause enjoy Article 31 protection?

Article 31 applies to exclusive jurisdiction clauses. Under Article 25 of the Brussels Recast Regulation jurisdiction agreements are considered exclusive unless they specifically state a contrary intention. Whether or not a hybrid clause could be considered exclusive is a matter of EU law. Walker J’s obiter view was that nothing in Article 31 says that a jurisdiction clause must be symmetrical to be considered exclusive. It need simply confer jurisdiction on the court of a given Member State and restrict at least one party from invoking the jurisdiction of any other. This means, in effect, that the English court has indicated  that it will construe Article 31 as giving “anti-torpedo” protection to both symmetric and asymmetric jurisdiction clauses.

This is in contrast with the Hague Convention on Choice of Court Agreements, the Explanatory Note for which suggests that asymmetric clauses will not be considered “exclusive” under it. If this is indeed the case, such clauses will be outside the scope of the Hague regime.

Was the “benefit” a right to invoke exclusive jurisdiction?

Perella argued that the “benefit” conferred on it by the jurisdiction clause was the right to invoke the exclusive jurisdiction of the English courts. It argued that non-exclusive English jurisdiction was a base line, or starting point. The “benefit” was the right to unilaterally convert it to an agreement exclusive in nature.

Codere maintained that the “benefit” was the right to invoke the jurisdiction of the English courts. This was essentially an asymmetrical non-exclusive jurisdiction clause in favour of Perella.

This point, the issue of what exactly the parties had agreed to, was a matter of English contractual interpretation. Walker J applied the Rainy Sky construction principles, giving the language the meaning that it would have conveyed to the reasonable person possessed of all background facts reasonably available to the parties at the time the agreement was made. Where two possible constructions emerge the court will prefer the one which is more consistent with “business common sense”.

Walker J considered the most important feature of the factual matrix – that both parties were sophisticated business entities that would have been well aware of the existence and effect of the Brussels Recast Regulation. Particularly, the parties would have factored the Article 25 rebuttable presumption of exclusivity into their contractual language. The express reference in the language to “non-exclusive jurisdiction” represented an insurmountable obstacle to Perella’s position. Walker J could not accept that the wording “for the benefit of Perella” cancelled out the term “non-exclusive”. Codere’s position was more compatible with business common sense. Perella was not by any means guaranteed the right to bring proceedings in England in the absence of the express reference to English jurisdiction. As an English-based entity it would have had an interest in reserving that right, on a non-exclusive basis, and Codere was happy to allow it. The clause was not an exclusive jurisdiction clause.

COMMENT

An asymmetric jurisdiction clause remains a useful way for a party to reserve a right to litigate in a given court but it should be borne in mind that the validity of such clauses remains disputed in certain jurisdictions, notably France. The French courts have made it clear that they will not uphold such agreements. If indeed the status of asymmetric jurisdiction clauses is different under the Hague Convention in comparison to Brussels Recast, this will no doubt lead to confusion and misunderstanding.

While Walker J’s obiter confirmation that asymmetric jurisdiction clauses fall within the Article 31 definition of “exclusive” is to be welcomed, residual uncertainty remains. The matter was not fully argued before Walker J so his comments are to be treated cautiously. That said, his approach seems uncontroversial.

The rebuttable presumption of exclusivity under Article 25 of the Brussels Recast Regulation must be expressly rejected by the parties. It comes as no surprise that using the term “non-exclusive” satisfies that requirement.

The use of the term “for the benefit” is a hangover from the original Lugano Convention and 1968 Brussels Convention which expressly provided for the use of that language to reserve the right of the party which enjoys the benefit to bring proceedings elsewhere, whereas the counterparty would be required to bring proceedings in one jurisdiction only. Under the Brussels Recast Regulation, and indeed under the current, revised Lugano regime, the term is redundant and should not be used. Expressing a clause to be for the benefit of one party now just adds uncertainty which can lead to unpredictable, results.

Please contact Ken Kaar, or your usual Allen & Overy contact if you would like our guide to the Hague Convention on Choice of Court Agreements, covering 10 key points about this instrument and its potential impact on commercial parties’ approach to choice of forum, both at the drafting stage and when disputes arise.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.