Member Article

The decision Mrs X v. Rothschild, rendered on 26 September 2012 by the French Cour de cassation1. called into question the practice of asymmetrical jurisdiction clauses, frequently included in international financial contracts.

Jurisdiction clauses allow parties to elect courts competent to resolve conflicts arising in connection with the agreement, having regard to specific factors such as court knowledge of the applicable law to the agreement, geographical location of the parties or enforcement of the judgment over their assets. 

The practice of choice of jurisdiction is recognized by Article 23.1 (prorogation of jurisdiction) of the Brussels I Regulation (44/2001) of 22 December 2000, which is applicable to agreements entered into among parties of which one at least has its domicile in the territory of a EU or EEA Member State. The designated court or courts of the Member State have exclusive jurisdiction, unless the parties have agreed otherwise.

It is the parties’ freedom to derogate from the exclusive competence of the selected jurisdiction in accordance with the Brussels I Regulation that the French Cour de cassation has limited when parties are not treated equally. 

In the tried case, a client, presumably non professional, had opened a bank account in the books of Rothschild private bank located in Luxemburg on which it deposited funds. This account was opened by the intermediary of a French finance company belonging to the same group, acting as authorized representative of the Luxemburg bank.

The agreement contained an asymmetrical jurisdiction clause, providing for the competence of Luxemburg courts for any action commenced, however granting to the private bank only an option to elect an alternative forum. 

Considering that it suffered a substantial loss in its investments, the client decided to bring proceedings against both the Luxemburg and the French institutions before the Paris civil court in order to obtain damages.

Both banks unsuccessfully raised the lack of competence of the French court on the basis of the jurisdiction clause as well as the Brussels I Regulation. In a decision dated 18 October 2011 (11/03572), the Court of Appeal of Paris rejected the exception, considering that the freedom of prorogation of jurisdiction provided for in the Brussels I Regulation may not have the effect of allowing an unequal treatment of the parties. It therefore held that the overall jurisdiction clause as null and void.

The Cour de cassation confirmed this decision, though on a different ground. The Court held that the jurisdiction clause presented a “potestative nature towards the bank, in such a way that was contrary to the aim and purpose of prorogation of jurisdiction authorized by Article 23 of the Brussels I Regulation”, insofar as it only bound the client “who was the only one required to bring a matter before Luxemburg courts”.

There are some factors of uncertainty as to the impact of the Cour de cassation decision.

-       First of all, the Cour de cassation added a requirement to the litteral provisions of Article 23 of Brussels I Regulation which do not expressly require symmetry for the validity of a choice of jurisdiction clause.

- Secondly, the Supreme Court set aside the law of the Grand Duchy of Luxemburg that was applicable to the contract and instead applied  the law of the forum, French law, to review the validity of the disputed clause. It nonetheless seems that this was a matter of contract interpretation exceeding the competence of the law of the forum.

- Regrettably, this matter did not give rise to the uniform interpretation by way of  preliminary ruling of the Court of Justice of the European Union in Luxemburg.

- Even though this decision may have a persuasive influence over foreign courts across the European Union, it does not bind them. 

- Despite its general terms, it is unclear whether this decision can be considered as prohibiting asymmetrical clauses in all circumstances or only, as in the tried case, when the parties are unequal (here an individual facing a bank). It can be wondered whether the solution would have been different had the  bank’s client been a professional client within the meaning of the MIFiD Directive or had the dispute been among financial institutions.

Lastly, the potestativity retained by the Cour de cassation in its motivation is a questionable ground. Indeed, the implementation of the jurisdiction clause does not depend on a condition which is assessed by a party in its discretion but rather on mere decision of a party  However resistance of French lower courts is unlikely, as courts of appeal have already prohibited asymmetrical jurisdiction clauses on the sole ground of asymmetry.

It remains that the Cour de Cassation decision creates new risks for asymmetrical jurisdiction clauses. 

These risks all the more need to be addressed as the incurred invalidity affects the whole jurisdiction clause, a sanction that subjects the parties to unreasonable uncertainties and delays in the determination of the competent court.

Several avenues may be considered to avoid the risk of invalidity of asymmetrical clauses, both in new and existing agreements, including:

- rendering the choice of jurisdiction bilateral, each party having symmetrical rights; or

- in the event that some of the parties only have an option to chose certain forums, providing that in the event that such option would be invalid, it will not affect the exclusive jurisdiction of the court bilaterally chosen. However, the effectiveness of such  provision would also be questionable.

The New Brussels Regulation of 12 December 2012.

Regulation n°1215/2012, published on 12 December 2012.will replace the existing Brussels I Regulation as of its full application from 10 January 2015, The New Brussels Regulation does not clarify whether symmetry is or not required for the validity of prorogation of jurisdiction clauses. The matter hence would remain entirely subject to court interpretation.

Furthermore, under new Article 25 (Prorogation of Jurisdictions) of Regulation n°1215/2012 the substantive validity of the agreement conferring jurisdiction is to be reviewed under the law to the law of the country whose courts are appointed. This may reduce the relevance of seeking the uniform interpretation of the Article 23 of the current Brussels I Regulation by the CJEU for the time being.

Loan Market Association (LMA) new recommandations of 24 January 2013

TLoan Market Association new recommendations of 24 January 2013

The Loan Market Association (LMA) standard facility documentation includes a jurisdiction clause that used to deal in an asymmetrical manner with financial parties and borrowers, as follows.

“[ ].1 The Tribunal de Commerce de Paris has exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement [or any non-contractual obligation arising out or in connection with this Agreement]) (a "Dispute").

[ ].2 Clause [ ].1 is for the benefit of the Finance Parties only.  As a result, no Finance Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties may take concurrent

On 24 January 2013, the LMA published a communiqué emphasing risks of one-sided jurisdiction clauses in France and other jurisdictions after the French Cour de Cassation decision.

Without making recommendations as to jurisdiction clauses for any particular transaction, the LMA has set forth alternative options for jurisdiction clauses giving jurisdiction to French courts in particular.

The first alternative is a one sided jurisdiction clause with a fall back provision, if the one sided clause was found to be invalid.

The second option 2 is a single exclusive jurisdiction only.

The third option is multiple courts exclusive jurisdiction clause giving lenders and obligors the right to take proceedings in specified or other courts.

Loan Syndications and Trading Association (LSTA)

The LSTA standard financing and trading documentations  jurisdiction clauses give the finance parties the right to bring legal actions against the non finance parties before other courts that the designated courts binding upon the borrower.

Such clauses when stipulated in agreements among French obligors and finance parties should call for the same corrective actions.

 ¹ Civil division, 1, 11—26022 (Supreme Court for private law matters)