Commercial Court finds "torpedo" action ineffective where parties agreed asymmetric jurisdiction clause

The Commercial Court has held that an asymmetric jurisdiction clause is an exclusive jurisdiction clause for the purposes of the recast Brussels Regulation. The English court was therefore entitled to continue with its proceedings where it was the chosen court but proceedings had been commenced earlier in Greece: Commerzbank Aktiengesellshcaft v Liquimar Tankers Management and another [2017] EWHC 161 (Comm).

The recast Brussels Regulation, which applies to proceedings commenced since 10 January 2015, contains a number of improvements over the previous version. These include provisions aimed at defusing so-called "torpedo" actions by which a party could seek to delay proceedings in the court the parties had chosen in their jurisdiction clause by commencing proceedings in breach of the clause elsewhere in the EU.

There has been doubt however as to whether these new "anti-torpedo" provisions would be effective where the parties had agreed an asymmetric jurisdiction clause rather than an exclusive jurisdiction clause binding on all parties. An asymmetric clause (also known as a unilateral or one-way clause) provides that one party, typically a borrower, can only sue in one jurisdiction whereas the other party, typically a finance party, can sue in any available jurisdiction.

The Commercial Court in Perella Weinberg Partners UK LLP v Coder SA [2016] EWHC 1182 (Comm) considered the "anti-torpedo" provisions should apply equally to an asymmetric clause (see blog post here) but the comments were obiter. The present decision is significant in reaching the same conclusion after a detailed analysis of the arguments. In the court's view, however, whether a jurisdiction clause is exclusive for the purposes of these provisions is a question of autonomous interpretation of the Regulation, rather than English law, so until there is CJEU authority on the point there remains a risk of a torpedo action being effective.

The case is also of interest in once again rejecting the approach of the French courts which have held that asymmetric clauses are invalid, at least in some circumstances (see our blog posts on the decisions in Mme X v Societe Banque Prive Edmond de Rothschild 13, First Civil Chamber, 26 September 2012, Case no 11-26022 here, Societe eBizcuss.com v Apple, First Civil Chamber, 7 October 2015, Case No.  14-16898) here and Mauritius Commercial Bank Limited v Hestia Holdings Ltd and Another [2013] EWHC 1328 (Comm) here).

Background

The underlying case concerned defaults under loans made by a Bank to finance the building of ships. The loan agreement and related documentation contained an asymmetric jurisdiction clause, giving the Bank the right to commence proceedings in any court which had jurisdiction, whereas the other (borrowing) parties were restricted to bringing proceedings in England. The agreements were all governed by English law.

By the time of the court hearing, there were two pairs of parallel proceedings pending in Greece and England. The Bank's claims in the English proceedings were essentially mirror images of the proceedings commenced earlier in Greece, with added claims for damages and an indemnity for alleged breach of the jurisdiction clauses by commencing the Greek proceedings.

The defendants sought a stay of the English proceedings until the Greek proceedings were heard, together with related relief, arguing that Article 31(2) in the recast Brussels Regulation, which is the "anti-torpedo" provision requiring a court of a Member State to stay its proceedings until the chosen court has determined whether it has jurisdiction, did not apply.

Article 31(2) provides:

'……where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seized, any court of another Member State shall stay the proceedings until such time as the court seized on the basis of the agreement declares that it has no jurisdiction under the agreement.'

Decision

The Commercial Court (Mr Justice Cranston) refused the defendants' applications for a stay. He  was also prepared to order that a summary judgment hearing take place within six to eight weeks to determine the claims alleging breach of the jurisdiction clauses.

A number of arguments were put forward on behalf of the defendants in support of a stay, which the court considered and rejected in turn. The principal bases for the court's conclusion are outlined below.

Asymmetric jurisdiction clauses are exclusive jurisdiction agreements within Article 31(2)

The court held that asymmetric clauses are agreements conferring exclusive jurisdiction for the purposes of Article 31(2) of the recast Brussels Regulation. It made no difference that exclusive jurisdiction was only given to the English courts in respect of a claim by the defendants. This was consistent with the wording of the Regulation and with the aim behind introduction of this new provision, namely avoiding abusive tactics.

The court also rejected an argument that the English actions were not brought pursuant to an exclusive jurisdiction agreement because the Bank had a choice of where to sue so the clause was not exclusive so far as the Bank was concerned. The English court had exclusive jurisdiction when the defendants sued, they had begun proceedings elsewhere, and that was why the Bank had sued in England.

The Hague Convention has no relevance to whether a jurisdiction clause is exclusive under the recast Brussels Regulation

The court rejected an argument based around the interpretation of the Hague Convention on Choice of Court Agreements 2005 ('Hague').

According to the Explanatory Report and other materials prior to Hague, asymmetric agreements are not considered to be exclusive jurisdiction agreements for the purposes of that Convention. The same approach, it was argued, should be taken in interpreting the recast Brussels Regulation. Interestingly, the court thought there were good arguments why the definition of exclusive jurisdiction clauses in Hague did in fact include asymmetric clauses. Even if that were wrong, however, Hague was of no assistance on the separate issue of their characterisation under the recast Brussels Regulation.

Article 31(2) is not limited in reach

The court rejected the argument that Article 31(2) only required the Greek court to stay its proceedings and said nothing about how the chosen court should proceed. The court considered that if the English court decided it had jurisdiction, then it was able to proceed with the case, irrespective of how far advanced the Greek proceedings were.

Asymmetric jurisdiction clauses are not invalid under Article 25 of the recast Brussels Regulation

The defendants contended, as a subsidiary argument, that the asymmetric jurisdiction clauses were not compatible with Article 25 of the recast Brussels Regulation and therefore could not trigger Article 31(2).  Article 25, the argument ran, requires the parties to have designated the courts of a Member State to enable the law applicable to the substantive validity of a jurisdiction clause to be identified and to provide certainty as to the forum in which a putative defendant can expect to be sued. That is not achieved a by a clause which designates the courts of all states, including those of non-Member States. The defendants also relied on the French decisions in Mme X and Societe eBizcuss.com, referred to above, which held that at least some asymmetric clauses do not come within Article 25.

The court held there was nothing in Article 25 which said that a valid jurisdiction agreement has to exclude any courts, in particular non EU courts. Moreover the Brussels Convention expressly recognised asymmetric clauses and it would therefore need a strong indication that the recast Brussels Regulation rendered a regular feature of financial documentation in the EU ineffective.

So far as the Mme X decision was concerned, the court pointed out that the French court had relied on the French law concept of potestativité, not an autonomous concept in EU law. In addition, there were later French cases and cases in other European jurisdictions such as Luxembourg, Spain and Italy which had taken a supportive approach to asymmetric jurisdiction clauses

No stay on the basis of a related action or for case management reasons

In the final part of the judgment the court gave short shrift to the argument that the claims for breaches of the jurisdiction clauses should be stayed on the basis that the Greek proceedings were related proceedings which were first in time, and the English court therefore had a discretion, which it should exercise, to stay this part of the proceedings under Article 30 of the recast Brussels Regulation. Nor should a stay be granted in its view for case management reasons.

The court considered the exclusive jurisdiction clause to be a powerful factor against a stay, following the reasoning in Starlight Shipping Co v Allianz Marine &  Aviation Versicherungs AC [2013] UKSC 70. In addition, none of the non-exhaustive factors identified in Owens Bank v Bracco [1994] QB 509 (extent of relatedness, risk of mutually irreconcilable decisions, stage reached in each set of proceedings and proximity to the subject matter) pointed to Greece rather than England.

The court in fact went further, indicating that it was minded to order a hearing for the Bank to apply for summary judgment in respect of these claims, which should take place within six to eight weeks. This was on the basis that given English law was the applicable law, it was the English court which should give its decision first.