Does the Hague Choice of Court Convention 2005 apply to asymmetric jurisdiction clauses?

With the transition period following the UK’s exit from the EU having ended on 31 December, and no information on whether, and if so when, the UK might join the Lugano Convention 2007, attention has turned squarely to the Hague Convention on Choice of Court Agreements 2005.

Where this Convention applies (that is, where there is an exclusive jurisdiction clause in favour of the courts of a contracting state), the position regarding jurisdiction and enforcement between the UK and the EU is similar (although not identical) to the position under the Recast Brussels Regulation (1215/2012) (RBR). A court must accept jurisdiction where it is the chosen court (and more importantly decline jurisdiction when it is not) and it must enforce judgments from other Convention countries, with limited defences to enforcement available.

Given that the Convention only applies to exclusive jurisdiction clauses, does that include asymmetric (unilateral) jurisdiction clauses of the sort often found in finance agreements? These are clauses where one party, typically a borrower, agrees to the exclusive jurisdiction of a particular country, for example England, whereas the other party or parties, typically finance parties, have a choice of where to sue. Such clauses are popular with finance parties as they give them maximum flexibility at the time a dispute arises, while restricting where their counterparty can sue.

The status of asymmetric clauses has been considered in obiter comments in three recent English cases before the Commercial Court, one of which has gone to the Court of Appeal. The High Court’s view in two of the three cases was that asymmetric clauses are within the Convention. The Court of Appeal, on the other hand, seems not so convinced. All seem to be agreed that the intention was to exclude asymmetric clauses, but the question is whether that result has been achieved in the drafting of the Convention.

The cases are considered in more detail below. It is important to remember, though, that the most important question, so far as English asymmetric jurisdiction clauses and enforcement of resulting judgments are concerned, is what approach courts in EU member states will take. So, will an EU court stay its proceedings and enforce judgments under the Hague Convention where there is an asymmetric clause which restricts one of the parties to bringing proceedings in England? While under Article 23 of the Convention, courts must have regard to the Convention’s international nature and the need to promote uniformity in its application, English judgments will not be binding on foreign courts. The safest assumption when choosing a jurisdiction clause, therefore, must be that asymmetric clauses are not within the Hague Convention.

Commerzbank Aktiengesellshcaft v Liquimar Tankers Management and another

This was a decision of the High Court (Cranston J) in 2017. The issue was whether an asymmetric clause was an exclusive jurisdiction clause for the purposes of Article 31(2) RBR, which gives precedence to the court chosen under an exclusive jurisdiction clause even where proceedings are commenced first in another court.

The argument put forward was that asymmetric clauses were not exclusive jurisdiction clauses for the purposes of the Convention, and that the same approach should be taken when interpreting the RBR. The judge considered that the Convention was of no assistance on the issue of characterisation under the RBR, but commented, obiter, that he thought there were good arguments as to why the definition of exclusive jurisdiction clauses in the Convention did in fact include asymmetric clauses.

That definition (in Article 3(a)) provides that an exclusive jurisdiction agreement is:

“an agreement concluded by two or more parties that … designates, for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship, the courts of one Contracting State or one or more specific courts of one Contracting State to the exclusion of the jurisdiction of any other courts.”

The judge noted that the Explanatory Report to the Hague Convention, by Professors Trevor Hartley and Masato Dogauchi, observes that the Diplomatic Session had agreed that asymmetric clauses were not exclusive choice of court agreements for the purposes of the Convention. He drew attention, however, to their earlier report, prepared when the Convention was being drafted, which suggested that to make it clear that asymmetric jurisdiction clauses were excluded from the definition, it might be desirable to add the words “Such an agreement must be exclusive irrespective of the party bringing the proceedings.” That did not happen.

Clearlake Shipping Pte Limited v Ziang Da Marine Pte Limited

The next High Court decision (given by Bryan J) came in 2019. This case did not involve a typical asymmetric jurisdiction clause, but Bryan J commented in passing that he considered clauses drafted in the usual terms would not be exclusive jurisdiction clauses under the Convention.

Etihad Airways PJSC v Flother: Commercial Court

The question whether asymmetric clauses were exclusive jurisdiction clauses for the purposes of Article 31(2) RBR came up again in 2019 in Etihad Airways PJSC v Flother, with the same arguments as in Commerzbank being run regarding the Hague Convention.

Jacobs J noted that some of the materials which preceded the Convention indicated that asymmetric clauses were not to be equated with symmetric clauses for the purposes of the Convention. However, the language of the Convention itself did not make that clear. Some academic commentaries proceeded on the basis that the definition of an exclusive clause in the Convention does not apply to an asymmetric clause. The view of Louise Merrett, however, in her article on the future enforcement of asymmetric jurisdiction agreements ([2018] 67(1) ICLQ 37) was that, while the position was not entirely clear, there was nothing inherent in the structure or rationale of the Convention to mean that it should not apply to asymmetric clauses.

Jacobs J concluded that there were good arguments that the rules in the Hague Convention are engaged by an asymmetric clause.

Etihad Airways PJSC v Flother: Court of Appeal

That brings us to the latest decision, the judgment of the Court of Appeal in the same case. The court noted the Commercial Court’s views, but said it was prepared to proceed on the basis that the Hague Convention should probably be interpreted as not applying to asymmetric clauses (although it was unnecessary for the court to decide that question and it did not do so). A strong indication that this was the deliberate intention of the framers of the Convention was provided by the Explanatory Report of Professors Hartley and Dogauchi, which said (at paragraph 106):

“It was agreed by the Diplomatic Session that, in order to be covered by the Convention, the agreement must be exclusive irrespective of the party bringing the proceedings. So agreements of the kind referred to in the previous paragraph [that is, asymmetric agreements] are not exclusive choice of court agreements for the purposes of the Convention.”

Further support for this conclusion could be found in the Diplomatic Minutes of the Meeting of 15 June 2005 which showed that a proposal to amend the proposed definition of an “exclusive jurisdiction agreement”, so as to make it clear that it included asymmetric jurisdiction agreements (by inserting the words “for some or all of the parties to the agreement”), was debated but found no support and was then withdrawn.

Whatever the position under the Convention, however, the court considered it was clear that asymmetric clauses were within Article 31(2) RBR. That might mean the RBR went further than the Convention, but that was not necessarily surprising as the Convention deals solely with jurisdiction agreements, whereas the RBR contained a comprehensive system of allocation of jurisdiction based on various potential grounds.

What next?

So, all to play for when the status of such clauses under the Convention next comes before a court, whether in the UK or the EU. There are numerous ways in which it may arise.

If a borrower has agreed to the exclusive jurisdiction of the English court in an asymmetric clause, but nevertheless begins proceedings in an EU court, the finance party may seek a stay of those proceedings on the basis that the Hague Convention applies and the EU court is therefore obliged to stay its proceedings. The finance party may in addition begin proceedings against the borrower before the English court and argue that the court must accept jurisdiction under the Convention, even though the clause is non-exclusive from the perspective of the finance party. There is no discussion in the cases regarding whether, assuming the Convention applies to asymmetric clauses in principle, it will apply in both those circumstances (although an English court would be unlikely to decline jurisdiction even if the Convention did not apply).

Nor is there any discussion regarding when the Hague Convention will apply to the enforcement of judgments where the court has accepted jurisdiction under an asymmetric clause. So, where a borrower has agreed to the exclusive jurisdiction of the English court in an asymmetric clause, will an English judgment be enforceable under the Convention (assuming again that the Convention applies in principle to asymmetric clauses) where the proceedings were commenced in England by either the borrower or the finance party? Or will it only apply where proceedings were commenced by the borrower, given that only the borrower is bound by the exclusive clause?

If the UK is permitted to join the Lugano Convention, this issue will of course become of only historic interest in a UK or EU context, as Lugano will apply to all jurisdiction clauses in favour of UK or EU courts (as well as the other Lugano contracting parties: Iceland, Norway and Switzerland). For now, if you want to take advantage of the Hague Convention, the safest assumption when choosing a jurisdiction clause is that only a symmetric exclusive jurisdiction clause, which applies equally to both parties, will be within the Hague Convention.

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