One-way sheet: asymmetric clauses in finance documents post-Brexit

From 1 January 2021, lenders may reconsider whether it is desirable to include in their finance documents “asymmetric” or “one-way” jurisdiction clauses that grant English courts exclusive jurisdiction to decide disputes, subject to the option of the lender to sue the borrower in any other jurisdiction it wishes. Such clauses are widely used in financial instruments such as loan agreements, their aim being to ensure that creditors can always litigate in a debtor’s home court, where the debtor’s assets are located, or anywhere else a creditor might prefer, and to reassure a creditor that it can only be sued in its preferred jurisdiction.

Recast Brussels Regulation (1215/2012)

Since the Recast Brussels Regulation (1215/2012) has been repealed in the UK as a result of Brexit, disputes covered by asymmetric jurisdiction clauses are at greater risk of being subject to parallel proceedings in different jurisdictions. This is because UK parties lose access to Articles 25, 29 and 31 of the Recast Brussels Regulation. Pursuant to those Articles:

  • Where parties have agreed that the courts of a Member State are to have jurisdiction to settle any disputes which arise in connection with a particular legal relationship, those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of the Member State (Article 25(1)).
  • Where proceedings are pending in two or more Member States between the same parties and involve the same cause of action, the second court must stay its proceedings until the court first seised has determined the issue of jurisdiction (Article 29(1)). However, Article 29(1) does not apply where one of the actions is pending in a Member State court which is seised of the proceedings by virtue of an exclusive jurisdiction agreement between the parties, and those related proceedings were commenced second in time (Article 31(2)). The English Court of Appeal has recently held that an asymmetric jurisdiction clause is exclusive and valid for the purposes of Article 31(2): see Etihad Airways PJSC v Flother.

As of 1 January 2021, these provisions no longer apply in the UK, and EU member states’ domestic courts will no longer apply these provisions in relation to English court proceedings. Instead, those courts will determine jurisdiction according to their own national laws, including any applicable international treaties.

2005 Hague Convention on Choice of Court Agreements

The repeal of the Recast Brussels Regulation will also impact the operation of “symmetric” jurisdiction clauses granting exclusive jurisdiction to the English courts (at least in theory). However, the 2005 Hague Convention on Choice of Court Agreements will standardise the way in which such clauses are treated throughout the EU. Unlike the Recast Brussels Regulation, the 2005 Hague Convention is an international treaty to which the EU (rather than its constituting member states) is party. It requires the courts of signatory states to give effect to exclusive jurisdiction clauses in favour of the courts of other contracting states.

The UK acceded to the Hague Convention in its own right on 1 January 2021. Although the issue is yet to be decided by an English court, the Court of Appeal has recently suggested that the provisions of the Hague Convention are unlikely to extend to asymmetric jurisdiction clauses (see Flother at paragraph 85).

2007 Lugano Convention

In April 2020, the UK applied to accede to the 2007 Lugano Convention, which provides a broadly equivalent regime for jurisdiction and the recognition and enforcement of judgments between EU Member States and Iceland, Norway and Switzerland to the 2001 Brussels Regulation (Council Regulation (EC) No 44/2001) (the version prior to the “recast”).

The UK government recognised, in an explanatory memorandum accompanying the laying before Parliament of the Lugano Convention in November 2020, that the Lugano Convention would help “prevent multiple court cases taking place on the same subject matter at the same time and across different States and assists in preventing different outcomes from being reached.”

The UK’s application to re-join the Lugano Convention has yet to be formally accepted. Therefore, for a period of time at least, there is no framework in place to standardise the way in which asymmetric jurisdiction clauses are treated throughout the EU or European Economic Area insofar as the UK is concerned.

If the UK were to accede to the Lugano Convention, this would not bring the UK to the exact same position that it was in prior to Brexit. The risk of parallel proceedings arising from asymmetric jurisdiction clauses would still increase as compared to the position under the Recast Brussels Regulation. This is because:

  • Article 25 of the Recast Brussels Regulation applies regardless of where parties are domiciled. The equivalent provision under the 2007 Lugano Convention (Article 23) applies only where at least one of the parties is domiciled in a state bound by the Convention.
  • The Lugano Convention has no equivalent to Article 31 of the Brussels Recast Regulation, bringing back the risk of the Italian “torpedo” action.

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