Updated: Jan 12, 2021
Asymmetric jurisdiction clauses have received inconsistent treatment by national courts, and their status is questionable in multiple legal systems. There are still many points to be clarified on the matter to reach a comfortable level of certainty for international commercial actors. Looking back at the traction of such complex jurisdiction clauses can certainly highlight some lessons to be learned.
What are asymmetric jurisdiction clauses?
An asymmetric jurisdiction clause will generally give more jurisdictional option to one party than the other. Most commonly, this type of clause is found in finance agreements and takes the form of a unilateral choice of court agreement, giving the creditor the option to sue in any competent court of its liking, whereas the debtor may sue only at a specific court, which is determined by the clause.
However, there are other types of asymmetric jurisdiction clauses. There are also complex asymmetrical jurisdiction clauses, which have multiple tiers of asymmetry. Such a clause would be a hybrid between a jurisdiction and dispute resolution clause, combining a unilateral choice of court agreement and the unilateral election of dispute resolution mechanism.
Are asymmetric jurisdiction clauses valid?
The validity of asymmetric choice of court agreements was fairly certain until the French decision of Ms X v Banque Privée Edmond de Rothschild, which found that the clause was potestative (a concept of French law) and therefore, invalid. The decision also found the clause to be contrary to EU law, specifically, Art. 23 of the Brussels Regulation I, which ignited a pan-European debate on the matter. Since Ms X v Banque Privée Edmond de Rothschild, the French courts decided again on the matter, finding that the asymmetric choice of court agreement in ICH v Crédit Suisse was also invalid under the Lugano Convention because of the uncertainty it is raising. However, in the eBizcuss v Apple Sales International case, the French courts found that the clause was valid because it gave defined jurisdictional option to the creditor, between specific courts, rather than allowing them to bring proceedings in any competent court. At the same time, courts in Poland and Bulgaria upheld the French approach and invalidated asymmetric choice of courts agreements.
However, there have been warm supporters of such clauses. A decision from Luxemburg had ruled in favour of the validity of asymmetrical choice of court agreements and crucially, declared them in line with EU law and particularly, the Brussels Regulation I. Although the case was superseded with the enacting of the Brussels Regulation (Recast), which unfortunately, made no specific reference with regards to such agreements, the High Court of England and Wales issued a leading ruling on the matter. In Commerzbank AG v. Pauline Shipping Ltd and Liquimar Tankers, it was unequivocally found that an asymmetric choice of court agreement was exclusive for the purposes of the Brussels Regulation Recast and fully compliant, permitting the second-seised court to not stay proceedings in deference to litigation brought abroad, in breach of the clause.
Many have noted that the English case is a step towards clarity but it will still be a leap of faith for creditors to rely on asymmetric choice of court agreements and asymmetric jurisdiction clauses in general. Arguably, Brexit will not make the situation any more certain than it currently is, however it will be interesting to see how the state of affairs will shape.
What about asymmetric jurisdiction agreements involving arbitration?
Asymmetric jurisdiction agreements involving arbitration are complex and invite uncertainty on three levels. Firstly, it is uncertain how courts will treat the asymmetric choice of court tier, which, however, has gained clarity over the past few years. Secondly, it is uncertain how the courts will treat the asymmetric access to arbitration and thirdly, how the courts will treat jurisdiction agreements combining both tiers of asymmetry. To date, there have been very few clauses of this type to be put in test and the situation is highly uncertain.
Interestingly, the first French case dealing with an asymmetrical clause giving only one party the right to elect between arbitration or litigation was upheld, in contrast to the above-analysed asymmetric choice of court agreements, which were not (Judgment of 25 September 1972, (Cour d’ appel d’Angers 1 re), 1973 Rev Arb 164). In Russia, the Russian Telephone Company v Sony Ericson case received negative treatment, where the clause provided for arbitration, instigated by either party but reserved a unilateral right to initiate proceedings at any competent court for one of the parties. The Presidium of the Supreme Arbitrazh Court of the Russian Federation reversed the decisions of the lower courts to not hear the case (in favour of arbitration) and declared the clause to be violating the fundamental principle of procedural equality of the parties. Although the clause in the circumstances was not invalidated (it was adapted to bilateral instead) the Presidium was crystal clear that asymmetrical clauses will be invalid.
In stark contrast, English and Singaporean courts have been upholding such clauses without issue. Notably, the clause in Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd was upheld. The case, decided at the Supreme Court of Singapore, concerned a clause providing the unilateral right to elect to arbitrate to only one of the parties, much in the same way the clause in Sony Ericson provided for the unilateral right to elect to litigate. Similarly, in NB Three Shipping Ltd v Harebell Shipping Ltd and several other cases, the benefiting party from the asymmetric clause was able to elect the dispute resolution method and stay the non-benefiting party’s proceedings.
It is interesting to see how national courts are engaging in an international dialogue over the underlying legal issue, however creating significant uncertainty for commercial actors.
Here to stay?
Examining why the market resorted to regulating jurisdiction in the first place, it is no wonder. Private international law has been traditionally slow in aligning with modern market needs and is criticised for its complexity and lack of clarity. Although the situation is significantly more straightforward within the EU and selected third states, thanks to the Brussels Regulation Recast and the Hague Conventions, international trade is becoming increasingly globalised and the need for more far-reaching coverage is paramount. This has inevitably led to two outcomes. Firstly, indeed, the parties' need to increase certainty by derogating from the ordinary private international law path that legislators have designated for international contracts. Secondly, jurisdiction clauses are no longer used for their original purpose to determine jurisdiction; they are now a safety net to ensure that the debtor will fulfil with their debt.
Factoring in other market disruptions, such as the financial crisis of 2008, which, for instance, made banking institutions particularly cautious of debt recovery procedures, asymmetric agreements grew popular. Today, asymmetric jurisdiction agreements are not unique to the financial industry. Industries which involve hyper-complex transactions and a great deal of uncertainty, have resorted to regulating jurisdiction in an imbalanced manner, precisely because jurisdiction agreements are a form of ‘guarantee’ that the debt will be fulfilled.
As globalised trade intensifies and purely online ventures are the norm, the recovery of assets is becoming increasingly difficult, as defendants may have holdings in multiple jurisdictions. Further, the rise of blockchain and financial technology will only enhance the ability of debtors to transfer assets faster than any legal action can effectively stop the vicious cycle of debt recovery. Asymmetric jurisdiction agreements can provide a viable solution to this problem; of course, in absence of a more appropriate legal mechanism to ensure compliance.
Brussels Regulation I on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (2002)
Hague Convention on Choice of Court Agreements (2005)
Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (2007)
Brussels Regulation on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast)(2012)
Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (2019)
Bulgarian Supreme Court of Cassation, Judgment No 71 in commercial case No 1193/2010, Bulgarian Supreme Court of Cassation (2 September 2011), as reported by Gilles Cuniberti, ‘Bulgarian Court Strikes Down One Way Jurisdiction Clause’ (Conflict of Laws Net, 2012)
England and Wales
NB Three Shipping Ltd. v. Harebell Shipping Ltd.  1 Lloyd's Rep. 509
Barclays Bank plc v Ente Nazionale di Previdenza Ed Assistenza dei Medici e Degli Odontoiatri  EWHC 2857 (Comm)
Commerzbank AG v Pauline Shipping Limited Liquimar Tankers Management Inc  EWHC 161 (Comm)
Luxembourg District Court –Tribunal d'Arrondissement de et à Luxembourg, No 127/14 and No 128/14, 29 January 2014
Supreme Court Judgement Dated 24 November 2010 (II CSK 291/10)[Original title: Zapis na Sąd Polubowny przy Związku Banków Polskich. Glosa do wyroku Sądu Najwyższego z 24 listopada 2010 r. (II CSK 291/10)] [id: 31120]
Russkaya Telefonnaya Kompaniya (RTK) v Sony Ericsson Mobile Communications Rus Vestnik Vysshego Arbitrazhnogo Suda RF [Vestn. VAS] [The Highest Arbitration Court of the Russian Federation Reporter] 2012, No 1831/12
Gutteridge, ‘A New Approach to Private International Law’ The Cambridge Law Journal Vol. 6, No. 1 (1936)