Jurisdiction agreements: Preparing for change
The 1968 Brussels Convention will be replaced on 1st March, 2002 by a new EC Council Regulation (No 44/2001) for all EU member states except Denmark (PLC, 2001, XII(2), 61 ).
The Brussels Convention sets out the rules for determining which EU court will have jurisdiction over a dispute in relation to a commercial contract and facilitates the recognition and enforcement of judgments between member states. The Lugano Convention applies between EU and European Free Trade Association (EFTA) countries and Poland. Both Conventions recognise and give effect to jurisdiction agreements in which the parties agree that the courts of a particular member state will have jurisdiction to determine any disputes arising under the contract. Most companies' standard documents will contain jurisdiction agreements drafted to comply with the Conventions.
From 1st March, 2002 there will therefore be three jurisdiction regimes, running in parallel:
- The Regulation (governing jurisdiction issues as between all Brussels Convention member states except Denmark).
- The Brussels Convention (governing jurisdiction issues as between Denmark and all other Brussels Convention member states).
- The Lugano Convention (governing jurisdiction issues as between Brussels Convention member states and EFTA countries and Poland).
The Regulation will impact on those dealing with consumers over the internet and also change, amongst other things, the general provisions regarding jurisdiction. Contracts drafted now should comply with the Regulation, since any dispute under those contracts will, almost inevitably, be litigated after 1st March, 2002.
Under Article 17 of the Conventions, UK companies are free to agree to the following types of jurisdiction agreements:
- Exclusive jurisdiction agreements, by which the parties agree that each party may only sue, and be sued, in the chosen court.
- Jurisdiction agreements "for the benefit" of one of the parties by which one party (Party A) may only be sued in the chosen court but may, as claimant, sue the other parties either in the chosen court or in any other court having jurisdiction under the Conventions.
A non-exclusive jurisdiction agreement is recognised under English common law, by which each party may sue, and be sued, in the chosen court, but has the option of taking (and in certain cases, defending) proceedings in any other court having jurisdiction over the case. However, there is doubt as to whether such agreements are strictly permissible in the EU context since the wording of Article 17 deems jurisdiction agreements to be "exclusive". Article 23 of the Regulation replaces Article 17 of the Conventions and:
- Expressly allows for the conferral of jurisdiction to be non-exclusive.
- Deletes the wording in Article 17 which permitted agreements "for the benefit" of one party only, presumably as such agreements are now covered by the general provision allowing non-exclusive agreements.
Agreements with Luxembourg parties
Luxembourg parties are protected, under Protocols to the Conventions, from being sued in other member states in contract cases where jurisdiction arises under Article 5(1) which provides that a party may be sued outside its domicile in the courts for the place of performance of the contractual obligation in dispute. Also, Luxembourg parties are only bound by a jurisdiction agreement where they have "expressly and specifically" agreed to it. In practice, UK companies contracting with Luxembourg parties, who wish to refer disputes to another EU or an EFTA court, have included a separate signature line under the jurisdiction clause or a separate execution clause for Luxembourg parties.
Under Article 63 of the Regulation, a separate acknowledgement or signature in relation to the jurisdiction agreement for the Luxembourg party should no longer be necessary. "Protection" is now confined to contracts for the provision of goods and services, where the final place of delivery of the goods or services is in Luxembourg. In such cases any agreement conferring jurisdiction must, in order to be valid, be in, or evidenced in, writing in accordance with Article 23(1)(a) of the Regulation. Jurisdiction agreements arising by trade or practice between the parties or in accordance with trade or commercial practice in a particular industry will not bind a Luxembourg party. These provisions are transitional and will be subject to further review six years from 1st March, 2002. They do not apply to contracts for the provision of financial services.
Changing boilerplate jurisdiction clauses
Most corporate standards will need to be compliant, not only with the Regulation, but also with the Lugano Convention which remains in force and with the Brussels Convention since Denmark will not be bound by the Regulation. They also have to work for transactions outside Europe.
To avoid the confusion of having different versions for transactions in different countries, it is best to keep clauses general, making it clear which country's courts have been chosen and whether that choice is intended to be exclusive or non-exclusive for one or more of the parties (see box "Sample clauses").
The choice of court will be a matter for negotiation. Many UK companies wish to nominate the English courts but this is not always acceptable to the counterparty. It is worth noting that the Regulation is intended to make it easier to enforce English court judgments in other EU countries and vice versa, which may affect corporate willingness to agree to EU courts outside the home jurisdiction.
These clauses are drafted on the basis that jurisdiction is conferred on the English courts.
Exclusive for all parties
"In relation to any legal action or proceedings arising out of or in connection with this Agreement ("Proceedings"), each of the parties irrevocably submits to the exclusive jurisdiction of the English courts and waives any objection to Proceedings in such courts on the grounds of venue or on the grounds that Proceedings have been brought in an inappropriate forum."
The waiver at the end of this clause (and subsequent clauses) prevents a potential defendant raising forum non conveniens arguments (seeking to stay proceedings in favour of another, more appropriate court) after proceedings have been commenced. The waiver is technically not needed where one of the parties is domiciled in an EU/EFTA country or in Poland since the concept of forum non conveniens is not allowed for under the Conventions and the Regulation, but it is sensible to include it in boilerplates for general use.
Non-exclusive for all parties (becoming exclusive once proceedings commence)
"In relation to any legal action or proceedings arising out of or in connection with this Agreement ("Proceedings"), each of the parties irrevocably submits to the non-exclusive jurisdiction of the English courts and waives any objection to Proceedings in such courts on the grounds of venue or on the grounds that Proceedings have been brought in an inappropriate forum."
This clause gives flexibility to all parties so that any party (the claimant) considering where to sue can either sue in:
- England (in which case the defendant may not object to the English court's jurisdiction either because of the operation of the Regulation or Conventions or because of the contractual waiver (see above); or
- A non-English court having jurisdiction under its own rules.
This clause, therefore, gives a potential claimant some tactical options, for example, suing in the chosen court (England) or in the court of the defendant's domicile (for example, France) and preserves the potential claimant's freedom to choose until the issues in any dispute have become clear. This clause is suitable for companies which are more likely to be the claimant in any proceedings under the contract.
Non-exclusive for all parties (permitting parallel proceedings in some cases)
"In relation to any legal action or proceedings arising out of or in connection with this Agreement ("Proceedings"), each of the parties irrevocably submits to the non-exclusive jurisdiction of the English courts save that this submission shall not affect the right of any party to take Proceedings in any other court or courts having jurisdiction, to the extent permitted by law."
This clause gives flexibility so that any party (the claimant) considering where to sue can either sue in England or in a non-English court having jurisdiction under its own rules. In this clause, however, the defendant is not necessarily locked into the claimant's choice of court and may, in certain circumstances, be able to object to the claimant's choice of forum and commence parallel proceedings elsewhere. However, such a saving provision will not allow parallel proceedings in other EU or EFTA/Polish courts since these are not permitted under the Regulation or Conventions. These provisos therefore have little effect in Europe. Parallel proceedings may, however, be issued in, say, the US. In general, parallel proceedings are undesirable because of the costs, inconvenience and the danger of conflicting judgments.
Exclusive for all parties (as claimant) except Party A; non-exclusive for Party A
"(1) Subject to clause (2) below, the parties irrevocably agree that the English courts shall have exclusive jurisdiction in relation to any legal action or proceedings arising out of or in connection with this Agreement ("Proceedings").
(2) The parties agree that [clause (1) operates for the benefit of [Party A] and accordingly] [Party A] shall be entitled to take Proceedings in any other court or courts having jurisdiction."
This clause gives flexibility to Party A, while restricting the other parties. It leaves Party A's options open since it may sue in England or elsewhere. Party A enjoys certainty as to where it might be sued; but it retains flexibility as to where it might sue. (Note, however, that A can only sue in a court which otherwise has jurisdiction.) Conversely, the other parties can be sued anywhere by A outside England but they may only sue Party A in England. It follows that UK companies should only generally agree to this type of clause if they are Party A, otherwise the more even handed exclusive clause above would be more appropriate.
The "benefit" wording in sub-clause (2) should be used for contracts with Danish, EFTA or Polish parties for the time being but otherwise can be omitted since it reflects the wording in Article 17 of the Conventions which has been deleted from the Regulation.
A valid jurisdiction agreement overrides the general domicile rule (namely that the defendant should be sued in his domicile) as well as the optional jurisdiction rules in Articles 5 and 6 of the Conventions/Regulation. However, a jurisdiction clause cannot override the so-called "mandatory" jurisdiction rules. Mandatory jurisdiction rules apply, for example, in proceedings involving consumers, employees, insured persons, immovable property, the validity of entries to public registers and the validity of certain formal company matters such as dissolution. Therefore, if the subject matter of a contract falls into any of these areas, then the jurisdiction clause may have limited, or no, effect.
In most general commercial matters, an exclusive jurisdiction clause will be advisable.
Article 17 and Article 23 of the Conventions and Regulation respectively apply where the selected court is a EU, EFTA or Polish court.