Asymmetric jurisdiction clauses have been a common feature of English law finance agreements for many years, but there can be risks in using them. This article explains the most important recent developments for parties that include them in their agreements.
An asymmetric jurisdiction clause is one where the parties submit to the jurisdiction of one or more designated courts, but this submission is exclusive for some parties and non-exclusive for others. In an English law facility agreement containing an asymmetric jurisdiction clause, the designated courts are usually the English courts and the submission to their jurisdiction is exclusive for the "Obligors" and non-exclusive for the "Finance Parties". The Finance Parties therefore have the option of starting proceedings in any competent court that will accept jurisdiction over a relevant dispute.
English courts have long recognised and enforced asymmetric jurisdiction clauses. But the 2012 French case of Ms X v. Banque Privée Edmond de Rothschild cast some doubt on their effectiveness. In it, the French Supreme Court held that an asymmetric jurisdiction clause was invalid under the Brussels Regulation. The decision caused concern beyond France, as the courts of all EU member states, including (at the moment) the English courts must apply the Brussels Regulation to decide which courts have jurisdiction over most civil and commercial disputes. Some law firms (including Dentons) began to qualify their English law legal opinions on agreements containing asymmetric jurisdiction clauses to address this uncertainty. Since the Rothschild case, the Brussels Regulation has been "recast", but without addressing this point.
Commerzbank AG v. Pauline Shipping Ltd and Liquimar Tankers
Commerzbank AG v. Pauline Shipping Ltd and Liquimar Tankers  EWHC 161 is the first English case since Rothschild on whether an asymmetric clause is valid under the Brussels Regulation (recast or otherwise). The court held that it was. The court also held that asymmetric clauses are "exclusive" for the purposes of the "recast" Brussels Regulation. This means the designated courts do not have to stay proceedings even if the other party has already started proceedings in another, non-designated, EU member state's courts.
The Commerzbank decision is not a surprise, and arguably has limited impact on the legal risks involved in using asymmetric clauses. In international transactions involving a party in France or another jurisdiction that does not recognise asymmetric clauses, it may still be more sensible for lenders to choose a different dispute resolution provision, such as a mutual exclusive jurisdiction clause or arbitration. We understand the courts in Poland and Bulgaria, as well as France, have refused to recognise asymmetric jurisdiction clauses, whereas courts in Spain, Italy, Luxembourg and Greece have all adopted the same approach as the English courts.
The Commerzbank decision does though make it harder to justify qualifying an English law legal opinion to address the Rothschild risk, where that opinion is on "English law as applied by the English courts". Dentons no longer does so. However, the question of whether asymmetric jurisdiction clauses are effective under the (recast) Brussels Regulation is ultimately a matter of EU law. Some law firms may therefore still wish to refer in their opinions to the risk that this point could be referred to the CJEU in the future. If it was, the English courts would have to follow the CJEU's decision (at least at the moment).
In November 2016, the LMA made a minor change to the drafting of the asymmetric jurisdiction clauses in its leveraged finance facilities agreements. (It has since made the same change to its real estate finance facility agreements.) The clause is no longer expressed to be "for the benefit of the Finance Parties only". The change is welcome as the words were slightly misleading: if a borrower starts proceedings against a Finance Party in the designated English courts, it should be able to rely on (and therefore benefit from) the clause if that Finance Party challenged the English courts' jurisdiction. However, it is likely a borrower would be able to do so, even if its jurisdiction clause contained the words that the LMA has now deleted. In Mauritius Commercial Bank Ltd v. Hestia Holdings Ltd and another  EWHC 1328 (Comm), the English court held that an asymmetric clause expressed to be "for the benefit of the Lender only" in fact only released the lender from the effects of the clause in proceedings brought by the lender. It did not override the lender's agreement to submit to the jurisdiction of the English courts in proceedings brought by the borrower.
When the UK leaves the EU, the "recast" Brussels Regulation will no longer apply automatically to it. It is unclear what, if any, reciprocal arrangements on jurisdiction and recognition of judgments will apply instead between the UK and the EU27, but if no replacement agreement is reached:
- The English courts may no longer be bound by decisions of the CJEU, removing the current (low) risk that asymmetric clauses might become ineffective in England on account of an unfavourable CJEU judgment in the future.
- The UK's simplest option for ensuring that English (and other UK) judgments continue to be recognised and enforced throughout the EU27 may be to accede to the Hague Convention on Choice of Court Agreements (the HCCCA). The UK will be able to accede in its own right to the HCCCA unilaterally, without needing the agreement of the EU27. The EU, Singapore and Mexico have already ratified the HCCCA. However, the mutual recognition of judgments between HCCCA contracting states only applies to judgments made under an exclusive jurisdiction agreement (unless contracting states agree otherwise). The Explanatory Note to the HCCCA states that asymmetric clauses do not count as exclusive for this purpose (although interestingly, Mr Justice Cranston commented in his Commerzbank judgment that there are "good arguments" for the opposite view).
Given the number of variables and unknowns, it is hard to say definitively whether Brexit increases or decreases the risk of using asymmetric jurisdiction clauses in transactions involving EU27 parties. However, as the UK has the HCCCA "fall-back" option, it is difficult to see a plausible outcome in which an English court judgment made under a mutual exclusive jurisdiction agreement would not be recognised and enforced throughout the EU27 after Brexit. It is not quite possible to say that about English judgments made under asymmetric jurisdiction clauses.