Jurisdiction clauses come in many shapes and sizes; they are sometimes exclusive and sometimes not. A particular form of jurisdiction clause that is widely used in financial transactions is one that is exclusive for one party (most often a borrower), permitting it to issue proceedings in only one jurisdiction, but non-exclusive for the other party (usually a bank), which is generally allowed to commence proceedings in any jurisdiction it chooses. This type of clause goes under many names, including "one-sided", "unilateral" and "for the benefit", but is best described as "asymmetrical", since it generally contains obligations of some sort on each party, although not equal ones.

Doubt cast on validity of asymmetrical jurisdiction clauses

Until recently it was assumed that in the European Union ("EU"), at least, asymmetrical jurisdiction agreements were acceptable to the courts and enforceable under Article 23 of the Brussels I Regulation (EC 44/2001 - "the Regulation"). Indeed they were approved explicitly by Article 17 of the Brussels Convention 1968, which the Regulation basically re-enacted. However, a decision in 2012 of the French Supreme Court, Mme X v Banque Privée Edmond de Rothschild, has cast doubt on this, and many financial institutions are now in the process of reviewing their standard form contracts, in some cases converting asymmetrical jurisdiction clauses into fully exclusive ones that they know will work.

The French Supreme Court held an asymmetrical clause to be invalid in the Rothschild case because it contained a condition that was 'potestatif' and therefore contrary to the French Civil Code and, by extension, to the Regulation. A 'potestatif' condition is one that "makes the fulfilment of the agreement depend upon an event which one or the other of the contracting parties has the power to make happen or to prevent" (Code Civil, Art 1170). In other words, it undermines a party's obligation by making it conditional on an event which that party has power over, so that the party is not really obliged to do anything at all.

The court's reasoning in the Rothschild case is difficult to follow - judgments of the French Supreme Court are relatively short and often cryptic - and it is in any case questionable whether a principle of national law such as "potestativité" should be evoked when judging the validity or otherwise of a jurisdiction clause. (The general principle is that national law is relevant to the scope and interpretation of a jurisdiction or governing law clause, but not to its validity.) Nevertheless, the Rothschild decision may inspire courts in other French-speaking parts of the EU to object to asymmetrical jurisdiction clauses, in particular where the court has grounds for accepting jurisdiction on other bases, for example where it is the domicile of a defendant (Articles 2 and 6 of the Regulation) or the place of performance of the contract (Article 5(1)(a)). There is even the risk that the decision will inspire courts outside the EU to raise the question of "potestativité" or to object to asymmetrical clauses for some other reason.

The decision in Mauritius Commercial Bank

This possibility was considered in May 2013 by the Commercial Court in Mauritius Commercial Bank v Hestia Holdings Ltd and anor [2013] EWHC 1328 (Comm). In that case, a bank (the claimant) had lent money to the first defendant, and repayment of the loan was guaranteed by Hestia's parent, the second defendant. The claimant and first defendant were based in Mauritius, while the parent company was based in India. Initially the parties' agreement was subject to Mauritian law and jurisdiction, but when the loan was rescheduled, the governing law and jurisdiction were changed to English. As in Rothschild, the jurisdiction clause was asymmetrical, allowing the bank to issue proceedings more or less anywhere it liked. (The clause followed standard wording recommended by the LMA.)

The first question that Popplewell J had to decide was whether it was possible to change a governing law and jurisdiction clause in this way. He held that it was.The parties had only agreed to change these prospectively, and since there was Court of Appeal authority for the proposition that even a retrospective change was possible, there was little room for argument on the subject.

The second, and more difficult, question to be decided was whether Mauritian law applied to the jurisdiction clause (if not to the rest of the agreement) and, if so, whether a court in Mauritius would have followed Rothschild in judging it to be "potestatif" and therefore invalid. Before gaining independence in 1968, Mauritius was a British colony for more than 150 years. However, its legal system is based on the French one and decisions of the French Supreme Court are sometimes followed, so the proposition that Rothschild would have been followed in this case was not merely fanciful. Nevertheless, Popplewell J found that, on the limited evidence before him, there was a "good arguable case" that Mauritian law would not reflect the French Supreme Court decision. However, this was strictly irrelevant, since English law governed the jurisdiction clause as it did the rest of the amended agreement. The defendants' argument that the clause was invalid even under English law, because it was contrary to Article 6 of the European Convention on Human Rights, which enshrines a party's right to a fair trial, also failed to convince the court since, as Popplewell J pointed out, Article 6 "is directed to access to justice within the forum chosen by the parties, not to choice of forum. No forum was identified in which the Defendants' access to justice would be unequal to that of MCB merely because MCB had the option of choosing the forum" (paragraph 43).

Continuing uncertainty

The decision in Mauritius Commercial Bank v Hestia Holdings Ltd is not surprising, and underlines the willingness of English courts to take asymmetrical jurisdiction clauses at face value. However, it does not confront head-on the relevance or otherwise of national legal principles such as "potestativité" to Article 23 of the Regulation, since all parties in the case were domiciled outside the EU and therefore not subject to that provision. It remains to be seen whether a court in England or elsewhere will refer the question to the EU's Court of Justice to clear up the confusion caused by Rothschild. Realistically, this is unlikely to happen soon, and in the meantime the date upon which the majority of the provisions in the new version of the "recast" Brussels I Regulation (EC 1215/2012) will apply, 10 January 2015, draws closer. Article 25 of the "recast" Regulation, which equates to Article 23 of the existing one, is unfortunately worded, making explicit reference to the chosen court or courts of a Member State having jurisdiction "unless the agreement is null and void as to its substantive validity under the law of that Member State". Although this may not be intended to open the door to questions of "potestativité" and the like, it may well be perceived as doing so, given that they have already entered into the debate.