The recent CJEU ruling in Società Italiana Lastre SpA (SIL) v Agora SARL brings both clarity and uncertainty to asymmetric jurisdiction clauses in finance documents.
The CJEU’s decision provides long-awaited legal certainty for such jurisdiction clauses designating the courts of EU member states or Lugano state courts, confirming their validity under Article 25 of Regulation (EU) No 1215/2012 (Brussels Recast). However, the ruling leaves questions about the enforceability of asymmetric jurisdiction clauses that allow one party to bring proceedings in any competent court, including those outside the EU. Asymmetric jurisdiction clauses allowing the finance parties to choose any competent court to bring proceedings while restricting the obligors to a designated jurisdiction/court are standard in finance documents, particularly in syndicated loan transactions.
Background of the case
The French Court of Cassation made a request for a preliminary ruling concerning the applicability and interpretation of Article 25(1) of Brussels Recast (Article 25(1)), arising out of proceedings between Società Italiana Lastre SpA (SIL), an Italian company, and Agora SARL (Agora), a French company. The core issue was the validity of an asymmetric jurisdiction clause in a guarantee, which allowed SIL to bring proceedings in any competent court. Under the clause, however, Agora was restricted to initiating proceedings in a specific court in Italy. Agora challenged the clause’s validity, arguing it was imprecise and one-sided, thus violating EU principles of legal certainty and fairness.
Three questions were referred to the CJEU. In light of the ruling on the first two questions, a response to the third question was not required.
The CJEU’s ruling
(i) The first question
The first question asked whether Article 25(1) must be interpreted as meaning that in assessing the validity of a jurisdiction clause, complaints about asymmetry must be interpreted in light of criteria relating to matters which cause that agreement to be “null and void as to its substantive validity” as defined by members states laws, or in light of autonomous criteria derived from Article 25(1).
The CJEU ruled that asymmetric jurisdiction clauses must meet the requirements of clarity and predictability as stipulated in Article 25(1). The CJEU emphasised that such clauses should not create an imbalance between the parties’ rights and obligations and must be clear and precise to ensure legal certainty.
The CJEU further clarified that the substantive validity of these clauses should be assessed based on autonomous EU law principles derived from Article 25 of Brussels Recast. This approach aims to maintain uniformity and predictability across the EU legal framework rather than relying on varying national laws of member states.
(ii) The second question
The second question asked whether asymmetric jurisdiction clauses are valid under Article 25(1).
The CJEU held that Article 25(1) cannot be interpreted as limiting the parties to only designated courts of a single member state. Such an approach would run contrary to the freedom of choice inherent in Brussels Recast. It held that under Article 25(1), the jurisdiction of the designated court is exclusive unless the parties have agreed otherwise. In the case before it, the CJEU stated that the fact that only Agora was required to comply with the exclusive jurisdiction conferred on the Italian court did not appear to be contrary to Article 25 of Brussels Recast.
The CJEU, therefore, confirmed the validity of asymmetric jurisdiction clauses under Brussels Recast. However, the CJEU added some provisos to this. Firstly, the designated courts must be those of member states, or Lugano Convention states. Secondly, the clause must identify objective factors which are sufficiently precise to enable the court seised to ascertain whether it has jurisdiction. Based on earlier case law, this means the court of jurisdiction is specified, or the criteria to determine jurisdiction is sufficiently clear. Thirdly, it is not contrary to the other provisions of Brussels Recast (notably the provisions conferring jurisdiction in insurance, consumer and employment disputes) and does not derogate from an exclusive jurisdiction under Article 24 of Brussels Recast.
Legal certainty for EU/Lugano courts clauses
The ruling provides much-needed legal certainty by confirming that asymmetric jurisdiction clauses designating EU or Lugano courts are valid under Article 25 of Brussels Recast. This decision resolves previous ambiguities, particularly those stemming from inconsistent decisions from the French courts.
Uncertainty for clauses allowing proceedings in any competent court
However, the ruling raises concerns about the enforceability of asymmetric jurisdiction clauses that allow one party to bring proceedings in any competent court, including those outside the EU. The CJEU’s decision is limited to clauses designating the courts of an EU member state or Lugano State. This leaves questions about the validity of clauses that give finance parties the flexibility to choose any competent court, which has been a preferred option in many finance transactions.
Conclusion
Asymmetric jurisdiction clauses have not been considered to date by the Irish courts. While the English courts have previously held that such clauses are valid under Article 25, the decision in Società Italiana Lastre SpA (SIL) v Agora SARL, which binds the Irish courts, removes any lingering ambiguity. That said, while the CJEU’s ruling enhances legal certainty for certain types of asymmetric jurisdiction clauses, it also highlights the need for parties to carefully assess whether such a clause is appropriate for the transaction.
If you want to discuss the implications of this decision or need advice on drafting and negotiating jurisdiction clauses, please contact Padraic Kinsella or David Maughan.
Contributed by Aisling Doran and Gail Nohilly.
