French Supreme Court refuses to apply a unilateral jurisdiction clause

In a recent decision, the French Supreme Court (Cour de cassation) has again refused to apply a unilateral jurisdiction clause. A unilateral jurisdiction clause requires one party to bring proceedings in one jurisdiction only, while the other may choose to bring proceedings in other jurisdictions.

The decision, which comes after the much-discussed 2012 Supreme Court judgment in the Rothschild case (Cass. 1. Civ, 26 September 2012)(see our previous blog post here), is a further reminder of the need to give careful consideration to the validity of dispute resolution provisions in the possible jurisdiction of any future proceedings when drafting contracts.

This decision (and the decision in Rothschild) are significant in the context of unilateral jurisdiction clauses. However, and notwithstanding the fact that the French courts have not had a chance to consider the issue in relation to arbitration since the Rothschild decision, there is nothing to suggest that the same approach would be taken with regard to clauses containing an arbitration agreement with an option to litigate in one particular jurisdiction, or an exclusive jurisdiction clause with an option for one party to bring arbitration proceedings (so-called hybrid dispute resolution clauses). As such, a hybrid arbitration clause may be an appropriate option in circumstances where there is a nexus with France and one of the parties wishes to have a degree of flexibility regarding the forum in which disputes will be heard.

Cour de cassation, chambre civile 1, 25 mars 2015, 13-27.264

Background

The appeal before the Supreme Court related to unilateral jurisdiction clauses in two framework credit agreements concluded in August 2007 and October 2008 between Credit Suisse and Danne holding patrimoniale ("Danne"). Each jurisdiction clause provided that "the borrower acknowledges that the sole forum for any proceedings is Zurich or the place of the branch of the bank where the relationship is established" and that "the bank has, however, the right to bring proceedings against the borrower before any other competent tribunal".

The financing arrangement had been entered into with the assistance of Mr X, who acted in a personal capacity and on behalf of NJRH Management ("NJRH"). Société Générale, which is incorporated in France, had provided an on-demand guarantee as part of the arrangement. ICH, which had succeeded Danne, challenged the financing arrangement and brought proceedings against Credit Suisse, Mr X, NJRH and Société Générale before the French courts.  

Credit Suisse raised a jurisdictional objection, which was upheld by the Angers Court of Appeal, on the basis of the jurisdiction clause in the credit agreements. The Court of Appeal rejected the submission that the contracts should be regarded as consumer contracts under Article 16 of the Lugano Convention and that the drafting of the jurisdiction clause, in a standard form contract, was particularly favourable to the bank. It found that the imbalance complained of, which was no more than a jurisdiction clause agreed between two contracting parties from different countries, was not enough to render the clause irregular within the meaning of the Lugano Convention. As such, the Court of Appeal found that ICH, which had entered into the contract as part of its commercial activities, could not invoke the right granted to consumers under Article 16 of the Lugano Convention to bring proceedings in their state of domicile, and the dispute should be heard by the Swiss courts.

The Supreme Court decision

The Angers Court of Appeal judgment was overturned by the Supreme Court.

The Supreme Court first drew attention to Article 23 of the Lugano Convention, which permits the parties to a contract to agree on the courts which will have jurisdiction over any dispute. It then highlighted the fact that the Court of Appeal had reached its conclusion without considering whether the imbalance criticised by ICH – relating to the fact that the clause granted the bank the right to bring proceedings before "any other competent tribunal" but did not specify the objective basis on which this alternative jurisdiction was founded – was contrary to the objectives of foreseeability and legal certainty underpinning the Lugano Convention. In doing so, the Court of Appeal had deprived its decision of a legal basis. As a result, the ruling was overturned and the parties were returned to their original positions. The case will now be reheard by the Rennes Court of Appeal.

Comment

This decision is another example of the French Supreme Court refusing to enforce a unilateral jurisdiction clause and is important for two reasons.

First, it is a further reminder of the need to ensure that dispute resolution clauses are tailored to the circumstances of individual contracts. It is common to use unilateral jurisdiction clauses in a finance context, and this will be a particularly important consideration for banks where there is a risk of proceedings being brought, in breach of the clause, in France.

Second, and perhaps surprisingly, the Supreme Court did not state expressly that the clause in question was potestative. A condition potestative is one which depends for its performance upon an event which only one of the parties has the power to make happen or to prevent and is void under French law (Articles 1170 and 1174 of the Civil Code). In the Rothschild case (see here), the court found that the unilateral clause in question was potestative, on the basis that it "bound, in reality, only Madame X […] who was alone required to seise the Luxembourg courts", and from that drew the conclusion that the clause was contrary to the object and purpose of Article 23 of the Brussels Regulation (Regulation (EC) 2001/44).

Rothschild has been subjected to heavy criticism. One of the major criticisms focuses upon the fact that, although it was applying EU law (the Brussels Regulation), the Supreme Court appears to have relied upon the French concept of a condition potestative in order to refuse to apply the unilateral jurisdiction clause. With its 25 March 2015 judgment, the Supreme Court has, with one important exception, extended its Rothschild approach to the Lugano Convention. In its appeal to the Supreme Court, the appellant had expressly argued that the "clause was potestative and contrary to the objective of foreseeability and legal certainty" behind Article 23 of the Lugano Convention. The Supreme Court, however, appears to have deliberately avoided any reference to the clause's allegedly potestative nature. Instead it focused on (i) the absence of objective criteria setting out the basis for any alternative jurisdiction and (ii) the fact that the unbalanced nature of unilateral jurisdiction clauses is, in its view, contrary to the aims of the Lugano Convention.

It remains to be seen whether the Supreme Court will adapt its approach when interpreting the Recast Brussels Regulation. The Recast Brussels Regulation, which entered fully into force on 10 January 2015, makes it clear that questions as to the validity of a jurisdiction clause are to be decided in accordance with the laws of the courts given jurisdiction by that clause and Article 25, which is the equivalent provision to Article 23 of the Brussels Regulation, now provides expressly that the courts of a Member State designated in a clause will have jurisdiction, "unless the agreement is null and void as to its substantive validity under the law of that Member State". This appears to sit uneasily with the approach adopted in Rothschild, and it will be interesting to see how the Supreme Court responds when (and if) it is asked to consider a unilateral jurisdiction clause under the Recast Brussels Regulation.

Given the French courts’ hostility to unilateral jurisdiction clauses under both the Lugano Convention and the Brussels Regulation, parties to a contract with a connection to France would be advised to avoid such clauses. Nonetheless, there may be circumstances in which a party attaches particular importance to having the right to bring proceedings in places other than the named jurisdiction. In such a scenario, and where there is a nexus with France, one possibility (in addition to using a hybrid arbitration clause) would be for the jurisdiction clause to list expressly the alternative jurisdictions in which that party has the right to bring proceedings. Such a clause has not been tested before the French courts, but it might go some way towards addressing the Supreme Court’s concerns about certainty.

For further information, please contact Clément Dupoirier , Partner, Laurence Franc-Menget, Avocat, Peter Archer, Associate or your usual Herbert Smith Freehills contact.