Unilateral jurisdiction clauses may not always be effective

It is not uncommon, particularly in a finance context, for an agreement to give a wider choice to some parties than others to decide where disputes will be resolved. For example, an agreement may provide that the courts of a particular country have exclusive jurisdiction, but some of the parties, such as the lender, can instead opt to bring proceedings in another jurisdiction, and/or refer the dispute to arbitration. Another common alternative used in many agreements is for both parties to be able to bring a dispute to arbitration but for the lender to have the unilateral option of going to court.

These various unilateral possibilities give flexibility to the lender to bring proceedings in a jurisdiction where the defendant’s assets are located, or to refer the dispute to arbitration if proceedings have been commenced in a different EU jurisdiction than the agreed EU jurisdiction with a view to delaying judgment (so-called torpedo actions) or if there may be enforcement risks with a court jurisdiction clause, as is often the case outside the EU, and particularly in emerging markets.

Whilst we have long been aware that unilateral options to arbitrate or litigate have been problematic in certain jurisdictions (China and Poland being two cases in point), recent decisions in a number of jurisdictions seem to have broadened the scope of this problem. In particular they have called into doubt the effectiveness of such clauses in France and Russia and they have broadened the issue to any aspect of inequality, including unilateral jurisdiction clauses (ie. jurisdiction clauses that are exclusive for one party but non-exclusive for the other).

For more information, please see our Litigation Notes blog.