Latest guidance from the Court of Appeal on asymmetric jurisdiction clauses

The Court of Appeal has held that an asymmetric or unilateral jurisdiction clause is an exclusive jurisdiction clause for the purposes of the recast Brussels Regulation. The English court was therefore entitled to continue with its proceedings where it was the chosen court but proceedings had been commenced earlier in Germany: Etihad Airways PJSC v Lucas Flother [2020] EWCA Civ 1707.

Asymmetric jurisdiction clauses are common in the financial sector, and typically require one party to bring proceedings in one jurisdiction only, while the other (usually the financial institution) may choose to bring proceedings in other jurisdictions. The effect of this decision is (for proceedings commenced in England & Wales before 1 January 2021 at least - see further below) that an asymmetric jurisdiction clause will have the benefit Article 31(2) of the recast Regulation, a provision designed to defuse the so-called Italian Torpedo (whereby a counterparty could delay a resolution in the chosen court by racing to commence proceedings first in some other EU state, and the chosen court would then have to stay any proceedings under the “first seised” rule). Accordingly, the Court of Appeal's decision will be welcomed by banks for providing certainty in respect of how asymmetric jurisdiction clauses will be treated under the recast Regulation.

However, the recast Regulation ceased to apply in the UK when the Brexit transition period came to an end on 31 December 2020. This means that the Court of Appeal's decision will only be of direct relevance in respect of proceedings commenced in England & Wales before 1 January 2021. This is the case even if the UK accedes to the Lugano Convention 2007, as there are no similar provisions within Lugano giving priority to an exclusive jurisdiction clause where the proceedings in the chosen court are second in time. In this context, it is worth noting that judicial cooperation in civil and commercial matters was outside the mandate of the negotiations leading to the Trade and Cooperation Agreement (TCA) agreed between the UK and the EU, which therefore contains no relevant provisions (for our initial commentary on the TCA, see our Beyond Brexit blog post).

Of more interest and ongoing relevance are the Court of Appeal's comments concerning whether an asymmetric clause is an exclusive jurisdiction clause for the purposes of the 2005 Hague Convention on Choice of Court Agreements, as this Convention will apply post-Brexit to proceedings between the UK and the EU (assuming no Lugano). The Court of Appeal’s view, was that there were strong indications that the intention was to exclude asymmetric clauses from Hague.

While this aspect of the decision is less helpful from the perspective of financial institutions, it is important to note that Court of Appeal did not reach a final decision on the point and there have been two previous Commercial Court decisions observing that there are good arguments for asymmetric clauses being within the Hague Convention (see our posts here and here).

It is also worth noting that whatever view the English court takes concerning such clauses, the most important question from a UK perspective will be what stance an EU court takes on this question, i.e. whether it will stay proceedings and enforce judgments under the Hague Convention where there is an asymmetric clause which restricts one of the parties to bringing proceedings in England. While under Article 23 of Hague, courts must have regard to the Convention’s international nature and the need to promote uniformity in its application, English judgments will not be binding on foreign courts.

For a more detailed analysis of the decision, see our Litigation Notes blog post.