Clarity Ahead for Enforcing Jurisdiction Clauses in the EU?

When contracting parties agree to submit a dispute to the courts of a particular jurisdiction on an exclusive basis, it is sometimes done to gain the advantage of selecting a party's home jurisdiction. Other times, the parties may select a specific jurisdiction because many of the witnesses and documentary evidence for a dispute will be concentrated there, because the parties have chosen that jurisdiction's law to govern the agreement, or because the jurisdiction offers some advantage over others.

What happens, though, when such an agreement has been entered into by the parties but the plaintiff decides to sue in the courts of the defendant's own domicile in violation of such an agreement? If the defendant's domicile is in the EU, and the jurisdiction chosen by the parties is not, the current view is that the court would likely stay or dismiss the action in favor of the contractually chosen forum by operation of the exclusive jurisdiction clause. This view, however, is not certain in light of two factors: the Brussels Conven-tion and the absence of any definitive ruling by the European Court of Justice (the 'ECJ'). [Note, The Convention of 27 September 1968 on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters ('Brussels Convention'), which was amended in 2000 by the Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Council Regulation No. 44/2001 of 22nd December, 2000) (the 'Brussels Regulation')]. One cure for this uncertainty is the Choice of Court Convention, which would resolve the issue in favor of enforcing exclusive jurisdiction clauses.

Current Analysis under the Brussels Convention

The strong presumption of the Brussels Convention, as amended by the Brussels Regulation, is that a defendant may be sued for civil and commercial disputes in the courts of the defendant's domicile. As is expressed in the Brussels Regu-lation's preamble, 'the defendant's domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor.' Domicile is defined by Article 60 of the Brussels Regulation to include the defendant's statutory seat (e.g., place of incorporation), place of central administration, or principal place of business.

The force of the Brussels Regulation's domicile rule is evident from the ECJ's ruling in Owusu v. Jackson [2005] Q.B. 801 (ECJ). In Owusu, a UK citizen filed a suit against a defendant domiciled in the UK and several Jamaican defendants for contract and tort claims arising out of an accident occurring in Jamaica that paralyzed the claimant. In deciding the issue of whether the doctrine of forum non conveniens could be applied to stay an action in the UK (a member state of the Brussels Convention) in favor of a non-member state where the accident occurred, the ECJ held that the Brussels Regulation required the courts of the member state to exercise jurisdiction over a defendant domiciled within that member state. The ECJ explained that the mandatory nature of a member state's jurisdiction over those domiciled within the state facilitated the certainty upon which the Convention was premised, provided legal protection to persons within the EU, and effected the uniform application of the rules of jurisdiction.

Although the Brussels Regulation provides for bases of jurisdiction other than domicile, it does not explicitly authorize the recognition of jurisdiction outside of a member state. The germane example here is the provision applicable to exclusive choice of court agreements. Article 23 states that, '[i]f the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction' and that '[s]uch jurisdiction shall be exclusive unless the parties have agreed otherwise.' The Regulation does not expressly indicate what a member state should do when a person domiciled within that state is sued at its domicile in contradiction to an exclusive choice of court agreement that selects a non-member state jurisdiction. Should the court resort to the domicile rule, that a member state's court must exercise jurisdiction over a defendant domiciled within that jurisdiction in the absence of another category identified by the Regulation?

The plaintiff in Konkola Copper Mines Plc v. Coromin Ltd. [2006] 2 All E.R. (Comm) 437 attempted this precise argument. In Konkola, the plaintiff sued a number of insurers in the UK concerning a dispute over insurance coverage of a copper mine located in Zambia. With respect to certain insurance provided by a company domiciled in the UK, a dispute arose as to whether the agreement was governed by an exclusive jurisdiction clause in favor of the courts of Zambia or a different exclusive jurisdiction clause selecting the English courts. The court found that the English jurisdiction clause governed the dispute, avoiding the need to decide whether an English court could decline jurisdiction over a person domiciled within the UK and enforce a jurisdiction agreement that selected a non-member state jurisdiction. The court, however, did find that if it had reached this issue, the court would have the authority to stay the proceeding, reasoning that enforcement of an exclusive jurisdiction agreement did not present the same unpredictability problems as forum non conveniens and that the interpretation of the Brussels Convention to the contrary was much too formalistic of an approach. While this decision gives some comfort that at least one court within the EU favors enforcement of such agreements, this issue has never been considered by the ECJ. As a result, the question still remains whether the ECJ and other courts will follow the reasoning provided in Konkola or whether, as with Owusu, those courts will follow a strict interpretation of the language of the Brussels Convention.

The Choice of Court Convention

The Choice of Court Convention provides a mechanism for recognition of certain judgments rendered by U.S. courts, namely a judgment resolving a dispute arising out of a commercial agreement that was submitted pursuant to an exclusive choice of court agreement. As a corollary benefit, the Choice of Court Convention provides that exclusive jurisdiction clauses will be recognized as enforceable among signatories to the Convention and that any court seized in violation of such an agreement will suspend or dismiss its proceedings. The Convention also strengthens the effect of these agreements by providing that a court designated in an exclusive choice of court agreement shall not decline to exercise its jurisdiction, presumably to pre-empt arguments of forum non conveniens. Further, it provides that a choice of court agreement cannot be contested solely on the ground that the contract is invalid. By recognizing the validity and enforcement of jurisdiction agreements, the Choice of Court Convention would resolve any ambiguities that currently exist as to the enforceability of these agreements across EU and non-EU borders, providing some certainty to those who intend to rely on an exclusive choice of court agreement.

Conclusion

If the Choice of Court Convention is ratified by a number of countries, the ambiguity surrounding the enforceability of exclusive choice of court agreements will be resolved within those jurisdictions. Until such time, however, companies and their legal advisers should be aware of this potential risk in enforcement of jurisdiction agreements when a non-EU jurisdiction is selected and at least one party is domiciled in the EU.

Todd S. Fishman is a partner and Laura Martin is an associate in the Litigation Department of Allen & Overy LLP.

In a recent development that will likely be of interest to lessors and other parties conducting business in Europe, the American Bar Association has urged the U.S. government to sign, ratify, and implement the Hague Convention on Choice of Court Agreements (the 'Choice of Court Convention'). The Choice of Court Convention accomplishes many goals that have long been sought by the United States. Most importantly, it provides a mechanism for the recognition of certain judgments rendered by U.S. courts, namely judgments resolving a dispute arising out of a commercial agreement that was submitted pursuant to an exclusive choice of court agreement. (See American Bar Association, Recommendation adopted by the House of Delegates (Aug. 7-8, 2006), at www.abanet.org/intlaw/policy/investment/hcca0806.pdf.)

This Convention, in addition, brings another benefit on which there has been less of a focus, namely clarifying and strengthening the enforceability of choice of court agreements themselves. This benefit of the Choice of Court Convention has a particular impact upon enforceability within the European Union ('EU') of jurisdiction clauses selecting non-EU courts.

Choice of Court Agreements

When contracting parties agree to submit a dispute to the courts of a particular jurisdiction on an exclusive basis, it is sometimes done to gain the advantage of selecting a party's home jurisdiction. Other times, the parties may select a specific jurisdiction because many of the witnesses and documentary evidence for a dispute will be concentrated there, because the parties have chosen that jurisdiction's law to govern the agreement, or because the jurisdiction offers some advantage over others.

What happens, though, when such an agreement has been entered into by the parties but the plaintiff decides to sue in the courts of the defendant's own domicile in violation of such an agreement? If the defendant's domicile is in the EU, and the jurisdiction chosen by the parties is not, the current view is that the court would likely stay or dismiss the action in favor of the contractually chosen forum by operation of the exclusive jurisdiction clause. This view, however, is not certain in light of two factors: the Brussels Conven-tion and the absence of any definitive ruling by the European Court of Justice (the 'ECJ'). [Note, The Convention of 27 September 1968 on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters ('Brussels Convention'), which was amended in 2000 by the Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Council Regulation No. 44/2001 of 22nd December, 2000) (the 'Brussels Regulation')]. One cure for this uncertainty is the Choice of Court Convention, which would resolve the issue in favor of enforcing exclusive jurisdiction clauses.

Current Analysis under the Brussels Convention

The strong presumption of the Brussels Convention, as amended by the Brussels Regulation, is that a defendant may be sued for civil and commercial disputes in the courts of the defendant's domicile. As is expressed in the Brussels Regu-lation's preamble, 'the defendant's domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor.' Domicile is defined by Article 60 of the Brussels Regulation to include the defendant's statutory seat (e.g., place of incorporation), place of central administration, or principal place of business.

The force of the Brussels Regulation's domicile rule is evident from the ECJ's ruling in Owusu v. Jackson [2005] Q.B. 801 (ECJ). In Owusu, a UK citizen filed a suit against a defendant domiciled in the UK and several Jamaican defendants for contract and tort claims arising out of an accident occurring in Jamaica that paralyzed the claimant. In deciding the issue of whether the doctrine of forum non conveniens could be applied to stay an action in the UK (a member state of the Brussels Convention) in favor of a non-member state where the accident occurred, the ECJ held that the Brussels Regulation required the courts of the member state to exercise jurisdiction over a defendant domiciled within that member state. The ECJ explained that the mandatory nature of a member state's jurisdiction over those domiciled within the state facilitated the certainty upon which the Convention was premised, provided legal protection to persons within the EU, and effected the uniform application of the rules of jurisdiction.

Although the Brussels Regulation provides for bases of jurisdiction other than domicile, it does not explicitly authorize the recognition of jurisdiction outside of a member state. The germane example here is the provision applicable to exclusive choice of court agreements. Article 23 states that, '[i]f the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction' and that '[s]uch jurisdiction shall be exclusive unless the parties have agreed otherwise.' The Regulation does not expressly indicate what a member state should do when a person domiciled within that state is sued at its domicile in contradiction to an exclusive choice of court agreement that selects a non-member state jurisdiction. Should the court resort to the domicile rule, that a member state's court must exercise jurisdiction over a defendant domiciled within that jurisdiction in the absence of another category identified by the Regulation?

The plaintiff in Konkola Copper Mines Plc v. Coromin Ltd. [2006] 2 All E.R. (Comm) 437 attempted this precise argument. In Konkola, the plaintiff sued a number of insurers in the UK concerning a dispute over insurance coverage of a copper mine located in Zambia. With respect to certain insurance provided by a company domiciled in the UK, a dispute arose as to whether the agreement was governed by an exclusive jurisdiction clause in favor of the courts of Zambia or a different exclusive jurisdiction clause selecting the English courts. The court found that the English jurisdiction clause governed the dispute, avoiding the need to decide whether an English court could decline jurisdiction over a person domiciled within the UK and enforce a jurisdiction agreement that selected a non-member state jurisdiction. The court, however, did find that if it had reached this issue, the court would have the authority to stay the proceeding, reasoning that enforcement of an exclusive jurisdiction agreement did not present the same unpredictability problems as forum non conveniens and that the interpretation of the Brussels Convention to the contrary was much too formalistic of an approach. While this decision gives some comfort that at least one court within the EU favors enforcement of such agreements, this issue has never been considered by the ECJ. As a result, the question still remains whether the ECJ and other courts will follow the reasoning provided in Konkola or whether, as with Owusu, those courts will follow a strict interpretation of the language of the Brussels Convention.

The Choice of Court Convention

The Choice of Court Convention provides a mechanism for recognition of certain judgments rendered by U.S. courts, namely a judgment resolving a dispute arising out of a commercial agreement that was submitted pursuant to an exclusive choice of court agreement. As a corollary benefit, the Choice of Court Convention provides that exclusive jurisdiction clauses will be recognized as enforceable among signatories to the Convention and that any court seized in violation of such an agreement will suspend or dismiss its proceedings. The Convention also strengthens the effect of these agreements by providing that a court designated in an exclusive choice of court agreement shall not decline to exercise its jurisdiction, presumably to pre-empt arguments of forum non conveniens. Further, it provides that a choice of court agreement cannot be contested solely on the ground that the contract is invalid. By recognizing the validity and enforcement of jurisdiction agreements, the Choice of Court Convention would resolve any ambiguities that currently exist as to the enforceability of these agreements across EU and non-EU borders, providing some certainty to those who intend to rely on an exclusive choice of court agreement.

Conclusion

If the Choice of Court Convention is ratified by a number of countries, the ambiguity surrounding the enforceability of exclusive choice of court agreements will be resolved within those jurisdictions. Until such time, however, companies and their legal advisers should be aware of this potential risk in enforcement of jurisdiction agreements when a non-EU jurisdiction is selected and at least one party is domiciled in the EU.

Todd S. Fishman is a partner and Laura Martin is an associate in the Litigation Department of Allen & Overy LLP.