knowledge 26 November 2015 |

Asymmetry Untangled - Clarity on Choice of Forum Clauses

The basic rule in the EU is that if the parties to a contract (regardless of where they are domiciled), agree that the courts of a particular Member State are to have jurisdiction in disputes in connection with their particular legal relationship, those courts may decide the dispute and their jurisdiction cannot be challenged, provided the agreement is itself valid and certain minimum requirements as to how the agreement is recorded are met. The current formulation of the rule (EU Regulation 1215/2012, known as Brussels I recast, Article 25) goes on to provide that the jurisdiction of the chosen court is exclusive unless the parties have agreed otherwise.

This rule is straightforward to apply in the case of a simple choice of forum clause; if the parties to a cross-border contact (wherever they operate from) choose the Irish courts to decide their disputes, then the Irish courts’ right to decide those disputes cannot be challenged.

However, it is common for multinational businesses who operate standard commercial arrangements in multiple states to use what is known as an “asymmetric jurisdiction clause” where the local operator can only sue in the multinational’s chosen court (which gives confidence that rulings on the commercial arrangement will be consistent), but the multinational can choose to sue anywhere.

Obviously, it may be commercially necessary to sue the local operator in its home court where it is in breach of the agreed arrangements.

The dominant view has traditionally been that asymmetric jurisdiction clauses are perfectly valid and effective. If the parties agree that particular courts should decide a dispute, then that agreement must be given effect; it should not matter that the choice is wider on one side of the contract than the other.

However, in a series of controversial judgments, which criticised asymmetric jurisdiction clauses as unbalanced or uncertain as to their effects, the French courts had cast significant doubt on the reliability of a standard asymmetric jurisdiction clause where the counterparty was based in France.

That doubt has finally been removed by the Cour de cassation in a case involving Apple Sales International, an Irish-incorporated company, and a French approved reseller. The asymmetric jurisdiction clause was relatively conventional for this kind of commercial relationship and read: “This agreement and the corresponding relationship between the parties shall be governed by and construed in accordance with the laws of the Republic of Ireland and the parties shall submit to the jurisdiction of the courts of the Republic of Ireland. Apple reserves the right to institute proceedings against Reseller in the courts having jurisdiction in the place where the Reseller has its seat or in any jurisdiction where a harm to Apple is occurring.”

Rejecting the argument that the inbuilt imbalance undermined the clause’s validity, the Cour de cassation confirmed that the clause was sufficiently certain about identifying the court to be selected to decide a particular dispute to be valid. This significant judgment gives considerable reassurance that, as long as the court to have jurisdiction at the option of the party obtaining the benefit of the asymmetry can be objectively identified, the use of asymmetric jurisdiction clauses in commercial arrangements, is effective not just in France but throughout the EU.

In addition to this French judgment, the effectiveness of an asymmetric jurisdiction clause was recently upheld in Ireland in Clubgear v Mitre Sports International Ltd [2015] IEHC 708. While there was some reference in argument in that case to the French authorities decided before the Cour de cassation’s Apple judgment, this line was not exhaustively pursued. It is arguable that the basis on which such clauses are considered effective in Ireland may even be slightly broader than what the French courts are now prepared to accept.

These judgments are to be welcomed as they remove worrying uncertainty and litigation risk in commercial arrangements involving local counterparties in multiple European jurisdictions.