On 7 October 2015, in Cass. 1ère Civ., 7 October 2015, No 14-16.898, the Cour de cassation (the French Supreme Court) handed down a decision that significantly clarified its interpretation of the rules for jurisdiction clauses within the European Union (EU). It thereby added to its case law on unilateral or asymmetric jurisdiction clauses, that is, jurisdiction clauses that do not give the same rights to each party to the contract.
In this case, a company incorporated in France and a company incorporated in Ireland had signed a contract with a jurisdiction clause, whereby the parties agreed that disputes would come under the jurisdiction of the courts of the Republic of Ireland. However, the same clause also reserved the right for the Irish company alone to apply to the courts with jurisdiction over the counterparty's registered office, or those in any country where it suffered a loss caused by the counterparty. The French company complained that the Irish company was infringing competition law, and started proceedings before the Paris Commercial Court, seeking compensation for the harm it had suffered. The Irish company successfully argued that the Commercial Court lacked jurisdiction, which belonged to the courts of Ireland. When the French company's appeal to the Paris Court of Appeal was equally unsuccessful, it appealed to the French Supreme Court.
In its decision of 7 October 2015, the Supreme Court took the opportunity to:
- Refine the case law from X v Banque Privée Edmond de Rothschild (Cass. 1ère Civ., 26 September 2012, No 11-26.022) (Rothschild) and Cass. 1ère Civ., 25 March 2015, No 13-27.264 (Crédit Suisse), upholding asymmetric jurisdiction clauses provided they objectively identify the courts that may have jurisdiction at the choosing of the party benefiting from the asymmetry (see our previous blog posts here and here)
- Incorporate case law from the Court of Justice of the European Union (CJEU) into its decision: under EU case law, jurisdiction clauses only apply to disputes over alleged infringements of EU competition law if the clause specifically so provides.
Notwithstanding the fact that the French courts have not had a chance to consider the issue in relation to arbitration since the Rothschild case, there is nothing to suggest that the court's reasoning in the Rothschild, Credit Suisse or Apple cases would apply 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). Throughout the period of uncertainty as to the availability of asymmetric jurisdiction clauses, hybrid arbitration clauses may be an appropriate option for parties in circumstances where there is a nexus with France.
We will analyse these two aspects below.
Validity of asymmetric jurisdiction clauses
In exclusive jurisdiction clauses, the parties to a contract agree in advance that any disputes between them will be submitted to a single court identified in the clause. However, in practice more complex arrangements have been developed, mainly under Anglo-American influence, aimed at expanding the array of possible jurisdictions, most often for the benefit of only one of the contracting parties (the party in the strongest position during contract negotiations).
This second type of clause, generally called an "asymmetric" or "unilateral" clause, provides for different solutions, depending on which party is the claimant in the legal proceedings. Most often, under these clauses:
- One party is obliged to file its suit in a forum determined by the clause (generally the courts for its counterparty's place of domicile).
- The counterparty, however, has greater freedom, within confines that may greatly vary with the wording of the clause. In practice, the clause may even allow the beneficiary to apply to any other court that would normally assume jurisdiction to hear the dispute if the jurisdiction clause did not exist.
In this case, the clause at issue was asymmetrical: while the French company had no choice but to apply to the courts of Ireland, the Irish company had greater flexibility. In addition to the courts of Ireland, the Irish company could apply to the courts for the place where the French company had its registered office, or those of any country where it had suffered a loss (attributable to the counterparty).
In the Court of Appeal, the French company contended that the jurisdiction clause was "void and ineffective because it is "potestative" (at the discretion of a single party), and does not meet the predictability requirement" (see Paris Court of Appeal, Pôle 1, Chambre 1, 8 April 2014, No 13/21121). The company was attempting to take advantage of the now well-known case law from Rothschild. In Rothschild, the French Supreme Court refused to uphold a jurisdiction clause that gave only one of the parties the option of submitting any disputes to either the court referred to in the clause or to "any other competent court". The court's reason was that the clause "is at the discretion of a single party (…), and so runs counter to the subject and purpose of the option of expanded jurisdiction set out in Article 23 of Council Regulation No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, which harmonised the rules for jurisdiction within the EU.
Despite the many criticisms of Rothschild, the French Supreme Court mostly upheld its decision in another ruling issued pursuant to the Lugano Convention (the counterpart to the 2001 Brussels Regulation), now referred to as the Crédit Suisse ruling. However, the court did remove all references to the concept of a potestative clause, and confined itself to citing predictability, which by the court's hand thereby became a cardinal rule.
The Crédit Suisse ruling had not yet been issued when the appeal in the present case was filed, but the contours of the present decision can be inferred from it. The court had implied in Crédit Suisse that it was not opposed in principle to all types of asymmetry in jurisdiction clauses. It only invalidated the clause at issue (which was similar to the clause in Rothschild) after noting that the clause did not define the "objective factors" based on which the clause beneficiary would be able to apply to a different forum than the one imposed on its counterparty. In other words, the court suggested that it would uphold an asymmetric clause as long as the party that was not free to choose jurisdiction under the clause could objectively anticipate the alternative forums available to their counterparty.
In this case, the Supreme Court has now confirmed this reading, which was implied in Crédit Suisse. The court assumed the lower courts' reasoning as its own, namely that the jurisdiction clause did satisfy the "predictability requirement" in this case because it was possible "to identify which courts would potentially have jurisdiction over a dispute". Therefore, it could not be said:
"that the choice of court was left to the sole discretion of [the Irish company] since disputes could only be brought before the courts with territorial jurisdiction over the registered office [of the French company] or over the place where the loss was suffered by [the Irish company]; consequently, the clause was not 'potestative' in light of the specific criteria set out for determining the court with jurisdiction, even if there were more than one such court (…)" (see Paris Court of Appeal, Pôle 1, Chambre 1, 8 April 2014, No 13/21121).
In the view of the French Supreme Court then, even though the French and Irish companies did not enjoy the same freedom in choosing which court would hear their dispute, the jurisdiction clause did abide by the predictability requirement by making it possible to objectively identify which courts could conceivably have jurisdiction. Thus, the choice was not under the beneficiary's complete control.
Three years after Rothschild, the case law from the French Supreme Court is now clear. Asymmetric clauses are still to be avoided if they allow a single party to apply to any court of its choosing, but they are valid if the other possible forums can be objectively determined (whether because explicitly stated or because specific rules for doing so are given).
Although the case law amassed by the court on this topic is perfectly intelligible to practitioners, it is not without critics.
Because they still reject asymmetric clauses that allow complete freedom to one of the parties to apply to any competent court outside the jurisdiction specifically identified by the parties in the agreement, the rulings in Rothschild and Crédit Suisse are clearly out of tune with the Anglo-American tradition, in which this kind of clause is perfectly valid. Moreover, since such clauses were expressly allowed under the Brussels Convention (the forerunner to the 2001 Brussels Regulation), the court implicitly found that the 2001 Brussels Regulation had restricted the freedom of contract on this issue.
Regardless, the case law of the French Supreme Court only stands thanks to the silence of the CJEU. No cases concerning this type of clause have cropped up before the European court since the Brussels Convention was replaced by the 2001 Brussels Regulation. However, other European courts, all applying the same EU law, continue to accept asymmetric clauses despite the situation in France, creating an unwelcome note of discord with the rest of the EU.
The goalposts were recently moved when Regulation No. 1215/2012 (Recast Brussels Regulation) entered into force on 10 January 2015, replacing the 2001 Brussels Regulation. Unlike the earlier regulation, which did not address the validity of jurisdiction clauses, the new text provides that this issue must be assessed in accordance with the laws of the courts given jurisdiction by the clause in question (see Article 25). As the court appointed by the clause is unlikely to be a French court, could this mean the end, at least in practice, for the Rothschild-Crédit Suisse case law? Only time will tell.
For now, businesses involved in transactions with ties to France must continue to take every precaution when drafting jurisdiction clauses. Those who wish to keep their options open when it comes to jurisdiction would be wise to phrase those options carefully.
This latest decision is also an opportunity for debate on whether asymmetric clauses are even useful within the EU at all. The circulation of court decisions within the zone has already been greatly facilitated – the Recast Brussels Regulation is a continuation of the movement begun by the Brussels Convention and improved by the 2001 Brussels Regulation, and so the practical benefits of this type of clause are not entirely clear. From a pragmatic point of view, in the majority of cases, parties should ensure that their choices of court and applicable law are aligned and then have the decision, once obtained, enforced in the relevant jurisdictions.
Scope of jurisdiction clauses and anti-competitive practices
The French company also argued that the Court of Appeal should not have ruled that the jurisdiction clause applied to its dispute with the Irish company. In its view, in so far as the dispute centred on alleged anti-competitive practices by the Irish company, it escaped the jurisdiction clause.
The Court of Appeal dismissed this argument, concluding that the dispute was governed by the jurisdiction clause, which provided no particular limits to its scope. Accordingly, it "applied to any dispute arising" out of the performance of the contract, including any anti-competitive practices. The Court of Appeal thus followed well-established French case law whereby a tort action (such as an action for damages for an infringement of competition law) is not inherently outside the scope of a jurisdiction clause, which depends on the wording of that clause (see, for example, Cass. Com, 20 March 2012, No 11-11.570).
The French Supreme Court reversed this determination based on a recent CJEU judgment. In Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Akzo Nobel NV and Others, 21 May 2015, CJEU, C‑352/13 (CDC Hydrogen Peroxide), the European court concluded that Article 23 of the 2001 Brussels Regulation "must be interpreted as allowing, in the case of actions for damages for an infringement of [European competition law], account to be taken of jurisdiction clauses […] provided that those clauses refer to disputes concerning liability incurred as a result of an infringement of competition law."
The CJEU requires an express reference to anti-competitive practices in the jurisdiction clause if that clause is to apply to disputes over infringements of EU competition law. In the case at hand, the clause did not meet this requirement and the claims of the French company did rely, at least in part, on EU competition law. From this point of view then, the appellate decision was to be reversed.
From a practical perspective, the (mandatory) application of EU case law within the EU means that parties drafting jurisdiction clauses need to account for the CJEU's requirement for specific wording.
From a legal perspective, one question remains: does the determination in CDC Hydrogen Peroxide apply to infringements of EU competition law alone, or should it also cover all other infringements of competition law, including those derived from a member state's own laws? In so far as the French company relied on both EU and French law before the Court of Appeal, there is no doubt that the court of remand will need to consider this issue. Either it will decide that the clause simply cannot apply in a situation potentially involving infringements of EU and French competition rules, or it will conclude that only the claims based on EU law must be excluded from the scope of the clause. In the first case, French courts would then have jurisdiction to hear the whole dispute but this would also constitute a partial reversal of French case law (subject to the application of Article 5(3) of the 2001 Brussels Regulation (applicable to the facts)). In the second, the dispute would be divided: one part to be heard by the Irish courts and the other in France.
A version of this post was first published by Practical Law.
For further information, please contact Clément Dupoirier, Partner, Vincent Bouvard, Avocat or your usual Herbert Smith Freehills contact.