DOCTRINA

Exclusive jurisdiction clauses : the perils of Europe

Por Antony Woodhouse (*) 

The recent decisions of the European Court of Justice (ECJ) in the cases of Gasser (C-116/02) and Grovit (C-159/02) have made clear the potential perils in asserting jurisdiction over a contract in the European courts, even where there is an exclusive jurisdiction clause. Arbitration clauses may hold the key.

It has long been the practice of insurers and reinsurers to plan for future disputes under their contracts to ensure they are in the best position to deal with them when they arise. Insurers often face a large number of proceedings across a number of jurisdictions. To ensure consistency in the interpretation of a particular insurance form, for example, an insurer will be keen to dictate a specific set of laws to apply to that contract and to stipulate a certain court where all disputes will be resolved. Exclusive jurisdiction clauses, where the parties agree to do just that, are a common sight.

The courts have generally been keen to enforce these clauses. Indeed, the English courts have often issued anti-suit injunctions in the past, attempting to stop litigation in another jurisdiction where the parties to a contract had chosen the English courts to resolve their disputes. Such anti-suit injunctions may now be a thing of the past within Europe. These recent cases have highlighted the unique position in Europe and shown how the aims of and ideals behind the European Union have thrown up potential problems for and risks to an insurer trying to enforce his exclusive jurisdiction agreement.

The position in Europe

The Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (the Brussels Convention) was designed to facilitate reciprocal recognition and enforcement of judgments throughout Europe and to promote certainty on the question of jurisdiction in Europe by ensuring a consistent approach by the courts of all the member states. Article 21 of the Brussels Convention sets out a simple and basic rule that the courts of the member state first seised with a dispute have exclusive jurisdiction to determine the issue of jurisdiction. Any court of a member state subsequently seised must recognise that exclusive jurisdiction and stay its proceedings awaiting the determination on the issue of jurisdiction by the first court.

As the ECJ explained in Gasser, this compulsory system of jurisdiction in Europe is based on the trust which all member states place in each other’s legal systems and judicial institutions. All member states have waived the right to apply their own internal rules on recognition and enforcement of foreign judgments in favour of a simplified universal mechanism for recognition and enforcement.

Unfortunately, the nature, speed and reliability of proceedings in the courts of the various member states is not consistent. That is, perhaps, unsurprising. It is also, perhaps, unobjectionable to leave the choice of court to a pure question of timing in circumstances where the parties have chosen not to dictate issues of jurisdiction in advance and have left themselves open to all the different European legal systems.

However, these recent ECJ decisions have made it clear that the hard and fast rule set out in Article 21 applies even where there is a clear and unequivocal exclusive jurisdiction clause in a contract and where a party is using Article 21 in bad faith. Thus, a party will be forced into the court first seised, even if it is clear from the clause that that court has no jurisdiction.

Gasser

In this case, Erich Gasser GmbH, a vendor of children’s clothing in Austria, brought proceedings in Austria against MISAT, an Italian company, in relation to a supply contract between them which contained an exclusive jurisdiction clause stipulating Austria as the correct venue for proceedings. MISAT had, however, already brought proceedings in Rome in relation to the contract. Gasser wanted to enforce the exclusive jurisdiction clause and wanted the Austrian court to rule on jurisdiction in circumstances where it was feared the Italian proceedings would take in excess of three years to do so.

However the ECJ decided that Article 21 applied, even if it appeared that a party had commenced proceedings in bad faith simply to delay the inevitable decision on the appropriate jurisdiction. In coming to its decision the court stated, in relation to the issue of lis pendens (pending lawsuits), that:

            ‘It is not compatible with the philosophy and the objectives of the Brussels Convention for national courts to be under an obligation to respect rules on lis pendens only if they consider that the court first seised will give judgment within a reasonable period. Nowhere does the Convention provide that the courts may use the pretext of delays in procedure in other contracting States to excuse themselves from applying its provisions.’

Grovit

Although this did not concern an exclusive jurisdiction clause, it does demonstrate the rigidity with which Article 21 and the principles behind it are applied, even when there was bad faith by one of the parties.

This case concerned an employment dispute between an employee, Turner, and his employers. There were legal proceedings before the Employment Tribunal in England in relation to unfair dismissal. The employer objected to the Tribunal having jurisdiction, but the Tribunal found that it did have jurisdiction and this was upheld on appeal. Before any substantive hearing in England, the employer started proceedings in Spain against Turner claiming losses as a result of Turner’s conduct. Turner obtained an injunction in the English courts (from the Court of Appeal) ordering the employer not to continue the Spanish proceedings. The Court of Appeal stated that the proceedings in Spain had been brought in bad faith in order to vex Turner’s application before the Employment Tribunal.

The ECJ was asked whether it was inconsistent with the Brussels Convention to grant restraining orders against defendants who were threatening to commence or continue proceedings in another Convention country when those defendants were acting in bad faith with the intent and purpose of frustrating or obstructing proceedings properly before the first country’s courts. The ECJ found that the Convention did not permit the jurisdiction of a court to be reviewed by a court in another Contracting State. Granting an anti-suit injunction constituted an interference with the jurisdiction of the foreign court, which was incompatible with the system of the Convention.

The ramifications

Although these cases give no reason to doubt that the validity of a proper exclusive jurisdiction clause will ultimately be upheld in any European court, they do demonstrate that parties can still frustrate the operation of such clauses by the timely issuance of proceedings somewhere else in Europe, particularly a forum with dilatory court procedures.

Parties to a (re)insurance contract with a European aspect need to be aware that by operating in the European market they are exposing themselves to all the different European court systems at once, irrespective of the existence of an exclusive jurisdiction clause. In addition, parties need to be aware that the scope of the European Union is increasing and arguably with a tendency towards including nations with less well developed legal systems. Parties to commercial contracts operating in Europe, of which insurance contracts are a prime example, need to think about the risks of dispute resolution in the future.

There is probably nothing that a party to such a contract can do to protect itself fully from exposure to these legal systems. A party may always be forced to go before a particular court to dispute jurisdiction. However, a party can try to reduce the costs exposure of having to take such action. This can be done by making provision in the contract for the recovery of the costs of such action. Care needs to be taken as to how this operates to ensure that it is enforceable and the costs properly recoverable under the law of the particular jurisdiction chosen.

In addition, a party can try to minimise the risk of delay to the proceedings in the jurisdiction selected caused by the action of another party in bad faith. This might be achieved by submitting to other types of dispute resolution. It remains to be seen what the practical effect of these cases and the principle of Article 21 will be on an arbitration, commenced in accordance with an agreed arbitration clause, but operating concurrently with court proceedings issued in another European country.