Asymmetric EU jurisdiction clauses usually require one party to a contract (often a borrower or debt issuer) to refer disputes to a designated EU Member State court but give the other parties (usually the lenders or dealers) the choice to bring proceedings in any competent court. They have long been a preferred option for finance parties in some types of transaction, but their enforceability within the EU has been uncertain. This decision may change the approach that finance parties take to drafting and negotiating these clauses, making them a less popular option.
Asymmetric jurisdiction clauses designating the English courts are not directly impacted by the decision, but the court’s findings may have a bearing on how Member State courts assess the validity of these clauses, which are among the most popular dispute resolution clauses for cross-border financial transactions globally. It remains to be seen how the market will react to this decision on deals with an EU nexus.
Asymmetric jurisdiction clauses are a preferred option for many transactions
Asymmetric jurisdiction clauses are commonplace in commercial contracts, in particular in international financing transactions. They are included in thousands of loans, guarantees and debt and equity capital markets agreements around the globe every year and are commonly the preferred option for finance parties.
Lenders and dealers typically say that they are the parties most likely to be out of the money if a dispute arises, so it makes sense that they have the flexibility and protection that asymmetric clauses offer. An asymmetric clause allows them to wait until a dispute arises before deciding where to bring proceedings. This means they can make a more informed choice of dispute resolution forum at the relevant time, based on practical and strategic considerations that may not have been apparent when the deal was signed. For example, they may prefer to sue where the defendant has assets suitable for enforcement. Lenders and dealers can also take comfort in knowing that the borrower or issuer can sue them only in the designated court, protecting them from litigation in an unfavourable forum.
Enforceability of asymmetric jurisdiction clauses has been uncertain
Whilst many courts (including courts in England, Germany and Italy) have recognised and given effect to asymmetric jurisdiction clauses, they have been problematic in some jurisdictions. Notably, in a series of decisions since 2012, the French Cour de Cassation (the most senior court in France) has found that asymmetric jurisdiction clauses that do not enable all parties to identify the courts in which they can be sued are unenforceable under French law and, in the eyes of the French courts, EU law. This would include clauses of the type most commonly included in loans and debt market transaction documents. In many other jurisdictions it has been unclear whether these clauses would be upheld, due to a lack of authority on the point.
As a result of this uncertainty, lenders and dealers have faced the risk of being sued by a borrower or issuer (for example for a declaration of non-liability) in courts other than the court agreed when the deal was negotiated. This risks substantially undermining the commercial agreement and altering the risk profile of the deal. For the first time the CJEU has now addressed this issue.
Market practice has varied
The decisions of the French Cour de Cassation did not lead to a wholesale shift away from asymmetric clauses designating the courts of EU Member States. Asymmetric English jurisdiction clauses also remained a popular choice for transactions involving parties in the EU notwithstanding the decisions, and they have continued to be used post-Brexit despite the current lack of a formal reciprocal enforcement regime between the UK and the EU. For example, in debt capital markets transactions, asymmetric clauses have continued to be used on the basis that they may enable dealers to join the issuer into proceedings brought by investors anywhere around the world.
On some deals, however, finance parties have opted to include exclusive jurisdiction clauses instead of asymmetric clauses in their transaction documents. In doing so, they avoid the issues highlighted by the French decisions and know that the courts of many jurisdictions will respect their choice. Where parties choose the courts of an EU Member State, the Recast Brussels Regulation (the EU regulation that deals with the allocation of jurisdiction and the enforcement of judgments between all Member State courts) ensures this throughout the EU. Where the preference is to litigate in England, exclusive English jurisdiction clauses generally fall within the scope of the 2005 Hague Convention on Choice of Court Agreements. The 2005 Convention requires Contracting State courts (including the courts of all EU Member States, the UK, Switzerland and Singapore) to respect exclusive jurisdiction clauses in favour of other Contracting States and enforce related judgments. Many parties see this as a significant advantage.
CJEU decision – limits on enforceability of asymmetric jurisdiction clauses designating Member State courts
The decision of the CJEU clarifies where parties stand in relation to asymmetric jurisdiction clauses designating EU Member State courts. The CJEU confirmed that the question of whether the alleged imprecision or asymmetry of asymmetric jurisdiction clauses renders them invalid should be determined by reference to autonomous principles of EU law. The formal ruling at the end of the judgment states that asymmetric EU jurisdiction clauses will be valid if they:
- Designate with sufficient precision the courts of one or several of the EU Member States, Switzerland, Iceland or Norway (as Contracting States to the 2007 Lugano Convention, which deals with the allocation of jurisdiction and the enforcement of judgments between EU Member States and Switzerland, Iceland and Norway);
- Identify objective factors which are sufficiently precise to enable the court seised to ascertain whether it has jurisdiction; and
- Are not contrary to the mandatory exclusive jurisdiction rules in the Recast Brussels Regulation or the special rules applicable to certain forms of insurance arrangement and to consumer and employment contracts.
The body of the judgment notes that:
- An agreement that designates a specific EU or Lugano state court but also permits certain parties to bring proceedings in the courts that would otherwise have jurisdiction under the general rules of the Recast Brussels Regulation or the Lugano Convention satisfies the requirements of precision and the objectives of predictability, transparency and legal certainty set out in the Recast Brussels Regulation (paragraph 59).
- Conversely, asymmetric jurisdiction clauses designating the courts of a Member State or Lugano State that could be interpreted as also permitting proceedings in non-EU and non-Lugano States would be contrary to the Recast Brussels Regulation. This is because such clauses would disregard the objectives of predictability, transparency and legal certainty under the Regulation, by allowing jurisdiction to be determined by reference to the private international law rules of third countries (paragraph 60).
- In such a situation there would be an increased risk of conflicts of jurisdiction that are detrimental to legal certainty (paragraph 61).
The jurisdiction clause in issue before the CJEU in this case provided that: The court of Brescia [Italy] will have jurisdiction over any dispute arising from or related to this contract. [Party] reserves the right to bring proceedings against the purchaser before another competent court in Italy or elsewhere." The CJEU found that this agreement was capable of being valid only to the extent it could be interpreted as designating the Brescia court and the competent courts of EU Member States or Lugano Convention States. The CJEU did not express an opinion on whether the clause in question could be interpreted in this way.
Member State courts that previously had no objection to widely drafted asymmetric EU jurisdiction clauses will now need to act consistently with the findings of the CJEU.
Implications for asymmetric EU jurisdiction clauses – increased uncertainty
The asymmetric jurisdiction clause at issue in this case was in a form commonly included in loans and debt market transaction documents, which do not generally restrict the freedom of lenders or dealers to choose where around the world they might wish to bring proceedings. There is a risk, therefore, that these clauses do not meet the requirements of certainty in light of this decision.
Parties negotiating asymmetric EU jurisdiction clauses may therefore wish to reconsider their approach to the drafting of these clauses. One option (and perhaps the safest choice) would be to include an exclusive jurisdiction clause instead of an asymmetric clause. The other would be to draft the asymmetric clause so that it clearly meets the requirements set out by the CJEU – i.e. narrowing the range of jurisdictions within which proceedings may be brought. For example, a clause could provide that the French courts have exclusive jurisdiction to determine disputes under a loan agreement but the lenders may also bring proceedings in any competent EU Member State court. This appears to meet the requirements set by the CJEU. Narrower asymmetric jurisdiction clauses are not market standard but they may become more common in light of this decision.
Lenders and dealers who are party to existing agreements that include widely drafted clauses may also wish to consider commencing proceedings quickly in the Member State court designated in their agreement if a dispute arises. Whilst not a bullet proof solution, it might reduce the risk that a borrower or issuer is successful in persuading the courts of another jurisdiction to hear proceedings in breach of the clause.
Implications for asymmetric English jurisdiction clauses
Asymmetric jurisdiction clauses designating the English courts also commonly contain no restrictions on the freedom of lenders and dealers to choose where to bring proceedings when a dispute arises. The CJEU’s decision is not directly applicable to these clauses. However the decision may increase the risk that Member State courts will find that widely drafted asymmetric English jurisdiction clauses are invalid.
The decision will not change the approach taken by the English courts to these clauses (or to asymmetric jurisdiction clauses designating the courts of EU Member States); the English courts will continue to give effect to these clauses under English conflicts of laws rules.
It had been expected that we may see more asymmetric English jurisdiction clauses in transaction documents in the lead up to and following the entry into force of the 2019 Hague Judgments Convention for England and Wales on 1 July 2025. The 2019 Convention does not specify the approach Contracting State courts should take to jurisdiction clauses, but it does require Contracting State courts (including all EU Member State courts except Denmark) to enforce judgments from other Contracting States, subject to certain limited exceptions. According to the explanatory report to the Convention, this includes judgments given by Contracting States pursuant to asymmetric jurisdiction clauses (as well as many other types of judgment). The CJEU’s decision is unexpected in light of this, although it is to be hoped that it will not undermine the willingness of Member State courts to enforce judgments pursuant to these clauses under the Convention.
Nuanced approach to dispute clause negotiations required
Drafting and negotiating jurisdiction clauses can be complex and the risks of getting it wrong are clear. The CJEU’s decision further complicates the risk assessment, at least in relation to the effectiveness of such clauses in EU Member States.
Parties will need to assess on a case-by-case basis whether the perceived advantages of an asymmetric jurisdiction clause outweigh the risks in light of the particular facts of their transaction. If they consider it is worth the risk, they may need to reconsider their approach to the drafting of those clauses. For some parties, an exclusive jurisdiction clause or an arbitration clause (preferably without an option to litigate given the ongoing concerns as to the enforceability of optional clauses in some jurisdictions) may be a more attractive option, in particular where the designated court is in a jurisdiction that is party to the 2005 Hague Convention or the New York Convention.
If you would like to discuss the implications of this decision or your approach to drafting and negotiating jurisdiction clauses in commercial transactions in more detail, please do not hesitate to get in touch.