The author of this post is Caterina Benini, a Phd student at the Catholic University of the Sacred Heart in Milan.
A Controversial but Topical Issue
In the credits market, the price of a contract (or that of the claims arising from a contract) is determined by the nominal value of the claims concerned and by the risks surrounding their enforcement, including the risks relating to the uncertainty that may exist as to the courts with jurisdiction to hear and enforce the contract or the claims concerned.
Ironically, uncertainty may be greater when the assigned contract includes a choice of court clause, as it is not clear whether, and subject to which conditions, such a clause may be binding upon the assignees.
The European Court of Justice considered the issue of the third-party effects of choice of court clauses in Tilly Russ, Coreck and Profit Investment.
However, it was only in Ryanair, a case decided on 18 November 2020, that the Court specifically analysed whether an assignee of a claim is bound by the choice of court clause included in the contract from which the assigned claim arose. The recent Court’s ruling raises a number of questions, some of which have already been pointed out by Matthias Lehmann in this blog.
One takeaway of Ryanair is that, in the absence of clear rules, the fate of choice of court agreements following the assignment of the contract which included them is a fertile ground for disputes. Instead of elaborating on the Court’s findings in Ryanair, I will focus on a recent ruling of the Italian Supreme Court (Corte di Cassazione), which addressed the consequences of an assignment of claim for the enforceability of a choice of court clause (Judgment No 7736/2020).
The Ruling of the Corte di Cassazione
The facts underlying the case decided by the Italian Supreme Court may be summarised as follows.
An Italian company (hereinafter, the manufacturer) and a Finnish company (the distributor) entered into various contracts. Each contract included a choice of court clause conferring exclusive jurisdiction upon the Tribunal of Torino. The Italian manufacturer assigned part of its claims under the contracts to a factoring company seated in Italy. Following the assignment, a dispute arose between the manufacturer (the assignor creditor) and the distributor (the assigned debtor). Upon an application by the former, the Tribunal of Torino ordered the Finnish distributor to pay a certain amount of money. The latter lodged an opposition, arguing that, as a result of the assignment of the claims, the Italian company was prevented from relying on the choice of court clause featured in the contracts.
Both the Tribunal of Torino and the Court of Appeal of Torino dismissed the move. The Finnish distributor brought the case before the Corte di Cassazione, which dismissed the appeal, ultimately upholding that Italian courts had jurisdiction to hear the case.
The Cassazione reached that conclusion on the ground that the effectiveness of a choice of court clause between the original parties to a contract giving rise to claims subsequently assigned should not be doubted. The Cassazione referred for this purpose to the case-law of the Court of Justice, noting that, according to Dansommer and Profit Investment, a choice of court agreement may be binding also upon the third party, thus impliedly submitting that this the assignment results in an extension of the subjective scope of the clause rather than a transferral of the same from one assignor to the assignee.
The Court added that the assignee, having taken over the position of the assignor vis-à-vis the assigned debtor, is bound by the choice of court agreement included in the contract giving rise the claim. This is because the position of the assigned debtor should remain unaltered also with regard to jurisdiction, if not otherwise provided by the assigned party himself and the assignee.
This Author’s Submission
If party autonomy is to be taken seriously, choice of court clauses, it is submitted, should be deemed to be subject to an independent regime, different from that governing the contract where the clause is featured.
This implies that, for the purposes of determining the fate of a choice of court clause following the assignment of the legal relationship to which the clause refers, or belongs, reference ought to be had to the substantive law applicable to the dispute resolution clause itself. It is on the basis of the latter law that one should assess whether the rights and obligations provided for under the choice of court clause passed on to the assignee.
No other approach, it is contended, would be consistent with Article 25(5) of the Brussels I bis Regulation. This provides that “[a]n agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract”, adding, in a separate subparagraph, that “[a]n agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract”.
Separability only for the Purposes of Validity vs. Separability Also for the Purposes of Transferability
The issue of the fate of a dispute resolution agreement following the circulation of the legal position to which the clause relates has been mainly discussed with respect to arbitration agreements. Although choice of court agreements cannot be equated to arbitration agreements, the terms of the problem roughly coincide.
Essentially, the discussion revolves around two opposite conceptions of the principle of severability.
The first interpretation posits that, while the dispute resolution clause is severable from the main contract for validity purposes, it should be considered as an integral part of the contract for transferability purposes. Hence, when the assignee becomes the holder of the rights and obligations that arise from the contract which includes the dispute resolution agreement, it becomes automatically bound by the latter as well.
The second approach views the severability principle as a mere façade of a broader principle, which requires to consider a dispute resolution agreement as a contract in its own right, independent in all aspects from the contract to which it refers. This means that, unless the parties agree otherwise, the dispute resolution agreement will not automatically circulate together with the contract as a result of the assignment.
Independence of Choice of Court Agreements as the Key Principle
Article 25(5) of the Brussels I bis Regulation fosters the second approach described above.
Indeed, if the principle of separability were to operate for validity purposes only, the EU legislator would have limited Article 25(5) to the first subparagraph, which enshrines the principle in its traditional meaning. The inclusion of a separate subparagraph specifying that a choice of court agreement shall be considered independently from the other terms of the contract suggests that, in the view of the legislator, the principle involves more than merely prescribing the survival of the dispute resolution clause in the event that the main contract is invalid. Rather, it is submitted, the whole of para 5 indicates that a choice of court clause should be considered, in all respects, to be independent from the agreement where it is featured.
The question then is: what does the independence of a choice of court clause precisely stand for?
Independence should not be taken as meaning that the choice of court agreement should be treated as something that is materially separate from the main contract.
Arguably, the independence of the clause means that the issues surrounding the clause rules are not (necessarily) to be decided in accordance with the rules that one would resort to for the purposes of deciding the same issues in respect of the main contract.
Such normative independence of choice of court clauses has already been recognized with respect to the formal validity, which has been consistently evaluated on the basis of the uniform material rules provided for by the Brussels Regime and not on the basis of the formal requirements governing the main contract.
The same approach should then be followed also for the fate of choice of court agreements. This means that the court seised of the matter should assess whether the assignee of the contract (or of the claims arising thereform) is bound by the choice of court agreement, based on the rules governing the transferability of the dispute resolution agreement itself.
If such solution were to be followed, it would entail a significant alignment with Castelletti, where the Court ruled that “the national court seised should be able readily to decide whether it has jurisdiction on the basis of the rules of the Convention, without having to consider the substance of the case” (para. 48). Indeed, the seised court may rule on its own jurisdiction without dwelling into the merits of the case only if the enforceability of the choice of court clause is subject to a different and autonomous from the one applicable to the substantive issues.
The Tilly Russ Case
The above analysis on the principle of separability of choice of court clauses can turn useful when the interpreter (as the Corte di Cassazione did) investigates whether the CJEU’s case-law developed in relation to the third-party effects of choice of court agreements can provide an answer to the issue of the fate of choice of court clauses.
In Tilly Russ, the Court of Justice ruled that the third party is bound by the jurisdiction clause incorporated in the main contract (a bill of lading in that case), which is valid as between the original parties, “in so far as a third party, by acquiring the bill of lading, has succeeded to the shipper’s rights and obligations under the relevant national law” (para. 24).
The meaning of this crucial passage of the Court’s reasoning is unclear. One may wonder whether the shipper’s rights and obligations in which the third party succeeds are those provided for under the main contract or the dispute resolution clause. The aspect has since never been clarified by the Court, although the Court did rely on the said passage in Coreck and Profit Investment.
According to the majority of scholars, the rights and obligations to which the Court referred are those arising from the main contract. This entails that, if the third party succeeds to the assignor’s rights and obligations under the main contract in accordance with the law applicable to the assignment, the third party is automatically bound by the choice of court agreement included in the main contract.
This conclusion contradicts the independence of choice of court agreements.
Independence requires that issues relating to a choice of court clause be solved on the basis of the rules governing the dispute resolution agreement itself, regardless of the rules governing the main contract. The vicissitudes of the main contract, including the assignment of the claims arising thereform, are not relevant per se to the dispute resolution clause.
In light of this, the passage in Tilly Russ recalled above should be interpreted as requiring the seised court to determine whether the third party, simultaneously or after entering into the main contract, “has succeeded to the shipper [assignor]’s rights and obligations [provided for under the jurisdiction clause] under the relevant national law [applicable to the jurisdiction clause]”.
The Law Applicable to a Choice of Court Agreements under the Italian PIL Statute
Which law applies to a dispute resolution clause?
Courts sitting in a Member State cannot rely on the Rome I Regulation, given that choice of court agreements are excluded from the scope of application of the Regulation under Article 1(2)(e). Accordingly, regard should be had to domestic conflict of laws rules.
In a case such as the one discussed by the Corte di Cassazione in the ruling mentioned above, the relevant provision would arguably be Article 57 of the Italian Statute of Private International Law. The rule, drawn up in 1995 (and never amended since) extends the operation of the 1980 Rome Convention on the law applicable to contractual obligations (the predecessor of the Rome I Regulation) to any contract, including those excluded from the scope of the Convention itself.
Assuming that the reference to the Convention should be read today as a reference to the Rome I Regulation, an Italian court would – in the absence of a choice of law – rely on Article 4(4) of the Rome I Regulation, and apply the law of the country with which the choice of court agreement is most closely connected.
Many thanks for this interesting post. One can understand the position of the Italian courts to bind the assignee to a jurisdiction clause in the original contract. However, I wonder whether they can still follow this approach after the CJEU judgment in Ryanair, which all but denied the binding effect of jurisdiction clauses on third parties. Also, the CJEU did not follow your suggestion to apply the PIL rules of the lex fori to the validity of the jurisdiction clause. It rather established an autonomous European rule, and referred to national law only to determine whether the whole contract or merely a claim was assigned.
I do agree with you, Professor Lehmann, that, after Ryanair, Italian courts should change their approach as to the third-party effects of choice of court agreements. In my jurisdiction, this is to be seen with favour, as the same solution would govern the effectiveness vis-à-vis third parties of choice of forum clauses and of arbitration agreements, in relation to which, as previusly mentioned under your post, Italian courts have always been more concerned with the principle of autonomy.
As to the issue of the applicable law, I read the reference to the national law under para. 47 of Ryanair as the confirmation that the solution as to the opposability of choice of court agreements to third parties must be built upon the content of the national applicable law. The fact that, when determining which national law applies, the Court refers, in para. 63 and in the dispositive, to the lex fori prorogati could be as an implicit disclosure that the rights and obligations the succession of which is at stake are those provided for under the choice of court clause. Otherwise, it is hard to explain why reference should be made to the lex fori prorogati and not to the lex contractus if the rights and obligations the succession of which is under discussion are those deriving from the main contract.
What Ryanair adds to my suggestion, and this is a real novelty, is that the domestic conflicts of laws rules the interpreter has to resort to for determining the law under which assessing the third party effects of the choice of forum clauses are those of the chosen court (which is often but not always the seized court), thus clarifying the meaning of “validity” for the purposes of the application of the lex fori prorogati provided for under Art. 25(1).