Inkreal: Bypassing National Rules Governing Jurisdiction Clauses?
This is the second contribution to the EAPIL Online Symposium on Inkreal. The first contribution was written by Sergi Gimenez.
As reported earlier on this blog, the CJEU ruled in Inkreal s.r.o. v. Dúha reality s.r.o. (Case C‑566/22) that Article 25 of the Brussels I bis Regulation applies to clauses stipulated in domestic contracts if such clauses provide for the jurisdiction of the court of another Member State.
The CJEU held that domestic contracts providing for the jurisdiction of the court of another Member State have, for that reason alone, an international element which suffices to trigger the application of the Brussels I bis Regulation in general and Article 25 in particular. The clause is thus validated and effective.
Geert van Calster is delighted about this excellent judgment, that Pedro de Miguel Asensio and Matthias Weller also welcome. I disagree.
International Element Required?
The judgment recalls that an international element is required to trigger the application of the Brussels I bis Regulation. The Brussels I bis Regulation was adopted on the basis of Article 81 of the Treaty on the Functioning of the European Union, which gives competence “in civil matters having cross-border implications”. As a result, the court ruled in Owusu that there should be an international element to trigger the application of the Regulation.
The CJEU finds that an international element exists in this case for two reasons. The first is that the proceedings were initiated in a another Member State. The second is the jurisdiction clause itself, which designates a foreign court.
Both of these elements are purely subjective, insofar as they are the result of the will of the parties. Party autonomy suffices to create the international element. And, indeed, the will of a single party, the plaintiff, seems to suffice, as the initiation of the proceedings in another State is deemed sufficient. In this respect, the court relies on the definition of cross border litigation in the European Order of Payment Regulation which refers to the initiation of the proceedings in another Member State. But in the context of the Brussels I Bis Regulation, what really matters is party autonomy and the provision of a jurisdiction clause. In the absence of such a clause, the application of the objective rules of jurisdiction will always grant jurisdiction to the only Member State connected with the dispute, irrespective of where the proceedings were initiated. In contrast, enforcing jurisdiction clauses could be a real game changer.
Adopting subjective criteria such as the inclusion of a jurisdiction clause suggests that, although it cannot rule that the Regulation applies to domestic disputes, the court is ready to interpret the cross border implications test as broadly as possible, so that it can, in effect, extend the reach of the Regulation to domestic disputes.
So what will come next? What will be the other subjective criteria justifying the application of the Regulation and Article 25? Will it be enough for the parties to provide “this is an international contract” in the preamble of their contract? And what about remote objective criteria? For instance, what about the foreign grand parent of one of the local parties to the contract?
The End of the National Rules governing Jurisdiction Clauses?
Many member States have national rules limiting the enforceability of jurisdiction clauses in domestic disputes. In France, for instance, such clauses are only enforceable among certain categories of professional parties (‘commercial people’), and they need to be stipulated in “very apparent characters”.
After Inkreal, it will be possible to bypass those rules by providing, in domestic contracts, the jurisdiction of a Belgian or Luxembourg court. What is the legitimacy of the EU to disapply those rules? One could debate whether party autonomy should be promoted and local parties should always be allowed to choose their preferred court. But certain Member States have made the policy decision that choosing the competent court can have far reaching consequences, and party autonomy should only be allowed between sophisticated actors where it can be established that the parties made an informed choice. What is the legitimacy of the CJEU to cancel this policy decision?
Of course, one could think that national rules will remain applicable and prevent the same parties from including a similar clause providing for another city within the same Member State. But will they? Maybe not, if the parties insisted in their contract that they strongly feel that it is, or want it to be, an international contract.
Coherence with Hague Convention irrelevant
Interestingly, the 2005 Hague Convention on Choice of Court Agreements provides that it only applies to international cases, which are defined objectively:
Art. 1 (2) For the purposes of Chapter II, a case is international unless the parties are resident in the same Contracting State and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that State.
The Court, however, rules that the same definition is not found in the Brussels I bis Regulation, and that there is no reason to seek a coherent interpretation. Instead, as already mentioned, the court prefers to seek coherence with the European Order for Payment Regulation, because it relates to judicial cooperation in civil matters. But is it really convincing, given that this regulation does not include any rule validating party autonomy?
Irrespective of these poor contextual arguments, the result is disastrous. For parties and lawyers providing for jurisdiction clauses (and choice of law clauses) in international contracts, it is critical to avoid developing different legal regimes and to interpret the relevant instruments (Brussels I bis, Rome I, 2005 Hague Convention) coherently whenever it is possible. Most practitioners have a hard time understanding some of the most basic concepts of private international law. They do not need these extra subtleties.
I agree with your “appel à la clarté” dear Gilles!
Although I never fully understood why on earth we would need a vague “international element” to trigger the application of conflict of law rules, I agree that it makes little sense to prescribe that condition, recall it, emphasize its role, and then welcome the parties’ effort to… disregard it!
Dear Ilaria,
I agree that you do not need an international element for choice of law rules, or jurisdiction rules, relying on objective connecting factors: the result will be the same in all cases, namely the rules will designate the only state with connections with the legal question or dispute.
But things are very different for party autonomy, where the parties can choose a law or a court without any connection to the legal question or the dispute. The issue then arises whether you should allow them to bypass domestic mandatory rules (Rome I says no), or choose a foreign court and avoid domestic courts.
Dear Gilles,
I wonder if Recital 15 (first and second sentence) of Rome I Regulation may provide an answer to your question.
Dear Francesca,
This clever argument is also made by Pedro in his post.
But it does not fully convince me. I do not believe that a recital of the Rome I Regulation was aimed at clarifying the regime of jurisdiction clauses. What it is meant to say is that you cannot avoid the application of art 3(3) and of national mandatory rules by providing, in addition to the application of foreign law, the jurisdiction of a foreign court. In other words, the contract is not international by providing for the application of foreign law, and it is not either by providing for both the application of foreign law and the jurisdiction of a foreign court.
In yet other words, you can add as many contractual stipulations pretending that the contract is international as you wish, mere subjective factors do not suffice.
Dear Gilles,
Would it be possible that the CJEU’s decision is aimed at making EU courts a destination for dispute resolution business, and thereby bringing more revenue to the EU through international commercial litigation? Is the CJEU’s approach a pragmatic one?
The implication of this decision is that for example, two business parties in a purely domestic contract in Mexico can effectively choose Spanish Courts to resolve their disputes. This will not be possible under The Hague 2005 Convention.
Is this a bad thing for the economic prosperity of the EU? Moreover, EU courts are in serious competition with the UK and other countries for dispute resolution business.
This is a good point, Chukwuma. I had not thought about domestic disputes from third states.
I would be surprised, however, if this case scenario had been the main one contemplated by the CJEU. I think the court had primarily in mind intra EU disputes. One rationale for the decision could be that the court wants to promote the fungibility of EU courts, and extend party autonomy to domestic disputes. This would in turn promote the provision of judicial services in other Member States, and intra-EU judicial competition. So maybe the international element is not so much the choice of the parties, but rather the willingness of the commercial courts of EU Member States to provide services in other Member States.
Having read all these most interesting comments and suggestions, a simple man may still wonder whether there is danger in over-thinking a decision in which the Court evidently read the words of the legislation, took them at their plainest face value, and said that’s that ? Viewing the matter from a jurisdiction in which such an approach had considerable impact, not always understood as beneficial, it is hardly a surprise. The expressions of concern, too, echo in their own way the anxieties long ago expressed when other aspects of the law now incarnated in Article 25 were cast aside to the evident disadvantage of uninformed litigants: think back to the approach to jurisdiction agreements in Sanicentral and like decisions, for example.
Moreover, if all it takes for the matter to be international is, for example, for the place of contractual delivery, or even payment, to be designated for overseas, why on earth not include the place of contractual dispute resolution ? The lines between being international by accident (Owusu), and international by legitimate party designation (place of delivery), and international by illegitimate party designation (choice of court) do not strike me as pellucid. Or desirable. Or rational.
Of course, all this is res inter alios acta as far as we in the United Kingdom are concerned. And the impact this decision has on the internal jurisdiction of national courts may be yet to be full worked out. But one is still tempted to ask: what’s the problem ? Simplest is sometimes best.