Inkreal: A View from Madrid
The post below was written by Pedro De Miguel Asensio, who is Professor of Private International Law at the Complutense University of Madrid. This is the third contribution to the EAPIL’s online symposium on Inkreal, after the posts of Sergi Gimenez and Gilles Cuniberti.
The main contribution of the Inkreal judgment is to establish that Article 25 of the Brussels I bis Regulation allows the parties to a contract, even if they are domiciled in the same Member State and all the elements of the contract are located in that State, to confer jurisdiction to settle the disputes arising from the contract on the courts of another Member State. In fact, this case has provided the Court of Justice with the opportunity to address a question which had been referred to it previously, but which it was unable to rule on at the time because the request for a preliminary ruling was withdrawn by the Portuguese Supremo Tribunal de Justiça and the case removed from the register (EU:C:2017:237).
In particular, among the questions already referred to the Court of Justice in case C-136/16, Sociedade Metropolitana de Desenvolvimento, in connection with the practice relating to the conclusion contracts under the terms of the ISDA Master Agreement, was whether, in a dispute between two national companies of a Member State concerning swap contracts, the existence therein of clauses conferring jurisdiction in favour of another Member State constitutes a sufficient international element to give rise to the application of the Brussels I bis Regulation. Now, the Inkreal judgment in the framework of case C-566/22 answers a similar question in the affirmative and clarifies that the mere agreement of the parties to a contract designating the courts of a Member State other than that of their common domicile as having jurisdiction is sufficient for the legal situation to have an international element for the purposes of the jurisdiction rules of the Brussels I bis Regulation.
Although it is a criterion that could give rise to misgivings insofar as it could leave it to the parties to circumvent, within the limited framework of Article 25 of the Brussels I bis Regulation, the jurisdiction of the courts of the only Member State with which the contract is connected (as the Advocate General emphasised in his Opinion in Inkreal, EU:C:2023:768) and may sometimes cause serious inconvenience to one of the parties (as raised in the second of the questions referred for a preliminary ruling in case C-136/16), the approach adopted by the Court seems the better view. Its position reinforces: (a) consistency between the Brussels I bis Regulation and other Union instruments on judicial cooperation in civil matters (see I, infra); (b) the objectives of predictability and legal certainty in the application of the Brussels I bis Regulation (II, infra); and (c) the particular significance of the Union’s private international law instruments as an element of integration (III, infra).
I. Consistency between the Brussels I bis Regulation and Other Union Instruments on Judicial Cooperation in Civil Matters
The judgment confirms previous case law according to which the application of the rules of jurisdiction of the Brussels I bis Regulation is in any case subject to the existence of an international element, which corresponds to the fact that it is an instrument relating to judicial cooperation in civil matters having cross-border implications, in the terms of Article 81(1) TFEU. However, the judgment not only confirms that for such international element to be present it is sufficient that the situation raises “questions relating to the determination of the jurisdiction of the courts in the international sphere” (para. 22 referring to the IRnova judgmen, EU:C:2022:648), but also adds as a novelty the clarification that such a circumstance is present whenever the parties to a contract are established in a Member State other than the court seised on the basis of the relevant jurisdiction agreement, insofar as in such situations the question arises of determining the courts of which of those Member States has international jurisdiction to hear the dispute in question (paras. 23-25).
In order to reach that conclusion, the judgment attributes a particular relevance to the definition of “cross-border cases” in Article 3(1) of Regulation (EC) No 1896/2006 creating a European order for payment procedure, which provides that “a cross-border case is one in which at least one of the parties is domiciled or habitually resident in a Member State other than the Member State of the court seised”. Apart from the relevance given in the judgment to the coordination between the Brussels I bis Regulation and Regulation (EC) No 1896/2006, the approach taken by the Court of Justice also seems to be supported by the content of Regulation (EC 593/2008 on the law applicable to contractual obligations (Rome I Regulation).
Recital 15 to the Rome I Regulation states:
Where a choice of law is made and all other elements relevant to the situation are located in a country other than the country whose law has been chosen, the choice of law should not prejudice the application of provisions of the law of that country which cannot be derogated from by agreement. This rule should apply whether or not the choice of law was accompanied by a choice of court or tribunal.
Consequently, Recital 15 and Article 3(3) of the Rome I Regulation seem to be based on the assumption that the parties to a contract may choose a court of a Member State as having jurisdiction, even if all the relevant elements of the situation prior to their choice of forum (and law) are located in another Member State (regarding the interpretation of Article 3.3 Rome I Regulation in the context of insolvency proceedings, see CJEU Judgment of 8 June 2017, Vynils, C-54/16, EU:C:2017:433, concerning an apparently domestic Italian contract that conteined “a clause stating that English law is the chosen law and a clause choosing the jurisdiction of the London Maritime Arbitrators Association”, para. 20).
In so far as the judgment in Inkreal holds that the rules of jurisdiction in the Brussels I bis Regulation apply only where there is an element of internationality, for which it is sufficient that a purely domestic contract designates a court of another Member State as having jurisdiction, since such a situation “raises a question relating to the determination of international jurisdiction” (para. 24), it is also consistent with the approach underlying the Rome I Regulation. A sort of parallel may be drawn mutatis mutandis between that category and that of a situation “involving a conflict of laws” as regards the field of applicable law. Also, under the Rome I Regulation, in the different context of the applicable law, it is necessary to determine in which situations a foreign element is present, since the rules of the Rome I Regulation only apply “in situations involving a conflict of laws” (as stated in Article 1(1) and recently examined by the Court of Justice in its judgment of 14 September 2023, Diamond Resorts Europe and Others, C‑632/21, EU:C:2023:671, para. 51).
II. Objectives of Predictability and Legal Certainty in the Application of the Brussels I bis Regulation
The judgment highlights that making the application of Article 25 of the Brussels I bis Regulation subject to a finding that the contract has additional links (beyond the agreement conferring jurisdiction) with the Member State of the chosen court would undermine the objective of legal certainty and predictability. It would make it difficult for the designated court before which the action is brought to determine its jurisdiction and increase the risk of parallel proceedings and irreconcilable judgments (paras. 27 to 31).
Although the lis pendens rules of the Brussels I bis Regulation would significantly reduce the risk of parallel proceedings, there is no doubt that the requirement to identify additional elements capable of demonstrating the cross-border impact of the dispute would constitute a significant factor of uncertainty. Illustrative in that respect was the list of potential international elements in addition to the jurisdiction agreement contained in the third of the questions referred for a preliminary ruling in case C-136/16 in relation to the swap contracts at issue. Such elements included the fact that foreign companies were invited to submit proposals to participate in the contracts, that one of the parties is owned by a foreign entity, that under the terms of the contract the parties may transfer their rights and obligations to subsidiaries in other countries, that the contracts at issue had certain connections to contracts concluded with foreign entities, etc.
Moreover, hypothetically, it should be noted that if it had been decided that Article 25 of the Brussels I bis Regulation requires additional factors of internationality to be applied, a particularly broad interpretation in the context of the Union would have been justified. The outcome in practice might not be very different from that resulting from the new judgment.
For example, why would the following not be sufficient connections. First, the mere fact that for one of the parties the contract in question has connections to a different international contract which are relevant to that party. Second, the fact that one of the contracting parties belongs to a group of companies with connections to the Member State in which the designated court is located (for instance, this seemed to be the situation -perhaps with some additional elements- in the notorious El Majdoub judgment, concerning a contract between parties domiciled in Germany with a jurisdiction clause in favour of a court in Leuven (Belgium), see paras 10, 13 and 16 of CJEU Judgment of 21 May 2015, El Majdoub, C‑322/14, EU:C:2015:334).
III. Significance of EU Private International Law rules as an Instrument of Integration
The broad scope of Article 25 Brussels I bis Regulation is also justified by the Court of Justice as reflecting mutual trust in the administration of justice within the Union and contributing to the development of an area of freedom, security and justice (para. 35). Indeed, the development of civil judicial cooperation within the Union, based on the principle of mutual recognition of judgments, has led to the creation of a judicial area, many elements of which are closer to the treatment of purely internal situations than to strictly international ones. This is reflected, for example, in the contrast between the treatment of situations in which lis pendens arises between Member States of the Union and those concerning parallel litigation in a Member State and a third State.
The criterion adopted in Inkreal is a further step in this direction of overcoming state borders, which is projected onto areas where party autonomy prevails and the choice of the courts of a Member State without any apparent connection with the dispute will typically respond to the legitimate interests of the parties. In practice, moreover, the choice of a court of that other Member State will normally go hand in hand with the choice of its law as the law applicable to the contract. As regards the position of the Member State in which all other elements of the contract are located, Article 3(3) of the Rome I Regulation will be relevant. According to that provision, the choice of law (and court) by the parties does not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement. Consequently, the mandatory rules applicable to the contract will be those of the Member State where all the other elements relevant to the contract are located and not those of the Member State whose courts adjudicate the case and whose law has been chosen by the parties (without prejudice, of course, to the effectiveness of the mandatory rules under Article 9 of the Rome I Regulation).
Given the specificity of the Union’s integration framework, and the particular scope of judicial cooperation in civil matters, the Court is justified in expressly rejecting that the provisions of the 2005 Hague Convention on Choice of Court Agreements should constitute a point of reference in the interpretation of Article 25 of the Brussels I bis Regulation. Pursuant to Article 1(1) of the Convention, its jurisdiction rules only apply either if the parties are not resident in the same State, or if some element relevant to the dispute other than the location of the chosen court has a connection with some other State (see “Explanatory Report” by T. Hartley and M. Dogauchi, paras. 41-43).
Hence, the broad interpretation of Article 25 of the Brussels I a Regulation and its application to purely domestic contracts does not apply to jurisdiction agreements designating the courts of a third State, even if it is a State with which the Union and its Member States are bound by the 2005 Hague Convention on Choice of Court Agreements. Nor does it apply directly in situations where the effectiveness of jurisdiction agreements in favour of a third State is governed by the domestic law of the Member State seised.
Concluding remarks
Unlike in case C-136/16, Sociedade Metropolitana de Desenvolvimento, the Court was not requested in Inkreal to clarify if the application of such a jurisdiction agreement may be waived where the choice of the courts of a Member State other than that of the nationality of the parties causes serious inconvenience for one of those parties and the other party has no good reason to justify such choice. However, the reasoning by the Court seems to support the view that within the specific framework of the Brussels I bis Regulation (and its interplay with the Rome I Regulation) such a concern is of limited significance. This is without prejudice that the possible review of the regulatory framework in order to provide certain protection to small or medium-sized enterprises in a position of contractual imbalance against choice of forum agreements unilaterally imposed on them, is an issue that merits special attention. In any event, such protection would be especially necessary with regard to jurisdiction agreements in favour of the courts of a third State, which in principle fall outside the scope of the Brussels I Regulation.
— This post is based on the post published in Spanish by the author on 8 February 2024, and a short case comment to be published in the journal La Ley Unión Europea.
Dear Prof. De Miguel,
From a Spanish perspective, one question that comes to mind when reading the judgement is whether the current interpretation of DA 2 of the Spanish Agency Act is still valid. This provision states that “jurisdiction to hear actions arising out of the agency contract shall lie with the judge of the agent’s domicile, any agreement to the contrary being null and void.” So far, this was being interpreted as a merely domestic provision to allocate territorial jurisdiction among Spanish courts, but not international jurisdiction. I may be mistaken, but I believe that the EU Commission questioned this provision in the past, although in the end it was satisfied with the explanations received. I wonder whether Inkreal now opens the door to simply disregarding the existing interpretation, so that a purely internal Spanish agency contract could contain a submission to the courts of a different EU member state, thereby circumventing the Agency Act.
Maybe I am looking at it too narrowly?
Dear Sergi,
Many thanks for raising that question.
As you mention, the widely accepted view is that such provision concerns only the allocation of territorial jurisdiction among Spanish courts (see, e.g, SAP Santa Cruz de Tenerife —secc. 1— 10 September 2001). Moreover, it is to be understood without prejudice to the rules on international jurisdiction and to EU law and international conventions to which Spain is a party. Hence, it can not be an obstacle to the application of the Brussels Ia Regulation as interpreted in Inkreal. Such a provision was questionable and is even more so after Inkreal. It is worth noting that some courts have held that it has been tacitly repealed (see SAP Toledo -secc. 2- 6 October 2017).
Reading the interesting reactions to the different posts, I cannot, but agree to the comments of Pedro de Miguel. There is no doubt that the CJEU opted for the easiest and most predictable solution regarding article 25: party autonomy, underlying the provision, is sufficient to permit jurisdiction clauses designating the jurisdiction of another EU Member State. And party autonomy is based on the subjective will of the parties – there is nothing wrong with it.
Would this solution increase the danger of a fraus legis? Certainly not, as weaker parties are protected by article 25 (4) Brussels Ibis Regulation; no jurisdiction agreement can deprive them from their home jurisdiction. In addition, commercial litigants cannot deviate from mandatory law (this would amount to a fraus legis) under article 3 (3) of the Rome I Regulation that applies to all EU Member States. This is the main reason why the parallel provision of article 1 (2) of the 2005 Hague Convention is not an argument here: there is no parallel harmonization of conflict of law rules at the global level – this lack of a uniform regime is an overwhelming incentive for forum shopping in third state constellations. Within the EU, the situation is different.
The more fundamental question is whether there is a genuine legitimate interest of domestic parties to choose a foreign court. In this regard, recent developments in creating international commercial courts appear a telling reason for commercial parties not to opt for (expensive) arbitration but to go for specialized litigation. The unprecedented success of the Uniform Patent Court (where immediately after its establishment not less than 217 high-value cases were filed within the last first 7 months) demonstrates that well organised courts will find “clients” for their “services”. Here, arbitration should not be the only alternative to domestic court proceedings. This example demonstrates that the strengthening of court proceedings for commercial litigants will be very beneficial for effective dispute resolution in the Area of Freedom, Security and Justice.
A final question remains: do Member States dispose, more than 50 years after entry into force of Brussels systems, of a genuine legislative power regarding domestic jurisdiction clauses? Here, I would like to join Pedro de Miguel in stating that the European integration as it stands today permits a wider interpretation of the Brussels Regulation facilitating party autonomy. In the course of the last 50 years many heads of jurisdiction of the Regulation have been applied to internal/local jurisdiction, too. I cannot see this as a “bypassing” of national provisions – the supremacy of EU law overrules the domestic provisions. Therefore, Inkreal appears to be a welcome decision.
Dear Burkhard,
Your position has, I have to admit, the merit of clarity. To further European integration, we should consider that the Brussels I bis Regulation has replaced domestic rules of jurisdiction, and that the Member States have lost legislative competence to regulate domestic jurisdiction clauses.
I guess that it follows from this position that there should be no requirement for an international element to apply the Brussels I bis Regulation. And that we should simply ignore the issue of the legislative competence of the EU to extend it to domestic disputes. And that, after all, subsidiarity is a tale that we tell to our first year law students.
Is that the secret agenda of the CJEU…? I guess time will tell.
Dear Gilles,
At least from the point of view of the CJEU, the foreign element is still a must. See to that effect C-274/21 and C-275/21 (the relevant point being how the question was asked, and how it was answered).
Dear Gilles,
I wonder if saying that the Member States have lost legislative competence to regulate domestic jurisdiction clauses is not going too far. In any case, it seems a limited loss. The judgment makes clear that the application of the rules of jurisdiction of the Brussels I bis Regulation is subject to the existence of an international element, such as the choice by the parties of a court of another Member State.
The requirement that restrictions on the designation of courts of other Member States -such as article 25(4) as mentioned by Burkhard Hess- are to be laid down in Union law seems consistent with the principle of subsidiarity.
Dear Marta, dear Pedro,
For the avoidance of doubts, my own view is that there is no indication that the Member States have lost their legislative competence to regulate domestic jurisdiction clauses. The CJEU has repeatedly ruled so, including in Inkreal.
So, if the legislative competence of the Member States remains, there is very much a problem of the CJEU bypassing this competence if it rules that it is enough that the parties say “this is an international contract” to trigger the application of the Brussels I bis Regulation and avoid the application of national rules regulating jurisdiction clauses.