Inkreal: Jurisdictional Barrier-crossing in Domestic Cases: A Threefold Critique

This post was contributed by Horatia Muir Watt and Dominique Bureau, who are respectively professors at Sciences Po Law School (Paris) and Paris II Law Faculty. This is the fourth contribution to the EAPIL’s online symposium on the ruling of the Court of Justice in Inkreal, after the posts of  Sergi Gimenez, Gilles Cuniberti and Pedro de Miguel Asensio.

The ECJ’s ruling enables parties to an intra-European domestic contract (meaning, connected solely to one Member state) to submit their future disputes to the courts of another Member state. The broad justification for this new step is the respect for party autonomy and the subsequent need for effectiveness of exclusive choice of court agreements within the common judicial area (judgment, §26, §36). While the reference to such principles does not come as a surprise in the latter context, their relevance with regard to the specific problem at the heart of the ongoing dispute is hardly convincing. Not that there is any lack of other, more technical, arguments. However, the dialectics are somewhat circular, to say the least. This may be linked to the fact that the Advocate General’s Opinion had proposed the opposite solution, possibly indicating in turn an internal division within the Court.

The novelty in the solution is that a choice of foreign forum in a purely domestic or uni-located situation is governed by Article 25-1 of the Brussels I bis Regulation and permissible thereunder. There is no need, then, for the underlying agreement to have any “foreign elements”. Indeed, in this case, not only was there was no link with the Member State whose courts had been chosen (as now uncontroversially allowed in the case of international forum agreements, whether otherwise intra-European or not), but further, there was no circumstance, past or present, which might attach the disputed contract to any country (whether or not a Member State) other than the one in which the parties were already established at the time the contract was concluded and were still so at the date of the court proceedings.

We see this as problematic. Not only by reason of the pattern of argument deployed here (I), but also because of the epistemology at work (II), and, most importantly, the underlying political economy of the final outcome (III).

I. Pattern of Argument

The problem affecting the reasoning in the judgment lies in a methodological slippage. At first glance, the Court carries out a classical exercise in legal hermeneutics: the wording of article 25-1 is examined (pt. 21), consolidated thereafter by a teleological analysis (pt. 26), then a logical justification (pt. 32), and finally the confrontation with a counter-example in the form of the 2005 Hague Convention (pt. 36). Why the latter did not serve, rather, as an analogy; why the silence of the text was taken to be permissive rather than as an implicit reference to the content or practice of other EU instruments, including Regulation Rome I; why there was no consideration of the delicate balance struck between the policy of free movement and the protection of domestic regulatory objectives in Member States…can of course all be ascribed to the normal mysteries of judicial interpretation.

Nevertheless, given the controversial nature of the legal issue and the potential import of the outcome, the location of the tipping point of the argument (pt. 22-23) comes as a surprise. From this point onwards, all the justifications put forward, whether teleological, logical or contextual, all presuppose a conception of the relationship between the internal and the international, which is precisely at the heart of the dispute.

The latter comprises two successive questions. Does the applicability of Article 25 of Regulation Brussels I bis require the contractual relationship (to which the choice of forum agreement pertains) to be international (or at least non-exclusively domestic, as under its twin article 3§3 of Regulation Rome I on choice of law)? If so, does the sole choice of a foreign court by the parties to such a relationship suffice to fulfill this condition? But answering the second question in the affirmative quite simply negates any prior requirement and merges the two problems into one. As Advocate General J. Richard de la Tour observed, if we hold that recourse to a provision of Regulation No 1215/2012 presupposes the existence of a condition of internationality, it would be fallacious to assume that this is fulfilled through an agreement between the parties. In other words, this way of framing the question puts an end to any further, non subjective, requirement of “internationality”. With the sequence of questions reversed, the reasoning then becomes circular.

This objection could be disqualified as merely aesthetic if it were not for a series of interconnected consequences. These may differ of course according to the structure of the court system in any given country. But let us take France as an example. In the case of an exclusively domestic contract, subject to French law, some forum agreements of which the effect would be to modify the rules of domestic territorial venue – for instance, choosing a court in Paris rather than in Marseilles – would be void under article 48 French Code of Civil Procedure. But then, according to the ECJ’s new ruling, an agreement between the same parties in the same circumstances, but conferring jurisdiction on a court in Rome (rather than in Paris), would be perfectly valid. If the parties are attempting (together or separately) to shop, for various reasons, for a more favorable forum than Marseilles, this opening comes as a godsend.

Indeed, following the ruling, it means that the agreement to take the dispute to a foreign court would have to be enforced – meaning that the court of a Member State other than the one designated under the otherwise applicable rules of domestic civil procedure would have to stay and then possibly decline jurisdiction – assumedly, even if the dispute falls within the scope of mandatory provisions of the (domestic) law of that forum. Thus, in the French example above, the same contract might also contain a choice of (any) foreign law. The latter choice would normally be subject (without prejudice) to the mandatory provisions of local (French) law, under article 3 § 3 of Regulation Rome I. However, if the court of the other Member State designated in the choice of forum agreement were to disregard such provisions – or, rather, since this whole situation is henceforth to be thought of as international, if it were to decline to exercise the option offered by article 9§3 of Regulation Rome I in favour of an overriding statute at the place of performance-, there is no guarantee that a “second look” could make them effective at the ultimate, enforcement stage. Indeed, the violation of an overriding or mandatory rule – and even less a domestic mandatory provision – does not necessarily prevent a judgment handed down in one Member State from becoming effective in another. Moreover, the proviso in article 25 is hardly a protection when it states, in relation to the effectiveness of parties’ choice of court: “unless the agreement is null and void as to its substantive validity under the law of that Member State”, that is, the law of the chosen forum!

In other words, since, it is easy to see how given domestic legal provisions – both substantive and procedural – become irrelevant unless the parties have decided otherwise.  For the moment we must put aside some insidiously nagging questions, beyond the scope of article 25 of Brussels Ibis Regulation: will this expansive permission to engage in jurisdictional barrier-crossing grow into a common understanding as to the merits of party autonomy, so as to apply to cases in which the chosen forum is in a third country? And in such cases is the protection of European mandatory laws (as in the ECJ’s Ingmar line of case-law) sufficient to ensure “jurisdictional touchdown” (“Transnational Liftoff and Juridical Touchdown: The Regulatory Function of Private International Law in an Era of Globalization.” Columbia Journal of Transnational Law 40.2 (2002): 209-274)?  Presumably, a contractual choice in favour of a Member State by parties to a domestic contract in a third country will also be upheld, even if void under the law of the latter?

To come back for the time being to agreements subject to article 25, it might be argued, in response to our objection, that the erasure of the distinction between the domestic and the international as far as choice of court clauses are concerned increases the protection of weaker parties within the European Union, by reason of  the various special asymmetrical fora contained in Chapter II, Section 2 of the Regulation (which might be absent under local rules of civil procedure). A worker or consumer who is obliged to sue in the court of the professional defendant’s domicile in a purely domestic case could, simply by “internationalising” the contract – albeit with the unlikely consent of the employer or seller/service provider – benefit from the availability of a forum closer to home. But if such an advantage is truly important, it would surely be better to oblige Member States to provide the relevant protective forum by means of secondary EU legislation to that effect (as for detached workers, for instance), rather than upsetting the existing general equilibrium between international jurisdictional freedom and domestic procedural and regulatory constraints, with far wider ripple effects.

It could also be said that the “special” jurisdictional rules of article 7 of Regulation Brussels I bis already intrude into local rules of venue. But these have, until now, been triggered only in international cases, that is, when there is, initially, a “conflict of jurisdictions”, in other words a doubt, given the multiple connections of the substantive agreement between the parties, as to which court is apt to decide the case (as the Court accepts: judgment §22). Henceforth, in a domestic context, economic actors can opt out of local rules of venue in contract cases. They are not usually free to change the rules, say in tort cases, within a given Member State.  But, as from now, we may wonder why they should not be able to do so, with a little help from further analogizing. Or is there really something specific about contracts that mandates a more expansive approach to party autonomy?

II. Epistemological Issues

How then to understand the Court of Justice’s resolute erasure of the distinction between the domestic and the international – in the very specific context of Article 25 of the Brussels I bis Regulation, but of which the thrust could be significantly broader? Of course, the alternative approach would have meant defining an objective parameter to trigger the liberal regime – free choice of forum – defined therein. Where exactly to place the threshold of the international? This is undeniably a challenge in itself, as we well know from the long endeavor behind the Rome Convention/Regulation Rome I to define the thrust of party autonomy in respect of choice of law. But at this point one may simply wonder why the Court did not borrow from the (albeit imperfect) definition of article 3 § 3 of the latter, twin, instrument.

This approach sets a limit to freedom of choice of a foreign law in cases that are wholly domestic “but for” the choice itself. Arguably, the terms of the difficulty are not identical when it comes to jurisdiction: in matters of choice of law, it is easier to set a limit to party freedom by subjecting the contract to the domestically mandatory rules of the country in which, but for the agreement,  all the other conceivable connecting factors converge. However, applied to choice of forum agreements under article 25 of the Brussels Ibis Regulation, the “but-for” approach would have allowed each Member State to decide, similarly, for itself, whether party autonomy should or not prevail over countervailing considerations (linked inter alia, in turn, to the content of the applicable substantive law under art. 3§3 of Regulation Rome I).

If party autonomy has conquered new ground with such apparent ease, it is probably because the trend embodied in the ECJ’s new judgment was already present in a series of steps that appeared to need only a little prompting to expand in the same direction. From the contrat sans loi to a forum without a jurisdiction… the Court seems to have fallen into the trap of the “authority paradigm” (an epistemological difficulty amply explored by G.H. Samuel (‘Is Law Really a Social Science? A View from Comparative Law’ (2008) 67 Cambridge Law J. 288), in the sense that the solution is represented as dictated by its own specific legal logic, leading as it were in a straight line to an inescapable outcome: the blurring of the boundary between the internal and the international (or European). Given the silence of the text of article 25 on this point (which nevertheless constitutes the framework for the reasoning adopted), arguments beyond a purely literal interpretation were necessary. As observed above, the analogies and counterexamples supplied by the Court tended to cancel each other out and could have worked both ways. Are there further possible justifications?

Arbitration as an area of investigation provides food for thought. Arguably, there is a certain parallelism between choice of forum agreements and arbitration, which both allow, broadly speaking, an opt-out by private actors from a given legal system. It might be said, therefore, that, since domestic arbitration is permitted in many Member States (but it is difficult to generalise in a field that is not subject to European Union law), there is no reason to be more restrictive in respect of a domestic forum agreement in favour of a foreign court. However, such an argument is hardly convincing. Firstly, and precisely, because domestic arbitration is only permitted under the conditions laid down by a given national legal system, which decides for itself the extent it allows parties to exit its own court system. Secondly, because even in pro-arbitration jurisdictions such as France, the will of the parties is powerless to transform a domestic arbitration into an international one.

What can be said, however, is that the expansion of international arbitration is certainly at the root of a pervasive and under-theorized conception of party autonomy, perceived or used as a generalized derogation from any regulation or control originating in the public sphere (“regulatory lift-off” in the terms of Robert Wai, cited above). It is true that arbitration serves to free the parties from the public domain and by doing so encourages the privatization of the dispute resolution industry. This is not exactly the case here, since the freedom granted is exercised to the benefit of the courts of another Member State. However, the dual phenomena of artificial internationalization of domestic agreements and privatization of the access to justice are not unrelated. More rarely analyzed in this light, unfettered free movement serves an identical political and economic function with regard to both. It authorizes what we have previously called “metaphorical mobility”.  In other words, the license given to economic actors to insert choice-of-forum and choice-of-law clauses in their contracts, and thus tailor the applicable legal regime, is but a different instantiation of the free movement of goods and services in the common market: a form of legal and jurisdictional mobility without moving.

But the distinction between domestic and international cannot be erased – with the wave of a magic wand aka the will of the parties – without counting the costs downstream. At least, if we wish to preserve a measure of pluralism of national legal orders (or if we are legally obliged to do so, where competences are divided and layered, as in the European Union). Even liberal antitrust law teaches us that healthy competition (whether between players or, internationally, between laws) encounters its limits in the risk of creating a monopoly. Thus, outside this framework, it would have been possible to reflect on the very meaning of the boundary between the domestic and the international in the context of jurisdictional conflicts and elsewhere, or to consider more broadly (which amounts to the same thing) the scope to be conferred on party autonomy, which nothing – not even the competitive paradigm of the internal market in which the law unfolds here – obliged the Court to extend. Furthermore, in the silence of a text (and even then…) alternative and equally plausible schemes of intelligibility always exist. In this case, other avenues were perfectly conceivable. This is borne out by the conclusions of the Advocate General – without reference, which is regrettable, to the various debates within the field. It is not as if there has not been critique, and for a long time, of the autonomy/privatization/mobility nexus and its political economy, both within and beyond the confines of the European Union. The terms of this discussion deserved to be taken up. We can only regret the absence of any trace of such considerations in the judgment – if only to refute the objections – in what is undoubtedly a radical move in the evolution of the ECJ’s case law on contractual matters. The legitimacy of the Court’s role in the careful construction of a pluralist European legal and judicial area, is at this price, when it is called upon to rule, on the basis of an individual dispute, on a legal issue of much wider political, social and economic import. To present the position taken on this point as being dictated by legal logic is to flatten or depoliticize the difficulty.

III. Political Economy

At this point, then, we are prompted to look further into the ideological dimension of the outcome. As with free choice, or the distinction between the public and the private spheres, the problem is less in the principle itself (of mobility, party autonomy, private agency…) than in the disqualification of all types of local regulation, perceived exclusively as hindrances to the fulfillment of a higher political and economic goal. From this point of view, erasing the difference between the domestic and the international obeys a classic competitive paradigm, promoted with regard to a certain conception, now largely called into question, of neoliberal economic analysis of law. Thus, allowing the choice by the parties of a forum in another country in domestic contracts (already the principle when the situation is pluri-located) would supposedly create the conditions for an “upward” competitive spiral, thus improving the quality of jurisdictional services across the board as a result of this pressure.

Indeed, the ECJ’s ruling uses the tools of private international law to implement a project based on a specific, and by no means undebatable, economic rationality. Thus, the linchpin of the regulatory competition thesis was largely theorized within Chicago law and economics in the area of the (largely post-war) market for corporate charters. Thereafter, echoing such ideas from across the Atlantic, free metaphorical mobility, or “barrier-crossing” from the public to the private (the very definition of neoliberalism), empowered the unhindered movement of companies within the European internal market. From that point, was there any good reason to distinguish the fate of internal mandatory rules in company law from that of those governing mere commercial contracts: one might even be said to imply the other? Indeed, while most of the prohibitions enshrined in domestic commercial contract law in liberal regimes are presented as exceptions to the freedom of the parties, whereas large swathes of company law is mandatory in the domestic order with the aim of protecting third parties (rules relating to minimum capital, for example, or “blue sky” statutes..). Yet these provisions are largely neutralized by free circulation (as in Centros etc). If the founders of a company can choose to opt out of an applicable regulatory regime by artificially “internationalizing” or moving (formally) across borders, why not allow other forms of metaphorical mobility in contractual cases, through the insertion of choice of law and forum agreements in domestic agreements?

Reminiscent of the neoliberal model of economic analysis just mentioned, such was the plea by J. Damman and H. Hansmann, inspired by the real or supposed virtues of the legislative or regulatory competition induced by the American intra-federal market for corporate charters (‘Globalizing Commercial Litigation’, 94 Cornell L. Rev. 1 (2008)). In vogue at the neoliberal end of the last century when redistributional and environmental concerns were largely ignored, this now outdated, or highly contested, economic analysis of law, still has its supporters, including in France (counterintuitively… but is this the effect of the arbitration lobby, or merely of an academic fashion lag?). Interestingly, the same authors had initially advocated the introduction of a generalized system of “extraterritorial” courts (in other words, established outside their country of origin but administering the justice of the latter, abroad) precisely to enable competition between legal orders through an unfettered access to multiple, competing courts, even in purely domestic situations (perhaps forgetful that such a technique was actually implemented across colonial and neocolonial empires, including by the United States in China, until surprisingly recently…). But of course, a choice of forum agreement does the job in terms of competition, nearly as well.

It is precisely this model – the competitive paradigm – that may have inspired the Court of Justice here, as it has all those who continue to approve a very liberal use of contractual freedom of choice, whether of court or law. But despite the astonishing and recurrent success of the very idea of the “law market”, the difficulty remains of determining the threshold of the license to opt out of local regulatory limits in domestic cases. In the case of jurisdiction agreements, it could be explained by the impulse, in the long term, to standardize all the rules governing “special” jurisdiction among Member States, and thus, indirectly (as seen above) all contract law. Without going back over all the ground already covered in the fierce debates at the turn of the century on the unification of European private law, we shall simply observe that the prerequisite for successful legal harmonization (within the European Union) is the existence of a minimum of shared (equivalent) ground. The failure of the project to codify European private law (even in the sole area of contract) is perhaps an indication that such a consensus does not exist.

Moreover, if we adopt a structural approach to the problem, and move on from the indirect unification of domestic law to the circulation of judgments resulting from choice-of-court clauses, we can only point out that there is no such thing as complete “fungibility” of Member State judgments under the Brussels I bis Regulation itself, which, even after the abolition of exequatur, still allows for the ultimate intervention of local public policy (and on issues involving fair and equitable process is obliged to do so under relevant human or fundamental rights law). It is therefore to be expected that freeing up elective clauses ex ante will only multiply the number of cases of refusal to enforce the resulting decisions ex post. In other words, the lower the threshold of autonomy at the outset, the greater the degree of control at the end. The well-known example of the two contrasting perspectives, French and American, on “arbitrability” or the extent of party freedom in international arbitration (preventive threshold or control of awards) illustrates this phenomenon of “communicating vessels”. In respect of the new regime of jurisdictional clauses under the ECJ’s ruling, we can bet that the threshold issue – i.e., the reappearance of legitimate impediments to the free exercise of will – will quickly reappear downstream.

We also know that corporate mobility within the internal market has not been without its problems. The case law of the European Court of Justice bears witness to a long, shifting and subtle negotiation between the requirements of free movement and the aims protected by the legislative “obstacles” raised by member states in the name of various equally legitimate aims or policies (be they economic, social, environmental, etc.). Such judicial negotiation in case of conflict is the very “dynamic” of the principle of proportionality within the internal market (to use A. Marzal Yetano’s excellent expression in La dynamique du principe de proportionnalité. Essai dans le contexte des libertés de circulation du droit de l’Union européenne, Institut Universitaire de Varenne, 2014). This tension between multiple values is apparent both in corporate matters and in the field of contractually provided services, whether in terms of jurisdiction or applicable law. This is because any legal rule adopted in a democratic regime is the fruit of complex compromises between potentially contradictory interests, so that in the event of conflict in a particular case, no simplistic equation by which one should prevail other the other makes any sense – if to do so means ignoring the balance previously achieved…