Knock-out Rule for Conflicting Jurisdiction Agreements under the Brussels I bis Regulation
The Austrian Supreme Court (OGH) has rendered an important decision to solve conflicts between several forum selection agreements.
Facts
An Austrian company had sub-contracted a German company to perform construction works in Germany. The main agreement contained a clause giving jurisdiction for any dispute to a German court. However, in two additional agreements, jurisdiction was attributed to an Austrian court. The Austrian company brought a claim in the Austrian court, seeking (1) a declaration that the contract, consisting of the main and the additional agreements, remained in force, (2) a declaration that the German company had breached the contract, and (3) the payment of damages.
Legal Issue
Which jurisdiction clause is valid, the one in the main contract or the one in the additional agreements? And which standard is to be applied to solve this question: Article 25 of the Brussels I bis Regulation or national law?
Answer by the Court
The Austrian Supreme Court, in a decision dated 23 September 2024, held that both clauses cancel each other out. Without explicitly saying so, it followed the ‘knock-out rule’, which is well-known from the Convention on the International Sale of Goods (CISG). Consequently, the competent court had to be determined objectively, under Art 4 and 7 of the Brussels I bis Regulation, with the result that the Austrian courts lacked jurisdiction.
Crucially, the Austrian Supreme Court based its decision on an ‘autonomous interpretation’ of Article 25(1) of the Brussels I bis Regulation. In its view, the question whether the parties had agreed or not on a particular court did not belong to the ‘substantive validity’, which under this provision must be decided according to the national law of the agreed forum. Instead, the existence of consent as the essential prerequisite of a choice-of-forum agreement was to be determined under the Regulation itself. To support its view, the Court cited Article 10(1) and (2) of the Rome I Regulation. Although this provision is technically not applicable to choice-of-court agreements, it would draw a similar distinction between the existence of consent and its validity.
Adopting an autonomous view, the Austrian Supreme Court found that the parties had proposed two deviating forum selection clauses. Therefore, a consensus on the competent court was found to be lacking. The court, using an expression coined by the late Peter Mankowski, who quipped that two conflicting jurisdiction agreements ‘amount to none at all’.
Assessment
The decision deserves to be commended for trying to adopt, as much as possible, an autonomous European viewpoint. This strengthens uniformity and legal certainty in the EU judicial space.
However, the basis from which the court draws its conclusions is unclear. Not a single European act or decision is cited to support the ‘knock-out rule’. This theory remains controversial even under the CISG, which has in addition barely any connection with the Brussels Ibis Regulation. Moreover, the court did not take the pain of a comparative analysis of Member State laws either.
Also, the parallel the Court draws to Art 10 Rome I Regulation is specious. Contrary to what the Austrian Supreme Court suggests, the clear wording of para 1 of this provision submits the existence and validity of a choice of law to the chosen law. Para 2 provides an exception that applies only in case of special circumstances.
Therefore, the decision by the Austrian Supreme Court seems to have been based on thin air. It merely reflects the convictions by the Austrian judges on how conflicting forum selection clauses should be dealt with. It is all the more regrettable that they did not submit this question to the CJEU.
— Thanks to Paul Eichmüller and Lukas Petschning for helpful comments.
How interesting. I am more sympathetic to the conclusion, and to the approach, than the comment appears to be. If the parties had drafted a contract which contained consecutive clauses that said ‘the courts of A shall have exclusive jurisdiction’ and ‘the courts of B shall have exclusive jurisdiction’, it would be impossible to look at that and deduce a choice of court with exclusive jurisdiction. If it calls to mind anything, it is the suggestion that a choice expressed as a riddle (‘carrier’s principal place of business’) works if, but only if, there are objective facts which allow sense to be made of it (Coreck Maritime). This expression of choice of court made no objective sense and therefore had no objective substance. It must have followed that the opening words of Art 25 were not satisfied, and there was therefore nothing for that Article, or for the European Court, to do. My initial view is that the approach of the Supreme Court is salutary, and rather more persuasive that the way in which English courts are supposed in such cases to ascribe effect to each of the clauses, tying themselves in knots as they go about it.
Dear Adrian,
I can see the appeal of the knock out rule in the highly theoretical hypothesis that you present, where there is absolutely no way of discriminating between the two clauses. But theses cases are rare. In most cases, the jurisdiction clauses are in different contracts. So here, another possible rule of interpretation could be that the clauses in the special contract prevail over the clauses in the general contract.
If one accepts that the issue should be governed by an autonomous rule of EU law, it would be good to ask the CJEU to pick up one specific rule of interpretation and make it the rule for clauses (all) governed by Art 25.
Dear Adrian and Gilles, Thanks for your comments. It is excellent to have this discussion. I agree with both of you that the knockout rule is generally not a bad idea, but everything depends on the circumstances. The point I wanted to make is the one that Gilles mentions at the end: in our EU systems, questions of interpretation must be ultimately resolved by the CJEU. This would have been an excellent question to ask! I don’t know why the Austrian Supreme Court, which is usually quick to submit questions to the CJEU, didn’t do it in this instance. Hopefully this post and our discussion serve to bring the issue and the decision to the attention of lawyers in other member states.
It is a pleasure and a privilege to be able to discuss this with you both. I would only add that while I have no reason to doubt (and, nowadays, no locus standi to question) that ‘in our EU systems, questions of interpretation must be ultimately resolved by the CJEU’, that surely only applies to the interpretation of provisions of EU law. The reading and interpretation of a contract is surely a different thing altogether, and that’s what the Austrian court was doing, and thought it was doing.
If the parties make a contract for the monthly supply of a commodity for the years 2024-26 at £1000/ton, and then in 2025 make an agreement to sell the February consignment for £1200/ton, in apparent ignorance-disregard-improvement-variation (temporary or otherwise of the earlier contract, we certainly have a problem, which is susceptible to solution in various ways (each one of them being persuasive until someone suggests the next). But that’s all we have: we have to make sense of their contract, in accordance with our law of contracts. Once that’s been done we may wish to ask other questions, not all of which will be answered by the domestic law of contract. The urge for a ‘uniform’ approach will appeal to some, though not to all. I just don’t see a case for it here.
Dear Adrian, I agree with your argument that this is mainly about contract interpretation. But such interpretation has to be done according to some legal system. It is well known, for instance, that the English approach to contract interpretation is very different to the German. The OGH refers explicitly to a European autonomous interpretation. But there are no principles of EU contract interpretation to be seen anywhere. I suspect that they have just made these principles up.