The new Regulation introduces a substantial change with respect to the effectiveness of choice of forum clauses in case the same dispute is brought before courts of different countries. This change will be of great importance for the future strategies in drafting contracts and managing disputes within the European Union.
Choice of forum clauses are quite usual in international contracts. The contracting parties wish to increase certainty and foreseeability with regard to possible future disputes, by determining from the outcome which court will be entitled to decide future disputes between them.
Especially with regard to contracts of sale it is common practice that the exporter includes in his general conditions of sale a clause providing for the exclusive jurisdiction of its own courts for possible future disputes.
This contractual provision answers a quite comprehensible desire of the respective party to be able to bring a claim against his foreign counterpart before its own courts and, which is even more important, to prevent the counterpart to claim before its own courts, considering the disadvantage of defending itself before a foreign judge, in a foreign language, etc. etc.
In trade relations with counterparts established outside the European Union jurisdiction clauses in favour of the exporter will often be ineffective in the country of the foreign party, i.e. the courts of that country will in several cases not be bound to respect the clause and will affirm their jurisdiction notwithstanding the clause reserving jurisdiction to the other party. When this is the case, the clause may nevertheless be of interest for the exporter: although it will not prevent the other party to bring a claim before its own courts, it will normally have the effect that the foreign judgment will not be recognizable and enforceable in the exporter’s country.
Within the European Union a choice of court clause is fully effective, provided the clause complies with the requirements of Regulation 1215 (especially as concerns the written form). This means that the other party cannot bring a claim before its own court (or any court other than the court designated in the clause).
The problem of lis pendens
It may however happen that the other party disregards the jurisdiction clause and decides to bring a claim before its own courts notwithstanding the clause.
This choice may be a decision simply not to comply with the clause in order to delay the proceedings: the respective party knows perfectly about the clause, but does not mention the clause in its claim; or, the party itself does not tell its lawyer about the clause. Of course, in these cases the counterpart will object to the jurisdiction of the court seized and the latter should in principle recognize the existence of the clause and refuse jurisdiction.
In practice, however, the situation is far less simple, mainly for two reasons.
First, even when the effectiveness and validity of the jurisdiction clause is undisputable, it may take some time to get to a final decision, especially in countries where justice is slow and where counsels have many means for delaying the process.
Second, in many cases the existence, validity and effectiveness of the choice of court clause is objectively disputable. This can give the other party a strong argument for requesting the court to disregard the clause and to affirm its jurisdiction notwithstanding the clause in question.
A typical situation of this type arises when the jurisdiction clause is included in general conditions of sale of the seller and it is disputed whether there has been a valid reference to such conditions in the agreement between the parties; or, when the buyer objects that the agreement containing the clause has not been accepted in writing or in another form required by Article 23 of Regulation 44/2001 (now Article 25 of Regulation 1215/2012). In the presence of situations of this kind a court may have good reasons to decide that the clause is not valid and should not be respected.
Within the previous Regulation 44/2001, the fact of bringing a claim before a court other than the court indicated in the choice of jurisdiction clause, had the effect of preventing any other court to deal with the same claim until the court first seized decided to refuse jurisdiction. Now, this type of solution, justified by the need to avoid conflicting judgments on the same matter, could be used for the purpose of circumventing choice of court agreements by bringing a claim before another court and claiming the invalidity of the jurisdiction clause before that court.
Of course, the court first seized must decline jurisdiction in favour of the court designated in the choice of court clause as soon as it ascertains the existence and validity of such clause. However, this may take time and may give the party which disregarded the choice of court clause the possibility to avoid the jurisdiction of the designated court for a long period of time.
Now, the possibility of claiming first before the court of a country where justice is slow (like for instance Italy: for this reason this strategy has been called the ‘Italian torpedo’) in order to avoid the jurisdiction of the court designated in the forum selection clause has been heavily criticized. This is why the new Regulation has tried to overcome the problem by introducing the rule according to which the jurisdiction of the court designated in the choice of court agreement always prevails over that of other courts.
This principle is stated in Article 31(2) of Regulation 1215/2012, where it is said that:
« … where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seized, any court of another Member State shall stay the proceedings until such time as the court seized on the basis of the agreement declares that it has no jurisdiction under the agreement.»
This means that, when a party wishing to avoid the court designated in the jurisdiction agreement brings a claim before another court and thereafter the other party seizes the court designated in the agreement, the first one must stay proceedings and the designated court will have the exclusive jurisdiction to decide whether the choice of court agreement is valid and effective.
Finally, Article 25 of the new Regulation expressly provides that the designated court will decide on the substantive validity of the agreement under its own law (the lex fori).
Impact of the new rules on contractual strategies
At this point we should ask ourselves about the impact on the current contractual strategies, especially with respect to the drafting of choice of forum clauses.
No doubt that the new rule strengthens the effectiveness of the jurisdiction clauses, not only against those who disregard them without any valid reason (i.e. for the only purpose of delaying proceedings), but also against those who have sound objective reasons to believe that the clause is ineffective.
Now, this gives a substantial advantage to the party that has been able to include a choice of jurisdiction clause in the contract, especially in cases where it is disputable whether this clause has become part of the agreement between the parties.
Let us take, for instance, the classical example of a clause contained in general conditions of the seller. The seller sustains that he has annexed the general conditions to the order confirmation sent to the buyer and accepted in writing by the latter, but the buyer denies having received them or affirms that the reference to the general conditions was not precise enough; or, the general conditions have been included in the contract proposal, but the buyer has never accepted them in writing. In situations of this type, it will be the seller’s court which will decide on these crucial questions (on the basis of its own law), which certainly constitutes an important tactical advantage.
The other side of the coin is, obviously, that the other party is in a weaker position than before (under Regulation 44/2001) because it looses the option to claim the invalidity of the clause before its own courts.
Considering all this, parties which conclude contracts through exchanges of offers and acceptances will have a stronger interest to include their own choice of forum clauses in all communications with their counterparts, knowing that, even in cases where the effectiveness of such inclusion may be disputable, the mere existence of the clause may justify the jurisdiction of their own courts.
In any case, there remains an open question arising within the classical ‘battle of the forms’ situation when both parties refer to their choice of forum clause claiming the invalidity of the clause of the other party. Since both courts would in principle have jurisdiction in this case, this might become an interesting question for the Court of justice in the future.
Another situation on which the new rules may have a considerable impact regards the validity of the so called ‘unilateral’ choice of jurisdiction clauses, i.e. clauses which grant one contracting party the right to choose between several jurisdictions, while the other does not have this option. These clauses are very common in commercial agency and distributorship contracts: the courts of the principal/supplier have the exclusive jurisdiction, but the principal/supplier reserves the right also to claim before the courts of the agent/distributor.
In some countries (see for instance the Rothschild case decided by the French court of Cassation in 2012) the clause has been considered null and void while in other countries (United Kingdom, Italy) clauses of this kind are considered valid. Now, as long as these differing positions remain (i.e. until the European Court of justice answers the question in the framework of the interpretation of Article 25 of Regulation 1215/2012), it will be of paramount importance for parties which include clauses of this kind in their contracts to know that only the designated court will have jurisdiction to decide the issue.
Finally, I would like to mention another disputed question regarding the possible impact of internationally mandatory rules (overriding mandatory provisions) on the validity of forum selection clauses. The issue in this case is whether a choice of court agreement can be considered as abusive and, consequently, invalid due to the fact that it deprives the courts of the country which enacted overriding rules, to enforce them. Here too, the position of national courts is not uniform: some courts have decided for the invalidity of clauses of this type; others have stated that the purpose of excluding the application of internationally mandatory rules cannot be a reason for considering the choice of forum clause as abusive and/or invalid, since the issue of the validity of the jurisdiction clause is a question to be decided independently from the rules applicable to the merits.
It is obvious that in this context the fact of reserving to the designated court the competence to decide this issue on the basis of its own law, as provided under the new Regulation, is of paramount importance.
The new rules on lis pendens in Regulation 1215/2012 adequately protect choice of court clauses against possible abuses by parties which try to disregard them for purely tactical reasons. This is certainly an improvement which should be welcomed.
At the same time, however, this system risks to favour invalid or ineffective choice of forum clauses, especially in contracts concluded through reference to general conditions, because of the tactical advantage warranted to the contracting party which can invoke the choice of court clause before its own courts in cases where its validity is disputable.
Fabio Bortolotti, IDI country expert for Italy