Ioannis Alexopoulos and Philipp Kurek discuss asymmetric jurisdiction clauses following landmark CJEU ruling, in Law360

In a long-awaited landmark ruling in the Società Italiana Lastre SpA (SIL) v. Agora SARL case (Case C‑537/23), the Court of Justice of the European Union (“CJEU”) brought some welcome clarity as regards the validity of asymmetric jurisdiction clauses under EU law.

The decision confirms that asymmetric jurisdiction clauses that designate EU Member State or Lugano Convention State courts are, in principle, valid under the Brussels I Recast Regulation. However, significant questions remain about the validity of clauses that allow one party to initiate proceedings in non-EU/Lugano Convention courts (including the English courts).

The CJEU’s ruling therefore reconfirms the need for careful analysis of asymmetric jurisdiction clauses on a case-by-case basis, and reinforces the importance of drafting such clauses with precision to ensure enforceability within the EU and Lugano Convention States.

What are asymmetric jurisdiction clauses?

Asymmetric jurisdiction clauses, also known as unilateral or hybrid clauses, are contractual provisions that assign different jurisdictional rights to each party. Typically, one party is confined to initiating legal proceedings in a specified jurisdiction, while the other retains the flexibility to commence proceedings in multiple jurisdictions. These clauses are widely used in financial agreements, where lenders seek the advantage of selecting the most favourable forum for enforcement, whereas borrowers are restricted to a predetermined jurisdiction.

The primary motivation for incorporating asymmetric jurisdiction clauses into agreements is to provide one party, usually the lender or service provider, with greater control over where disputes are litigated. This allows the party benefitting from the optionality provided by an asymmetric jurisdiction clause to select the most beneficial forum for a dispute at the time the dispute arises, rather than having to decide on a forum at the time the agreement is entered into. Asymmetric jurisdiction clauses therefore allow for strategic forum selection that is most appropriate for the relevant dispute, providing valuable tactical advantages to the party benefitting from the clause’s optionality to choose the best possible forum for a specific dispute. This gives parties the ability to ensure that their dispute will be litigated in a jurisdiction with appropriate expertise, a reliable and robust legal framework, efficient procedures, and strong enforcement mechanisms.

The CJEU’s ruling in Lastre

While English courts have historically upheld asymmetric jurisdiction clauses, the courts in some EU Member States, in particular in France, have been more reluctant to do so.

The CJEU judgment in Lastre arose from a request for a preliminary ruling from the French Cour de cassation in which the French court sought guidance on the validity of asymmetric jurisdiction clauses under the Brussels I Recast Regulation, which governs jurisdiction and the recognition and enforcement of judgments in civil and commercial matters within the EU.

In its ruling, the CJEU held that the substantive validity of asymmetric jurisdiction clauses must be examined, not based on Member States’ national laws, but rather in the light of autonomous criteria of EU law which derive from Article 25 of the Brussels I Recast Regulation, which governs the validity of jurisdiction clauses in favour of EU Member States.

In this context, the CJEU confirmed that such clauses are valid in principle, provided however that they: (i) designate courts of EU Member States or Lugano Convention States (i.e., Iceland, Norway, and Switzerland); and (ii) identify objective factors which are sufficiently precise to enable the court seised to ascertain whether it has jurisdiction.

Uncertainties remain about clauses providing jurisdiction for non-EU/Lugano Convention courts

Whilst the CJEU’s ruling provides welcome certainty for clauses expressly designating EU or Lugano Convention courts, it leaves open questions about the validity of asymmetric jurisdiction clauses that also allow one party to bring proceedings in “any other competent court” (as is often the case). The correct interpretation of the scope of such clauses will depend on the governing law of the agreement – and if, properly interpreted, the choice of courts includes courts in non-EU/Lugano Convention States, the CJEU judgment suggests that the clause will not be valid under EU law.

Moreover, it is important to note that an asymmetric jurisdiction clause in favour of non-EU/Lugano Convention courts (e.g., where one party is required to bring proceedings in the English courts) will not fall within the scope of Article 25 of the Brussels I Recast Regulation. Whilst the English courts will give effect to such clauses, uncertainty remains whether an EU/Lugano Convention court seised of a dispute in breach of such a clause could (or would) stay proceedings or decline jurisdiction in favour of a non-EU/Lugano Convention court.

Impact on asymmetric jurisdiction clauses providing for arbitration

Arbitration is excluded from the scope of the Brussels I Recast Regulation, with the validity and enforceability of arbitration agreements – including asymmetric jurisdiction clauses that allow one of the parties to refer the dispute to arbitration – generally determined by the governing law applicable to the arbitration agreement.

The CJEU’s ruling in Lastre only focusses on the validity of asymmetric jurisdiction clauses under EU law, and therefore has no direct impact on the validity of asymmetric jurisdiction clauses providing for arbitration.

However, while arbitration agreements fall outside the scope of the Brussels I Recast Regulation, many of the same considerations raised by the CJEU, including principles of party autonomy and legal certainty, arise in the context of one-sided arbitration agreements. In this respect, the CJEU’s position that an asymmetric jurisdiction clause granting one party greater rights does not invalidate the clause, and that the parties’ contractually agreed choices should be respected, is encouraging.

However, in practice, the validity of one-sided arbitration agreements varies greatly from jurisdiction to jurisdiction, including within the EU. Whilst EU jurisdictions such as Italy and Greece have generally supported asymmetric arbitration clauses, jurisdictions such as France and Poland have taken a more restrictive approach. The approach taken by courts outside of the EU is similarly inconsistent, with jurisdictions such as England, Singapore, and Hong Kong generally enforcing one-sided arbitration clauses, whilst jurisdictions such as Russia, China, and the UAE generally refusing to recognise their validity.

It is unlikely that the CJEU’s ruling in Lastre will lead to a harmonisation of the approach to such clauses within the EU, let alone beyond. In the context of arbitration, therefore, a careful analysis of one-sided arbitration clauses on a jurisdiction-by-jurisdiction basis remains as important as before.

Conclusion

Whilst the CJEU’s decision in Lastre provides greater clarity on the validity of asymmetric jurisdiction clauses within the EU, it also highlights the importance of careful drafting to ensure that such clauses are enforceable. Moreover, with remaining uncertainties about the validity of asymmetric jurisdiction clauses in favour of non-EU/Lugano Convention courts, including the English courts, parties should be mindful that the enforceability of asymmetric jurisdiction clauses is not guaranteed.

In light of the ever-evolving legal landscape and diverging approaches across jurisdictions within the EU and beyond, it is therefore important that asymmetric jurisdiction clauses are not treated as mere boilerplate provisions. Careful thought should be given to their implications, ensuring that they are tailored to the specific needs of each transaction. Clarity in drafting, a balanced approach to party rights, and a strategic assessment of enforcement risks are all critical in mitigating potential legal uncertainties, delays, and associated costs.

Moreover, while asymmetric jurisdiction clauses provide flexibility, their advantages should be weighed against potential risks. In some situations, parties may be well advised to consider whether an exclusive jurisdiction clause or a simple arbitration agreement may offer a more predictable and secure dispute resolution framework.