Cross-border issues and disputes: Jurisdiction, forum selection and parallel proceedings

Keywords: ECJ ruling, Brussels I Regulation, EU Rules, contractual disputes, commercial business, Europe, Article 22.2

ECJ ruling on the scope of Article 22.2 of the Brussels I Regulation:

In disputes in which a company argues that a contract cannot be relied upon against it on the basis that a decision of its organs which led to the conclusion of the contract is invalid, Article 22.2 does not apply so as to allocate "exclusive jurisdiction" to the Courts of the EU Member State in which that company has its seat.

The scenario:

Summary

THE CASE:

The Court of Justice of the EU ("ECJ") has delivered a key decision in Berliner Verkehrsbetriebe (BVG) Anstalt des öffentlichen Rechts v JPMorgan Chase Bank NA, Frankfurt Branch (Case C-144/10).

That decision concerned the EU rules for determining in which country's Courts contractual disputes should be heard. It is of crucial significance for those conducting commercial business in Europe.

THE ISSUE:

In proceedings which have as their object the "validity of decisions of organs" of a company, legal person or association, Article 22.2 of Council Regulation (EC) No. 44/2001 (the "Brussels I Regulation") allocates "exclusive jurisdiction" to the Courts of the EU Member State in which that company, legal person or association has its seat. An equivalent provision is found within the Lugano Conventions which apply as regards Iceland, Norway and Switzerland.

Upon a reference by the German Courts, the ECJ was asked whether Article 22.2 of the Brussels I Regulation applied to proceedings in which a company asserted that a contract is invalid/unenforceable because the decision of its organs to enter into it were invalid. In other words, might the Courts of the seat of a company have "exclusive jurisdiction" to hear claims of a contractual nature in which that company raised ultra vires or similar arguments?

Following the financial crisis, such arguments, commonly comprising assertions of lack of capacity and/ or lack of authority, have been advanced by a number of entities seeking to extricate themselves from contracts. Consequently, equivalent jurisdictional issues have also arisen in a string of other recent cases, including:

Calyon v Wytwornia Sprzetu Komunikacynego PZL Swidnik SA ("PZL") [2009] (English Commercial Court, London) and PZL v Calyon (parallel proceedings before the Commercial Division of the Polish Regional Court, Warsaw);

Depfa Bank plc v Provincia di Pisa / Dexia Crediop S.p.A. v Provincia di Pisa [2010] (English Commercial Court, London) and parallel Italian proceedings (before the Administrative Court for the Region of Tuscany); and UBS AG, London Branch and another v Kommunale Wasserwerke Leipzig GmbH ("KWL") [2010] (English Commercial Court, London) and KWL v UBS AG and others (parallel proceedings before the German Landgericht Leipzig). If Article 22.2 could apply to such claims, it might allocate "exclusive jurisdiction" to the "home Courts" of the entity in question notwithstanding any jurisdiction clause to the contrary. It might have this effect in light of:

Article 23.5 - which provides that agreements conferring jurisdiction are to have no legal force if the Courts whose jurisdiction they purport to exclude have exclusive jurisdiction by Article 22; and Article 25 - which states that if a claim is "principally concerned" with a matter over which the Courts of a Member State have exclusive jurisdiction by virtue of Article 22, other Courts shall declare of their own motion that they have no jurisdiction. THE DECISION :

The ECJ ruled that Article 22.2 does not apply to any such contractual proceedings. It thus gave Article 22.2 a narrow interpretation - apparently even narrower than that applied by the English Courts to date.

This emphatic decision has established a universally applicable point of principle which should finally put all arguments in this respect to bed. It has two crucial effects:

It makes it easier to assess with greater certainty in which European countr(y's)(ies') Courts a claim of a contractual nature may legitimately be commenced. It should remove as a possibility the ability of a party to sidestep a jurisdiction agreement when (or indeed by) raising ultra vires or similar arguments in contractual claims. The decision will come as very welcome news not only to financial institutions, but indeed to all entities doing business in Europe which seek to uphold the jurisdiction clauses in their commercial contracts.

Further details and analysis

THE SWAP CONTRACT

JPMorgan Chase Bank, N.A., a US investment bank ("JPM Chase"), and BVG, a German public law entity, entered into an Independent Collateral Enhancement Transaction involving a swap transaction (the "Swap...