Jurisdiction Regulation: Knock-Out Blow To The Ultra Vires Torpedo

In a robust and important judgment on the Jurisdiction Regulation handed down in May, the ECJ has effectively eliminated the ability of parties to avoid the effect of a jurisdiction clause in a contract by claiming that their decision to enter into the contract was in breach of their constitution and therefore invalid.

Background

EC Regulation No 44/2001 sets out provisions in relation to jurisdiction and the recognition and enforcement of judgments in civil and commercial matters in the EU (the Jurisdiction Regulation, also known as the Brussels Regulation). Article 22(2) of the Jurisdiction Regulation provides that, in proceedings which have as their object the validity of the constitution of companies (or other legal persons) or of the validity of the decisions of their organs, the courts of the Member State in which the company (or the legal person) has its seat shall have exclusive jurisdiction to deal with the matter. In a recent reference for a preliminary ruling by the German courts, the European Court of Justice (ECJ), held that Article 22(2) does not apply to contractual disputes in which a company pleads that the contract cannot be enforced against it because a decision of its organs, which led to the conclusion of the contract, infringed its constitution and was therefore invalid. Article 22(2), the ECJ stated, only covers proceedings whose "principal subject-matter" comprises the matters listed in Article 22(2).

Facts

JPMorgan Chase Bank NA (JPM) had entered into a financial derivative contract with Berliner Verkehrsbetriebe (BVG), which conferred jurisdiction on the English courts. As a result of non-payment, JPM issued proceedings against BVG in England. BVG in its defence submitted that the contract was invalid because it had acted contrary to its constitution in entering into the contract and that the decision of its organs to do so were therefore void. On this basis, BVG requested the English courts to decline jurisdiction in favour of the German courts pursuant to Article 22(2). The English High Court and the Court of Appeal denied BVG's request. BVG appealed to the English Supreme Court and issued proceedings in the German courts, which led to the reference to the ECJ. The German courts asked whether the scope of Article 22(2) extends to proceedings in which a company or legal person objects, with regard to a claim made against it arising from a legal transaction, that the decision of its organs which led to the...