FML Timeline: Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc and Pauline Shipping Limited

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The court was asked to consider loan agreements to finance shipbuilding which contained asymmetric jurisdiction clauses. Three loan agreements were entered into between Commerzbank and the Defendants, and the second and third of those agreements contained asymmetric jurisdiction clauses.

Asymmetric jurisdiction clauses permit one party to an agreement to sue in a specific court only, whilst allowing the other party (generally a financial institution) to sue in any court with jurisdiction under its local rules. In this case, Commerzbank was entitled to bring proceedings against the Defendants (the borrower and guarantor under the loans) in any jurisdiction, while the Defendants could only bring proceedings in England.

When events of default were triggered under the loans, Commerzbank made demands for repayment and payment under the guarantees. Commerzbank also warned of its intention to commence recovery proceedings in England if no proposals for settlement were received.

Prior to Commerzbank commencing proceedings in England, Liquimar Tankers Management Inc (Liquimar) and Pauline Shipping Limited (Pauline) each issued their own proceedings against Commerzbank in Greece, contrary to the asymmetric jurisdiction clause. By way of those proceedings:

• Liquimar sought orders that the guarantee of the loan under the second loan agreement was discharged
• Pauline sought damages from Commerzbank in tort and under the Greek Civil Code for loss of the use of a ship Commerzbank had arrested under the third loan agreement, and
• Liquimar and Pauline both sought moral damages under the Greek Civil Code for reputational loss following Liquimar’s arrest of a ship under the third loan agreement.

Cranston J had to decide whether the jurisdiction clauses in the second and third loan agreements were valid, and if so, whether an asymmetric clause was an exclusive jurisdiction clause for the purposes of Brussels I Recast (Regulation 1215/2012). If the clause was deemed to be exclusive, the English courts could proceed to decide the case and the Greek courts would be obliged to stay their proceedings under article 31(2). However, if the clause was found to be not exclusive, the English court would be obliged to stay the English proceedings under article 29, allowing the Greek courts, which were first seised, to proceed.

Decision

The court refused to stay English proceedings until parallel Greek proceedings had been heard on the basis that asymmetric jurisdiction agreements in the underlying loans and guarantees were exclusive jurisdiction clauses for the purposes of Article 31 of the Brussels I Recast. Article 29 of the Brussels I Recast therefore did not apply.

Cranston J held that the issue was one of characterisation of the clause under EU law, not English law. Brussels I Recast aims to enhance the effectiveness of jurisdiction clauses and to avoid abusive tactics. Cranston J held that such aims would only be upheld if asymmetric jurisdiction clauses were treated as exclusive and therefore fell within the scope of article 31(2).

Noteworthy/ Novel points

Asymmetric jurisdiction clauses are widely used in international financial markets contracts and tend to be favoured by financial institutions for giving more options in terms of debt recovery.

While there have been some conflicting decisions from the French Cour de Cassation1 courts in other EU member states have generally upheld the validity of such clauses under Brussels I Recast. However, a definitive judgment from the CJEU is awaited.

In the meantime, this decision further reduces any uncertainty regarding the status of asymmetric jurisdiction clauses, and should provide additional comfort to financial institutions which routinely use them in standard agreements.

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1 In 2012 the judges in Mme X v Société Banque Privé Edmond de Rothschild 13 ruled that an asymmetric jurisdiction clause in a loan agreement was invalid and contrary to article 23 of the Brussels I Regulation (article 25 of Brussels I Recast). However, the more recent ruling in Société eBizcuss.com v. Apple rejected the argument that the clause was contrary to the object and purpose of article 23 of the Brussels I Regulation (article 25 of Brussels I Recast).