Ruling highlights CJEU’s broad approach to jurisdiction clauses

The case involved two money lending agreements between creditor Inkreal and debtor Duha Reality – both companies incorporated under Slovak law and established in Slovakia – which had contractually provided that, in the event of a dispute, the dispute would fall within the jurisdiction of a court of the Czech Republic.

When a dispute arose between Inkreal and Duha Realty, the Supreme Court of the Czech Republic referred the matter to the CJEU for a preliminary ruling as to whether the recast Brussels Regulation governing jurisdiction would apply, based on fact that both lending agreements and the parties involved had no connection to the Czech Republic. This meant that the CJEU had to determine the trigger point for the recast Brussels Regulation - which is only considered applicable in international situations and not in internal situations - and define the contours of the ‘international element’ (‘élément d’extranéité’).

The CJEU ultimately found that a domestic law contract can provide for a jurisdiction clause in favour of a foreign court of an EU member state, without any connection between the contract and the designated court.

The ruling marks a turning point in EU private international law and is a major point of divergence between general private international law and EU private international law.

While it can be seen as a green light from the CJEU to place jurisdiction clauses in contracts subject to EU law, the scope of the judgment must still be put into perspective, and the jurisdiction clauses must only relate to the courts of an EU member state.

Defining the ‘international element’ within EU law

Article 25 s1 of the recast Brussels Regulation provides: "If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”

In its ruling, the CJEU noted: “it is clear from the case-law of the Court that an international element exists, in addition, where the situation of the dispute concerned is such as to raise questions relating to the determination of international jurisdiction.”

“In the present case, it should be stated that, first, the dispute in the main proceedings meets the definition of the concept of ‘cross-border litigation’ … since the parties to that dispute are established in a Member State other than the Member State of the court which was seised on the basis of the agreement conferring jurisdiction at issue,” the CJEU added.

In summary, according to the CJEU’s ruling, to constitute the international element necessary for the application of the recast Brussels Regulation, two indicators can be raised:

• the determination of jurisdiction in the international order; and
• a court other than the member state in which the parties are domiciled.

This internationalist extension of the international element is anchored in the aims and objectives of the recast Brussels Regulation and the fundamental principles of EU substantive law such as the principle of mutual recognition.

The CJEU also underlined the precise purpose of article 25 s1 of the recast Brussels Regulation, noting that the interpretation of this provision must be made considering respect for the autonomy of the parties and the strengthening of the effectiveness of exclusive forum agreements.

At the same time, the CJEU insisted on the general purpose of the recast Brussels Regulation, and the regulation’s aim to include rules of jurisdiction that have a high degree of predictability and will strengthen legal certainty.

The CJEU justified its interpretation of internationality according to the recast Brussels Regulation, adding weight to the EU’s stance in the ongoing debate between private international law and EU private international law. The debate stems from the 2005 Hague Convention on Choice of Court Agreements, an international treaty to which the EU is a signatory, but which adopts an opposing solution to the EU for determining the international element threshold. As the European Commission has previously argued, the solution put forward by those drafting the 2005 Hague Convention had been adopted to win broad international support.

If parties to a contract wish to include a jurisdiction clause in favour of a third state outside of the EU, they need to carefully consider the applicable legal regime by switching to the legal order of international law. This would involve, among other things, referring to the 2005 Hague Convention, and opening the debate on the element of connection between the state of the chosen jurisdiction and the parties domiciled in another state.

Co-written by Matthieu Werthenschlag of Pinsent Masons.