European Union: Court Of Justice Of European Union Rules On Jurisdiction Clauses In Pan-European Contracts

Last Updated: 12 September 2017
Article by Catherine Longeval

The Court of Justice of the European Union (the "ECJ") recently handed down two interesting judgments regarding the use of jurisdiction clauses in contracts involving parties established in different EU Member States.

ECJ Rules on Extending Benefit of Forum Clause to Representatives of Signatories

On 28 June 2017, the ECJ held that the representatives of a company could not rely on a jurisdiction clause in a contract between their company and another company in order to dispute the jurisdiction of a court over an action for damages which seeks to establish their personal liability for torts carried out in the performance of their duties.

In the case at hand, Mr Leventis and Mr Vafeias were two representatives of a Greek company (Brave Bulk Transport – "BBT"). BBT had entered into a charter agreement with another Greek company called Malcon Navigation ("Malcon") pursuant to which Malcon chartered a ship to BBT (the boat was later sub-chartered by BBT to the Iraqi government). Since the boat was returned five months later than the agreed upon date in the contract, Malcon initiated arbitration proceedings against BBT in February 2007.

BBT and Malcon later entered into a new agreement (the "Agreement") in order to stay the arbitration proceedings until the resolution of an action for damages brought by BBT against the Iraqi government. That Agreement provided that if a settlement with the Iraqi State was reached, Malcon would receive at least 20% of the amount paid by Iraq to BBT. In addition, the Agreement also provided for a jurisdiction clause conferring jurisdiction on the English courts to resolve any dispute arising out of this Agreement.

A few months later, Malcon learnt that an amicable settlement had been reached by Iraq and BBT. However, Malcon never received the amount it was entitled to under the Agreement. It therefore continued the arbitration proceedings but also initiated legal proceedings before Greek courts against BBT and its two representatives – Mr Leventis and Mr Vafeias – with the aim of rendering them jointly and severally liable for having committed torts.

Because of the jurisdiction clause in the Agreement, the Greek courts dismissed the action brought by Malcon in so far as it concerned BBT. By contrast, with respect to BBT's representatives (who were not parties to the Agreement), the courts upheld jurisdiction. Mr Leventis and Mr Vafeias then appealed this ruling to the Greek Supreme Court alleging that it was exceptionally possible to rely on a jurisdiction clause against a party to a dispute who was a third party at the time of its signing. Uncertain of the answer to this issue in the light of Article 23 of Regulation No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the "Brussels Regulation"), the Greek Supreme Court stayed the proceedings and referred the issue to the ECJ for a preliminary ruling.

Referring to its well-established case-law (including Refcomp, CDC Hydrogen Peroxide and El Majdoub), the ECJ recalled that "a jurisdiction clause in a contract may, in principle, produce effects only in the relations between the parties who have given their agreement to the conclusion of that contract". The ECJ then found that, in the case at hand, "the jurisdiction clause at issue was not being put forward by one of the parties to the contract in which it appears". In addition, neither BBT nor its representatives were able to provide evidence justifying the view that the representatives of BBT and Malcon had entered into the Agreement. The ECJ therefore concluded that, since they were not parties to the Agreement, Mr Leventis and Mr Vafeias were not entitled to rely on the jurisdiction clause provided for in the Agreement in order to dispute the jurisdiction of the Greek courts.

ECJ Allows Third Party Victims to Depart from Jurisdiction Clause in Insurance Contract

On 13 July 2017, the ECJ ruled that when a third party victim is entitled to seek reparation for a loss or an injury directly against the insurer of the person who caused the injury, this third party victim is not bound by a jurisdiction clause contained in the insurance contract between the party who caused the harm and the insurer.

The case at hand involved a Swedish company (Skåne Entreprenad Service AB – "Skane") which was responsible for the delivery by boat of specific goods to a Danish port. In order to cover its risks, Skane had entered into a liability agreement with Navigators Management Limited ("Navigators"), an English insurance company. The contract between the two parties contained a jurisdiction clause under which the parties agreed that any dispute arising under or in connection with the contract would be submitted to the High Court in London. Unfortunately, a dispute arose when the boat caused injury to the quay installations of the destination port ("Assens Havn") in Denmark.

Shortly thereafter, Skane entered into liquidation and Assens Havn brought an action directly against Navigators (Skane's insurer). To this end, Assens Havn took advantage of a remedy provided for under Danish law which allowed a third party victim to seek reparation by bringing proceedings before the Danish courts directly against the insurer.

However, the Danish court of first instance declined jurisdiction asserting that the insurance contract agreed between Skane and Navigators provided that any dispute arising out of or in connection with the contract had to be resolved by the English courts. In reaching its decision, the Danish court found that Article 11 of the Brussels Regulation did not allow a third party victim to disregard the jurisdiction clause agreed on by the parties to the insurance contract.

Uncertain as to the compatibility of this ruling with the Brussels Regulation (in particular Articles 8 to 14 which contain specific provisions on insurance contracts), the Danish Supreme court stayed the proceedings and referred the issue to the ECJ for a preliminary ruling.

In answering the question of the Danish Supreme Court, the ECJ held that Article 13 of the Brussels Regulation, read in conjunction with Article 14 of the same Regulation, allowed for derogations to the general principles provided for in Articles 8 to 12 of the Brussels Regulation. The ECJ therefore found that "an agreement on jurisdiction made between an insurer and an insured party cannot be invoked against a victim of insured damage who wishes to bring an action directly against the insurer before the courts for the place where the harmful event occurred, [...], or before the courts for the place where the victim is domiciled."

The ECJ therefore concluded that "a victim entitled to bring a direct action against the insurer of the party which caused the harm which he has suffered is not bound by an agreement on jurisdiction concluded between the insurer and that party."

Although those judgments are not revolutionary, they offer a clear illustration of the ECJ's application of a jurisdictional clause under the Brussels Regulation. Additionally, even though the Brussels Regulation has been replaced by Regulation No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the "Brussels Ibis Regulation"), the findings of the ECJ in these cases continue to be relevant under the Brussels Ibis Regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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