CHOICE OF COURT CLAUSES: TWO RECENT DEVELOPMENTS. Joaquim-J. Forner

Transcription

1 CHOICE OF COURT CLAUSES: TWO RECENT DEVELOPMENTS Joaquim-J. Forner Published: International Company and Commercial Law Review, , pp I. Introduction 1. This article deals with two legal developments on choice of court clauses or agreements, and the relationship between them. The first development refers to the law in force, the European Brussels-Lugano Regulation/Conventions system 1 (the European system): the level of the exclusivity status of choice of forum clauses, according to the European Court of Justice (ECJ). The second refers to the law in preparation of a larger, global territorial scope: the ongoing work at the Hague Conference of Private International Law, currently towards an exclusive choice of court agreements convention, now at the stage of a Preliminary draft convention 2. The link between the two aspects leads us to the necessity of drawing a clear and sensible line to establish the borders of the European system. The lack of definition of the border between the European and the worldwide regimes is likely to prompt the very same problem that legal enforcement of choice of forum clauses tries to avoid: litigation about the place where to litigate. The establishment of the said border might be made easier by introducing new regimes for some choice of court agreements: this is the suggestion made at the end of this article. This article is limited to exclusive choice of court clauses in business to business transactions, i. e., agreements between legally equivalent parties. II. The Gasser judgment: ruling and facts 2. The ECJ ruled in Erich Gasser GmbH v. Misat srl 3 that according to the Brussels Convention (BC) Art. 21 of the BC must be interpreted as meaning that a court second seised whose jurisdiction has been claimed under an agreement conferring 1 Brussels Convention of 27 September 1968 on jurisdiction and enforcement of judgments in civil and commercial matters, as amended (consolidated text in OJ C 27, 26 January 1998) (BC); the parallel Lugano Convention of 16 September 1988 between EC Member States and EFTA States (OJ C 189, 28 July 1990) (LC); Council Regulation 44/2001, of 22 December 2000 on jurisdiction and enforcement of judgments in civil and commercial matters Brussels I Regulation (BIR), that replaces BC but not LC (OJ L 12, 16 January 2001). 2 Preliminary draft convention on exclusive choice of court agreements (Proposal by the Drafting Committee draft on exclusive choice of court agreements, Working Document No 110 E Rvd., Special Commission of 21 to 27 April 2004 on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, May 2004, Hague Conference on Private International Law, current work, jurisdiction project). 3 Judgment of 9 December 2003, C-116/02, Erich Gasser GmbH v. Misat srl.

2 jurisdiction must nevertheless stay proceedings until the court first seised has declared that it has no jurisdiction. 3. Art. 21 of the BC must be interpreted as meaning that it cannot be derogated from where, in general, the duration of proceedings before the courts of the Contracting State in which the court first seised is established is excessively long. 3. The facts of the case were the following 4 : On 19 April 2000 MISAT of Rome, Italy, brought proceedings against Gasser of Dornbirn, Austria, before the Tribunale Civile e Penale di Roma. MISAT sought a declaration a) that the contract between them had terminated ipso jure or, in the alternative, that the contract had been terminated following a disagreement between the two companies; and b) that it had not failed to perform the contract and to order Gasser to pay damages for failure to fulfil the obligations of fairness, diligence and good faith and to reimburse certain costs. On 4 December 2000 Gasser brought an action against MISAT before the Landesgericht Feldkirch, Austria, to obtain payment of outstanding invoices. In support of the jurisdiction of that court, the claimant submitted: a ) that the Austrian court was the court for the place of performance of the contract, within the meaning of art. 5(1) BC; and b ) that the Austrian court was also the court designated by a choice of court clause which had appeared on all invoices sent by Gasser to MISAT, without the latter having raised any objection in that regard, which showed that, in accordance with their practice and the usage prevailing in trade between Austria and Italy, the parties had concluded an agreement conferring jurisdiction within the meaning of art. 17 BC. MISAT contested both a ) (special jurisdiction of the Austrian Court) and b ) (valid choice of Austrian forum) and c), relied on art. 21 BC in the sense that it had commenced proceedings before the Tribunale Civile e Penale di Roma in respect of the same business relationship. The Landesgericht Feldkirch decided to stay proceedings until the jurisdiction of the Italian court had been established. Moreover, it confirmed its own jurisdiction upon a ) (special jurisdiction), but did not rule on b ) (choice of the Austrian court), observing that although the invoices issued by the claimant systematically included a reference to the Austrian courts (Dorbirn), the orders, on the other hand, did not record any choice of court. On appeal by Gasser, the Oberlandesgericht Innsbruck considered both c) (this was a case of lis pendens) and b ) (choice of the Austrian court 5 ). Therefore, the Oberlandesgericht asked the ECJ the following questions: [... ] 6 2. May a court other 4 Par Gasser judgment. 5 The Oberlandesgericht considered that the conduct by the parties consisting in one party repeatedly and without objection of the other party settling invoices sent by the other even though those invoices contained a jurisdiction clause reflects a usage in international trade and commerce which is applicable to the parties and of which they are aware or are deemed to be aware. 6 Apart from other questions of no relevance because no answer to them was given by the ECJ, the Oberlandesgericht also asked: 1. May a court which refers questions to the Court of Justice for a preliminary ruling do so purely on the basis of a party's (un-refuted) submissions, whether they have been contested or not contested (on good grounds), or is it first required to clarify those questions as regards the facts by the taking of appropriate evidence (and if so, to what extent)? To this, the ECJ said: A national court may [...] refer to the Court of Justice a request for interpretation of the BC, even where it relies on the submissions of a party to the main proceedings of which it has not yet examined the merits, provided that it considers, having regard to the particular circumstances of the case, that a preliminary ruling is necessary to enable it to give judgment and that the questions on which it seeks a ruling from the

3 than the court first seised, within the meaning of the first paragraph of art. 21 BC, review the jurisdiction of the court first seised if the second court has exclusive jurisdiction pursuant to an agreement conferring jurisdiction under art. 17 BC, or must the agreed second court proceed in accordance with art. 21 BC notwithstanding the agreement conferring jurisdiction? 3. Can the fact that court proceedings in a Contracting State take an unjustifiably long time (for reasons largely unconnected with the conduct of the parties), so that material detriment may be caused to one party, have the consequence that the court other than the court first seised, within the meaning of art. 21 BC, is not allowed to proceed in accordance with that provision? [...]. As we have already seen, the ECJ has given a negative answer to both questions. III. Scope of the Gasser ruling 4. The importance of Gasser lies, among other, in that it is inconsistent with previous UK case law 7. The ruling in Gasser has a very limited strictu sensu binding effect on European Union Member States courts but its authority goes far beyond as, strictu sensu, the judgment was given under the 1971 Luxembourg Protocol 8 of the BC, as amended. Currently, from 1 March 2002 the BC only applies to legal procedures instituted: a) in a Member State (MS) before this date 9, or b) after that date provided either the defendant is domiciled in Denmark or in another territory of application of the BC where EC law is not of application 10, or the court of choice or the court seised 11 is either a Danish court 12 or a court situated in a territory application of the BC where EC law is not of application 13. Nevertheless, in practice, the binding force of the Gasser ruling may be of a larger consequence because of the following reasons: 1) Although among MSs (except Denmark) the Brussels-I Regulation (BIR) is of application from 1 March 2002 and has replaced the BC except in the territories where the later instrument remains in force, insofar as any reference to the Convention (BC) shall be understood as a reference to this Regulation (BIR) 14, ECJ preliminary rulings referring to the BC are relevant to interpret the BIR as long as the BIR provision does not depart in its wording from the corresponding BC text wording 15. 2) Also, a very weak binding force extends to cases Court are relevant. It is nevertheless incumbent on the national court to provide the Court of Justice with factual and legal information enabling it to give a useful interpretation of the Convention and to explain why it considers that a reply to its questions is necessary to enable it to give judgment. 7 See A. BRIGGS P. REES, Civil Jurisdiction and Judgments, 3 ed., London, 2002, par Luxembourg Protocol of 3 June See consolidated text in OJ C 27, 26 January Arts. 1(3), 66(1) and 76 BIR. See also recital 23 BIR. 10 See art. 299 EC. 11 Also if the defendant is domiciled in Denmark: see art. 54 ter LC. 12 Art. 1(3) and recitals 21 and 22 BIR. 13 Art. 68(1) BIR. 14 Art. 68(2) BIR. 15 Recital 19 BIR: Continuity between the Brussels Convention and this Regulation should be ensured, and transitional provisions should be laid down to that end. The same need for continuity applies as regards the interpretation of the Brussels Convention by the Court of Justice of the European Communities

4 where the Lugano Convention (LC) is of application, as two Declarations, made on the date of the signature of the LC by the representatives of the Governments of the States party to the LC that were at the moment Members of the EC or of the EFTA, refer to the appropriateness of their respective courts taking into consideration ECJ jurisprudence 16 ; except Iceland, Norway and Switzerland, those States are currently EC MSs and are therefore bound by BIR 17, although LC still applies vis a vis Iceland, Norway, Switzerland and also Denmark, which is a LC Contracting State but not a BIR MS The foregoing, apart from illustrating some of the unintended consequences arising out of the European construction process 19, has a practical interest as soon as the criteria used in order to distinguish cases falling under one or the other instruments ceases to be unique or uniform. This is precisely what happens with the domicile of companies or other legal persons or associations of natural or legal persons if we consider on the one hand the BIR and on the other the BC and the LC, keeping in mind that the domicile of the parties normally the defendant- leads to the applicability of the relevant instrument 20. Art. 60(1 and 2) BIR 21 increases the possibilities of considering a company or a legal person, or association of natural or legal persons, being domiciled in a BIR MS while, at the same time, the same company or legal person, or association of natural or legal persons may be considered, in application of art. 53 BC/LC 22 and the 1971 Protocol should remain applicable also to cases already pending when this Regulation enters into force. 16 Besides, another, indirect way of penetration of the ECJ jurisprudence may be found in art. 1 of the Protocol 2 to the LC: the courts of the LC Contracting States must take into consideration relevant jurisprudence of other Contracting States in application of the LC. Therefore, if the observed court is a court of an EC MS, this court is bound by ECJ rulings and is supposed to decide alike in LC cases. 17 I assume here that, according to the Treaty of Accession of the new Member States of 16 April 2003 Poland, which was not a signatory of the LC, shall be MS to the effect of the BIR from 1 May Again, as under the BC, the LC could remain in force in spite of BIR as long as the latter does not apply in the territories where the former applies. 19 According to the Treaty of Accession of the new Member States of 16 April 2003 (OJ L 236, 23 September 2003), the acquis to the effect of the new Member States takes into consideration the developments up to 1 November Therefore, a Recommendation for a Council Decision authorising the Commission to open negotiations for the conclusion of two agreements between the European Community and the Kingdom of Denmark, extending to Denmark the provisions of Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, and the provisions of the SR (Document 8525/03 JUSTCIV 68 OC 202, Draft of 16 April 2003 and document 6520/04 JUSTCIV 32, of 25 February 2004) would not form part of the acquis. This issue is currently, from 8 March 2004, under consideration in the Council of the European Union by the Committee on Civil Law Matters (General Question), although it is considered that the new Member States need not adhere to the BC (Document 7224/04 JUSTCIV 43, of 18 March 2004). 20 There is an important exception in the matter of choice of court clauses, where the domicile of one of the parties and the choice of a court within the territorial scope of the instrument are the conditions of applicability: see art. 23 BIR and art. 17 BC/LC. Only when the conditions of application of each instrument are met, then the conflict between the BC and the LC is solved in favour of the second either by reliance on the court chosen -not the court seised- or by the domicile of the defendant (art. 54ter(2a) LC). The LC applies either if the court chosen is in a LC, non-bc, territory, or if the defendant is domiciled in a LC, non- BC, territory For the purposes of this Regulation, a company or other legal person or association of natural or legal persons is domiciled at the place where it has its: (a) statutory seat, or (b) central administration, or (c) principal place of business. 2. For the purposes of the United Kingdom and Ireland statutory seat means the registered office or, where there is no such office anywhere, the place of incorporation or, where there is no such place anywhere, the place under the law of which the formation took place. 22 For the purposes of this Convention, the seat of a company or other legal person or association of natural or legal persons shall be treated as its domicile. However, in order to determine that seat, the court shall apply its rules of private international law.

5 domiciled in a BC or LC contracting State other than a BIR MS by a court not bound by the BIR. Moreover, an ex ante appraisal of the chances of conflicts of instruments based on diverging criteria on domicile including for choice of court purposes- may be insufficient ex post because other considerations may afterwards be relevant. With respect to choice of court clauses this is the case if one of the parties seises a court other than the court chosen, because due to the effect of lis pendens the applicable instrument only depends on the territorial situation of the courts seised (ex art. 54ter(2b) LC 23 ). Concerning the rules on choice of court and on lis pendens, the differences in the reading of arts. 23 and 27 BIR compared with the corresponding arts. 17 and 21 BC/LC 24 are of no relevance here (see table infra). Therefore, assuming that the Gasser judgment will be of relevance at least to EC MSs, be it in application of the BC, the BIR or the LC, we can now proceed to examine its main holdings. Some of the minor differences between the two texts shall be mentioned within this examination. BC Art. 17 BIR Art. 23 If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting 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 exclusive jurisdiction. Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been 1. If the parties, one or more of whom is domiciled in a Member State, 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. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or 23 The LC applies as soon as one of the courts seised is situated in a LC, non-bc, territory, no matter which were the criteria under the light of the judicial competence rules (see also supra footnote 20). We are assuming here that the same rules of the LC that separate cases falling under the BC from cases falling under the LC can be used to separate cases between the BC and the BIR. Although the BIR is silent in this respect except for art. 68(1), this is not a conceivable objection because for obvious contractual reasons clauses of the kind of art. 54ter LC only find their proper place in the larger instrument. 24 Arts. 17 and 21 BC (not LC) have on their side been the object of amendments due to the accession of new MSs to the original BC. The Gasser ruling refers to the latest version of the BC.

6 aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned. Where such an agreement is concluded by parties, none of whom is domiciled in a Contracting State, the courts of other Contracting States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction.... commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned. 2. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to writing. 3. Where such an agreement is concluded by parties, none of whom is domiciled in a Member State, the courts of other Member States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction. If an agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention Art. 21 Art. 27 Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Contracting States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court. 1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.

7 IV. The Gasser ruling: lis pendens and the structure of the BC (BIR) 6. It would have been very difficult for a Court only empowered to interpret the BC 25 to allow exclusive choice of court clauses to function as an exception to the lis pendens device of art. 21 BC. There are strong textual arguments against this possibility and these arguments seem to be stronger if the relevant text in the BC has migrated unchanged into the BIR, thus sending the message that the legislator did not wish to innovate. The first textual argument is that art. 21 contains no exception at all; but, as we shall see below, it is precisely this absolute lack of nuances in art. 21 BC that arguably offered a possibility for an exception. The second, related argument, is that a special status to certain jurisdictional grounds is provided for in other articles that do not mention art. 17 BC: In art. 19 BC 26 the court seized shall declare of its own motion that it has no jurisdiction if the courts of another Contracting State have exclusive jurisdiction by virtue of art. 16. Moreover, following art. 23 BC 27, if more than one court declares it has exclusive jurisdiction, the principle prior temporis enshrined in art. 21 BC drives the court second seised to decline in favour of the court first seised. Finally, according to art. 28(1) BC 28 recognition and enforcement of a foreign judgment shall be denied if it conflicts with Sections 3, 4 or 5 of Title II BC 29 but jurisdiction of the court of origin cannot be reviewed in other cases 30 as may be the case of infringement of art. 17 BC. In summary, compared to other bases of jurisdiction, choice of court agreements do not deserve any special treatment from the point of view of their procedural status, and, in particular, the lis pendens device of art. 21 BC does not tolerate exceptions. Thirdly, as a consequence, an a contrario reading of art. 23 BC in order to avoid the automatic prior tempore rule in cases where only the second court seised claims exclusive jurisdiction would be insufficient to avoid the prior tempore rule in art. 21 BC in an action involving the same cause of action and between the same parties. Nevertheless, an exception to art. 21 BC in cases where only the second court seised claims exclusive jurisdiction has already been advanced by one author 31 and later has been mentioned by the ECJ in its Judgment of 27 June 1991 (C-351/89) Overseas Union Insurance & Others v. New Hampshire 32 in a obiter dictum 33. The ECJ said in Overseas that without prejudice to the case where the court seised second has exclusive jurisdiction under the Convention and in particular under article 16 thereof, 25 To this effect, concerning BIR, art. 68 EC does not make any difference. 26 Art. 25 BIR. 27 Art. 29 BIR. arts. 23 BC and 29 BIR do not expressly refer to arts. 16 BC and 22 BIR, respectively. 28 Art. 35(1) BIR. 29 Sections 3, 4 or 6 of Chapter II BIR. 30 Art. 28(3) BC and art. 35(3) BIR. See ECJ Judgment of 28 March 2000, C-7/98, Dieter Krombach v. André Bamberski [2000] ERC I Georges A.L. DROZ, Compétence judiciaire et effets des jugements dans le Marché Commun (Étude de la Convention de Bruxelles du 27 septembre 1968), Paris, 1972, No [1991] ERC I The ECJ underlined this feature in Gasser:... it is clear from paragraph 20 of the same judgment that, in the absence of any claim that the court second seised had exclusive jurisdiction in the main proceedings, the Court of Justice simply declined to prejudge the interpretation of Article 21 of the Convention in the hypothetical situation which it specifically excluded from its judgment.

8 article 21 of the Convention must be interpreted as meaning that, where the jurisdiction of the court first seised is contested, the court second seised may, if it does not decline jurisdiction, only stay the proceedings and may not itself examine the jurisdiction of the court first seised. 34. Both Gasser and the UK Government 35, as well as the Advocate General Mr. P. Léger 36, relied on this part of Overseas in order to build on the exception. According to Gasser and the UK Government, there is no reason to treat art. 17 BC differently than art. 16 BC. Additionally, the UK Government noted that in the hierarchy of bases of jurisdiction art. 17 prevails over other bases and forces nonchosen courts to abstain, and that the needs of international trade advanced by choice of forum agreements must be taken into account to establish the relationship between arts. 17 and 21 BC. This notwithstanding that Overseas has insisted on the second court seised not being in a better position than the first court seised to determine whether the latter has jurisdiction, as the ECJ could rule in Gasser in the UK Government s opinion- that the first court seised must stay proceedings until the chosen court has given a decision on its own jurisdiction 37. Except for the last suggestion, these were also grosso modo the arguments advanced by the Advocate General: art. 17 BC is a type of exclusive jurisdiction basis, and unconditional application of art. 21 BC undermines the rationale behind art. 17 BC; and the risk of irreconcilable judgments is per se unavoidable and will be progressively reduced by a uniform interpretation of art. 17(1) BC 38 without the ECJ establishing a special regime for choice of forum clauses within art. 21 BC. The ECJ was not convinced, as seen, and denied art. 17 BC any power whatsoever to carve an exception out of art. 21 BC. At the level of textual arguments, the reading of arts. 21 and 19 BC not referring to art. 17 BC are mentioned 39. Therefore the court denies art. 16 BC status to choice of forum agreementsand sensibly avoids any new dictum concerning art. 16 BC as a possible exception to art. 21 BC. The exclusivity of choice of court clauses in the BC and in the BIR is just a description of its capacity to wholly displace other jurisdictional grounds, on a party autonomy basis 40. Structurally as well as functionally, choice of court clauses are by no means exclusive grounds of jurisdiction in the sense of arts. 16 BC and 22 BIR. Under this light, the change consisting in the suppression of par. 5 of art. 17 BC and the open option of a non exclusive choice of court clause included in art. 23(1) BIR is adequate with the Gasser reality. At the level of policy arguments, the court insists in the second court seised not being in a better position than the first court to determine jurisdiction 41 and proclaims the superiority of a lis pendens rule to offer certainty in a matter where the existence of real consent might easily be controversial 42. Therefore, given the 34 [1991] ERC I-3317, par Par. 29 ff. Gasser Judgment. 36 Pars Opinion of 9 September In theory, this is a similar but stronger requirement than the one in arts 17(2) BC and 23(3) BIR. 38 Art. 23 (1&2) BIR. 39 Pars. 47 and 52 Gasser Judgment. 40 The European legislator uses the term exclusivity in a large range of meanings: See art. 6 Council Regulation 2201/2003, of 27 November 2003 on jurisdiction, recognition and enforcement of judgments in matrimonial and parental responsibility matters (OJ L 338, 23 December 2003). 41 Par. 48 Gasser Judgment, referring to par. 23 of the Overseas Judgment. 42 Par. 51 Gasser Judgment.

9 constraints of the preliminary ruling in order to allow progress in law, there is much more raw material to advance integrationist arguments such as mutual confidence among national, equivalent courts, than to construct procedural law rules fitting the needs of commercial transactions. 7. No wonder then that the answer to the third question by the ECJ is also in the negative: the duration of the procedure in the country of the first seised court is of no incidence to the effect of art. 21 BC. Arguments based on the restrictions on the free movement of goods and workers, and on the freedom of establishment and to provide services, by Gasser 43, as well as arguments based on art. 6 of the European Convention on Human Rights 44 by the UK Government 45, could not overcome mutual trust and legal certainty arguments retained by the ECJ 46. It has to be underlined that the irrelevance of the procedural features of the State of the court seised extends to considerations about the period of time run between the moment of initiation of the procedure and the moment of decision on the question of its jurisdiction by the relevant court. The UK Government was well aware of the equivalency of courts principle to apply the BC and to examine its own jurisdiction as an obstacle to construe an exception in art. 21 BC. Therefore, it unsuccessfully limited its proposal to admit an exception to art. 21 BC in exclusive choice of court agreements types of situations where (1) the claimant has brought proceedings in bad faith before a court without jurisdiction for the purpose of blocking proceedings before the courts of another Contracting State which enjoy jurisdiction under the Brussels Convention and (2) the court first seised has not decided the question of its jurisdiction within a reasonable time. 47. V. The Hague project The regime of the choice of court clauses under the current Hague exclusive choice of court agreements Preliminary Draft Convention (PDC) 48 would only apply to certain 43 Par. 59 Gasser Judgment. 44 Rome Convention of 4 November 1950, as amended. 45 Pars. 61 ff. Gasser Judgment. The UK Government has also unsuccessfully mentioned delaying tactics of the parties ( The Italian torpedo ) as a practical reason to carve out exceptions in art. 21 (Par. 53 Gasser Judgment). 46 Pars. 65 ff. and 70 ff. Gasser Judgment. 47 Par. 63 Gasser Judgment. 48 Preliminary draft convention on exclusive choice of court agreements: PDC (Proposal by the Drafting Committee draft on exclusive choice of court agreements, Working Document No 110 E Rvd., Special Commission of 21 to 27 April 2004 on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, May 2004, Hague Conference on Private International Law, available at current work, jurisdiction project). The provisional version of draft report of the preliminary draft convention based in the former version published in Working Document No 49 E Rvd., Special Commission of December 2003 on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, December drawn up by Masato DOGAUCHI and Trevor C. HARTLEY is also available at current work, jurisdiction project under the form of Preliminary Document No 25 of March 2004, drawn up for the attention of the Special Commission of April 2004 on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, Hague Conference on Private International Law (DOGAUCHI - HARTLEY DR).

10 exclusive international choice of court agreements 49, where exclusive choice of court agreements means severable 50 agreements of a certain form 51 that designate the courts of a State or one or more specific courts of a contracting State 52 to the exclusion of any other court, and where exclusivity is presumed 53. Provided the clause has the necessary degree of internationality 54 and is reputed to have material validity under the law of the State of the court chosen 55, the court of the chosen contracting State shall have jurisdiction 56 and the courts of any other contracting State shall suspend or dismiss the proceedings 57. If we focus on the court seised other than the court chosen, the PDC expressly burdens this court with a very large duty to suspend or to dismiss, which is not found in the reading of the BC or the BIR, provided the court chosen has not already decided not no hear the case 58. Another derivative difference is that the exceptions to the duty to suspend or to dismiss are listed in the PDC 59 : nullity of the agreement under the law in the State of the chosen court which would be difficult to appreciate by the court of another State and therefore is a weak exception; lack of capacity of a party to enter into the agreement under the law of the State of the court seised; and gross injustice or contrariety with international ordre public to give effect to the agreement which might ordinarily refer to the conclusion of the agreement. In its current reading, the PDC does not have any lis pendens type of rule 60. This is quite understandable because Chapter III on recognition and enforcement 61 only applies to judgments given by a court of a Contracting State designated in an exclusive choice of forum agreement 62 and there is thus only one possible court to the effect of Chapter III. As a consequence, nothing in the PDC prevents the court chosen from exercising jurisdiction although another court of the same, or of another contracting State, or of a third State has been successfully seised Arts. 1(1) and 3(a) PDC. 50 Art. 3(d) PDC. 51 Art. 3(c) PDC. See DOGAUCHI - HARTLEY DR, pars. 55 ff. 52 This excludes alternative, exclusive choice of two or more courts agreements of two or more States. For other exclusions, see DOGAUCHI - HARTLEY DR, pars. 49, 50 and Art. 3(b) PDC. 54 Art. 1(1&2) PDC. 55 Art. 5(1 in fine) and art. 7(a) PDC. This may be either a choice of law rule or a reference to the conflict of law rules of the State of the court chosen, in both cases binding both the court chosen and the court seised (See DOGAUCHI - HARTLEY DR, pars. 70, 93 and 108). 56 Art. 4(1 in initio). There is no room for a forum non conveniens type of dismissal in art. 4 PDC. As noted infra in the text, the exercise of jurisdiction by a court different than the court of choice does not by itself allow the court of choice to dismiss. 57 Art. 7 PDC. 58 Art. 7(e) PDC. 59 Art. 7(a-d) PDC. See for details DOGAUCHI - HARTLEY DR, pars. 92 ff. 60 DOGAUCHI - HARTLEY DR, pars. 77 and Arts PDC. 62 Art. 9(1) PDC. 63 In his intervention in the International Symposium Transnational civil litigation in the European Judicial Area and in relation with third States, Brussels 23 January 2004, Prof. Burhard HESS has already expressed the opinion that under the light of the Gasser judgment, the Hague Proposal was better than BIR.

11 9. Therefore, the difference in the PDC compared to Brussels-Lugano Regulation/Conventions system is that under the Hague system the court of choice and second seised does not need to stay or to dismiss because another court has already been seised. It has not a Gasser limit based on an unconditional art. 21 BC. Admittedly, although the judgment by the court first seised is not entitled to Chapter III of the PDC it might still be recognised and enforced in another country, whether or not it is a contracting State. Moreover, limiting the recognition and enforcement of judgments irrespective of being of a later date- pronounced in spite of a choice of court agreement granting jurisdiction to another court, would not seem convincing. The reason is that even between contracting States this limit could encounter other European or international commitments to recognize and enforce judgments -like the BIR- and that alternatively limiting the obstacle to recognition and enforcement of contracting States judgments, would create a double regime that would only punish contracting States judgments depriving them of efficacy precisely among contracting States. The discrimination between contracting States and third States has also been included on the side of jurisdiction: As already seen, only courts of contracting States might be conferred jurisdiction under the conventional frame of the PDC 64. Moreover, contracting States courts must suspend or dismiss only if another contracting State court has been chosen The work of the Hague project currently recorded in the PDC is going to be continued and a Diplomatic Session to reach a definite text might take place in Once a more ambitious Hague project has already been abandoned in , the current works are clearly oriented to eventually reach a text equivalent in its scope and function to the New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards 66, to which European law has been fully respectful 67. VI...., an occasion to improve (European) law? 10. We shall see now that the integrationist bias in the BC and in the BIR might be particularly ill placed in a global context, where the only agreed basis of jurisdiction is (exclusive) choice of court agreement. In order to equilibrate public and private concerns in the matter of choice of court clauses, two different, complementary avenues might be contemplated. The first, to modify the European Brussels-Lugano Regulation/Conventions system integrating the Hague PDC into it, or alternatively to limit the effect of BC/BIR-covered choice of court clauses to intra European cases. The 64 Art. 5(1) PDC. 65 See for a reference DOGAUCHI - HARTLEY DR, pars. 4 ff. 66 DOGAUCHI - HARTLEY DR, par. 1. This objective was also the objective of the former, larger project (see Catherine KESSEDJIAN, International Jurisdiction and Foreign Judgments in Civil and Commercial Matters (rapport), Preliminary Document No 7 of April 1997 (Revised translation of October 1997) drawn up for the attention of the Special Commission of June 1997 on the question of jurisdiction, recognition and enforcement of foreign judgments, Hague Conference on Private International Law, par. 14). 67 See Robin MORSE, The substantive scope of application of Brussels I and Rome I: jurisdictional clauses, arbitration clauses and ADR agreements, Enforcement of international contracts in the European Union (ed. J. MEEUSEN G. STRAETMANS M. PERTEGÁS SENDER) Antwerp (Intersentia), 2004 (forthcoming).

12 second, to improve the efficacy of choice of court clauses within the EC, which would provide additional content as well as rationale to a continuing split regime distinguishing between intra and extra European cases. 11. So far, the European Brussels-Lugano Regulation/Conventions system has been approached in its relationship with the Hague system as a regional exception. In other words, relationships between States participating in the regional system would continue to be regulated by the regional system in spite of their participation in the global system 68. This is a perfectly sound approach if the material scope of each system is similar, because a deeper degree of international cooperation is in the essence of the regional system and it is thus preserved. But where the material scope of the larger system is narrower than that of the regional system, the principal expressed above might be either of no application at all or of a very qualified application 69. There are examples of this qualification in BIR 70 as well as in the rest of the European system to which it pertains. Therefore, a global, detailed instrument on choice of court agreements might be of application in the interior of a regional system where business to business choice of court agreements are legally less developed. This is a sensible solution because it reduces the problem of the borders between the two instruments 71 and because it could be done without prejudicing the regulation of choice of court agreements in non business to business transactions 72 ; also, without prejudicing the most favourable rules/system of recognition and enforcement of foreign judgments within the regional system. To place in perfect tune both systems for instance regarding lis pendens aspects- might require in practice reciprocal provisions in the larger, global instrument as well as in the narrower, regional instrument 73. This is easier to achieve if there is a central exclusive power or at least a coordinating power to conclude or to modify the relevant instruments. In this respect, coordination between the Hague project and the BIR can be assured by the external competence of the EU to intervene in the Hague instrument as a consequence of the BIR, but might be far more difficult considering not only the BIR but the whole European Brussels-Lugano Regulation/Conventions system Arts. 23 and 26 PDC. 69 Andrea SCHULTZ, "The relationship between the judgments project and other international instruments", Preliminary Document No 24 of December 2003 drawn up for the attention of the Special Commission of December 2003 on Jurisdiction, Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, Hague Conference on Private International Law, par Art. 71 BIR. Unlike its precedents, arts. 57 BC/LC, art. 71 BIR only refers to previous treaties. 71 See supra par Arts. 13, 17 and 21 BIR. 73 See art. 52 Hague Convention of 19 October 1996 on jurisdiction, applicable law, recognition, Enforcement and Co-operation in respect of parental responsibility and measures for the protection of children and art. 61 Council Regulation (EC) No 2201/2003 concerning jurisdiction and the recognition and enforcement of judgements in matrimonial matters and the matters of parental responsibility, repealing Regulation (EC) No 1347/2000 (OJ L 338, of 23 December 2003). 74 Art. 23 PDC. See Alegría BORRÁS, The effect of the adoption of Brussels I on the external powers of the EC and the Member States, Enforcement of international contracts in the European Union (ed. J. MEEUSEN G. STRAETMANS M. PERTEGÁS SENDER) Antwerp (Intersentia), 2004 (forthcoming).

13 12. If notwithstanding the foregoing the decision were eventually taken to isolate the European system from the global system, then the appropriate provisions in the global system instrument would suffice 75. This is called a disconnection clause. Nevertheless - as the UK Delegation in Brussels has pointed out in a proposal to regulate such a disconnection clause 76 - there are reasons to limit disconnection to cases where the court chosen is in the particular region and both parties in the controversy are linked with the States of the regional instrument 77, although this would entail a limitation of the current scope of art. 23 BIR 78. The limitation is aimed at establishing an equilibrium among the instruments, which is not possible to reach if the narrower instrument is applicable when only one of the parties is linked with the region, because it excludes application of the larger instrument even if the other party is linked with a larger instrument contracting State. For example, if the US is a contracting State in the resulting Hague instrument, a US domiciliary that has agreed to litigate in Paris with his or her counterpart domiciled in Italy has to look at the entire regime of the BIR instead of the Hague instrument. It is true that apart from already being the current regimeleaving BIR untouched is technically feasible since the most prominent applicability factor is the court chosen and that court is situated in the EU and has been effectively chosen 79, but the problem may reside in the fact that the European system might not be desired by third countries currently involved in the Hague project. The second aim in the UK proposal focuses on the disadvantages of the European system vis a vis third States: if BIR applies to a choice of court agreement in favour of a Member State court, Gasser made clear that lis pendens rules still prevail. Since European choice of court agreements are not thus immune to Italian 80 torpedoes, non European counterparts in a contract 81 would sensibly prefer to avoid European courts in their choice of court agreements, to the disadvantage of their European counterparts and of the prestige of the European courts. If this could be called an improvement, it would be a strange improvement of European law: the one consisting in reducing its spatial scope of application. 13. Finally, a more direct way of improving European law would require acting at a more substantive level, either by amending the BIR only or by enacting another instrument to which the BIR could refer by a slight amendment. This direct way is the creation of a European registered form of choice of court agreement. The new regulation would contemplate the four following aspects at least: a) A unified form for choice of court agreements; b) registration formalities of unified forms of 75 See art. 26 PDC, limited to Regional Economic Integration Organisations like the EU. 76 Council of the European Union document 5184/04, of 12 January 2004, JUTCIV Many aspects remain open under this expression, such as a) exclusivity/non exclusivity of the link with the region; b) relevant moment, either referred to the agreement, or to the commencement of the procedure, or both. 78 See art & 3 BIR. 79 This does not take into consideration the possibility of contradiction between two or more different choice of court agreements pointing to courts of different States. 80 Or Spanish, or wherever they might originate... from a Member State. 81 As well as European counterparts among themselves, depending on the final text of the Hague instrument.

14 choice of court agreement; c) behaviour of the court seised and of the court of choice; and d) measures of civil punishment of the behaviour of claimant in breach of the agreement. a) The unified form would be simple but would need to provide for the distinction between cases where only a particular transaction is in cause and cases where the clause applies to future transactions 82. A unified form for registration of choice of court agreements would have two distorting consequences on the current regime. First, to create a special regime for some choice of court agreements only. It would not supersede the current regime including Gasser, but parties would be able to contract out of the present regime. Second, to add or to modify a legal formal requirement to the efficacy of choice of forum clauses. If we take into consideration that the purported effect of the form is to improve the efficacy of the clauses, then nothing prevents traditional clauses from continuing under their current regime and at the same time add a legal requirement for new 83 clauses only. The unified form would not be the clause or the agreement in itself, but only the document that records the existence of the clause or the agreement. Nevertheless, due to the formal requirements of the registration (infra b) it would be clear that the new regime would be limited to certain clauses of which existence the parties are well aware, thus facilitating the avoidance of discussion over their existence as well as their prima facie efficacy. b) The register would be a central European one 84, or another already existing national registry, or the court of choice. Either party in the transaction might ask for registration of a unified form provided this is signed by the parties in the transaction. Lacking the signature of one or more of the parties, the party wanting the registration would need a legal professional signature certificating the existence of the clause. There would not be any controls on the substance: If the form were completed, registration would always follow application within a very short period of time; if registration were made, no complaints against it would be admitted. Notice of the registration should be provided to all of the parties to the address recorded in the form by the register by means of a certified copy of the form. Any party could obtain additional copies at any time. c) The defendant before a court other than the court agreed could avail himself of a certified copy of the registered form during the time period to make the first appearance before the court seised. Upon the production of the copy, the court seised should decline or stay proceedings within a short period of time until the court of choice declares it is incompetent 85. Since either party may seise the chosen court at any time, provision should be made for a particular situation: if the defendant objects to the jurisdiction of the court of choice on the basis of lis pendens before another court and the claimant is availing himself of a registered choice of court agreement, the court 82 As well as others like assignability, etc. 83 This does not refer to the temporal scope of application of the new regulation. 84 For example, within the Court of Justice. 85 Because it considers invalid or otherwise ineffective the choice of court agreement.

15 must stay proceedings until a short period of time has elapsed 86 and reinitiate them if in the meantime the defendant has not produced the evidence that the first court seised has for some reason declared itself opposed to stay or decline. Thus, a certain margin for parallel proceedings would be tolerated under the expectation that the principle of confidence would work properly. Therefore, Gasser would not only survive for non-registered choice of court agreements: its phantom would reappear if the court first seised manages to ignore or disapply art. 23 BIR and the new regulation. d) Taking into consideration that choice of court agreements are private agreements and normally just a part of a larger agreement, even in cases where the agreement is enforced after one of the parties has breached it, the counterpart has suffered damage. Moreover, the service of the administration of justice has been misused by the failing party. Therefore, a civil penalty imposed 87 on the bad faith breaching party in cases where a penalty clause has not already been validly included in the contract might be useful to reinforce the efficacy of such a clause. In the new regulation it could take the form similar to other European private law material like contractual provisions in consumer directives 88. Issues arising out of false or inexistent agreements, or of false certifications of registration would also deserve certain attention, but criminal law can provide in every case, beyond hypothetical penalty clauses, proper legal remedies in a field of State competence. 14. Conclusion. Improving the efficacy of choice of court agreements within the EU with the powerful tools of European law has a value in itself because it contributes to unification of commercial law. It also gives sense to a special EU regime within a global oriented regime. If a special regime in Europe does not exist, then there seems little justification for a barrier to be placed at the European borders to stop the penetration of a better global system. On the other side, isolation of the European system of choice of court agreement for reasons other than reasons referred exclusively to choice of court agreements might be detrimental to choice of court agreements in favour of European courts, to which European parties might otherwise be inclined. 86 Coinciding with the period of time during which the court seised but not chosen has to stay or decline. 87 Either by the court wrongly seised or by the court of choice. 88 It would nevertheless be astonishing to see a punitive damages-relative born in the EU in the field of judicial jurisdiction. See in this respect art. 15 PDC.