LAWFUEL – Press Release Service – Two recent European Court of Jus…

LAWFUEL – Press Release Service – Two recent European Court of Justice decisions mean that exclusive jurisdiction clauses in Europe may be rendered ineffective where counter-parties deliberately breach them. Linklaters is proposing to make a submission to seek to have the effectiveness of exclusive jurisdiction clauses in Europe restored, as part of the review of the Brussels Regulation on Jurisdiction (EC44/2001).

The cumulative effect of the two decisions – Erich Gasser GmbH v MISAT Srl and Turner v Grovit – has been to enable parties to delay enforcement of contracts by “first seising” the courts of a European jurisdiction in breach of an exclusive jurisdiction clause. As the recent case of JP Morgan v PrimaCom highlights, distressed borrowers may delay enforcement of loan agreements for many months (or even years) where the procedure in the “first seised” court is comparatively slow (and other procedural inefficiencies may arise). This so called ‘forum shopping’ in breach of contract may well have an impact on the European loan market in terms of delay cost and risk – not just for banks, but also for borrowers (actual and potential). Paradoxically, the Brussels Regulation was intended to avoid precisely such damaging inefficiencies in the operation of the common market.

A review of the Regulation is presently underway. As the first step, a working party consisting of three professors from the University of Heidelberg has been engaged by the European Commission to prepare a report on the Regulation’s practical operation and suggested improvements. Submissions may be made to the working party by 30 June 2006.

Linklaters has prepared a discussion paper in consultation with jurisdiction and private international law experts from across its European offices. The paper examines a number of potential amendments to the Regulation that may solve or partially alleviate the problem. Having consulted with various interested parties, including several pan-European investment banks, Linklaters has prepared a submission and intends to work closely with the working party over the coming months to formulate recommendations to the European Commission. In addition, the Financial Markets Law Committee (FMLC) of the Bank of England has formed a working group, on which Linklaters litigation partner, Tom Lidstrom, sits, to examine this issue and make representations directly to the European Commission.

Tom Lidstrom, Linklaters litigation partner and member of the FMLC working group, said:

“The delay that may be caused by deliberate breaches of exclusive jurisdiction clauses is an abuse of the Regulation. It poses a significant risk of increasing the costs of doing business in Europe. This opportunity to offer our solutions to the European Commission is of utmost importance. We would like to hear from anyone affected by the issue and I would encourage everyone affected to take up the cause.”

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