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On 8 February 2024, the Court of Justice of the European Union (“CJEU”), in delivering a preliminary ruling in the name of Inkreal s.r.o. v. Dúha reality s.r.o. (C-566/22) reached a controversial conclusion that parties established in the same Member State may agree on the jurisdiction of the courts of another Member State to settle their contractual disputes even if the contract does not have any other international element or connection with the chosen Member State.
The CJEU concluded that such a contractual agreement would be covered by Article 25(1) of Regulation (EU) No. 1215/2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters (the “Brussels Recast Regulation” or the “Regulation”).
Facts of the Case
FD as creditor resident in Slovakia and Dúha reality, a company governed by Slovak law and domiciled in Slovakia, as debtor, concluded two pecuniary loan contracts on 29 June 2016 and 11 March 2017. Each of these two contracts includes an agreement conferring jurisdiction with identical content under which, in the event of a dispute that cannot be resolved by negotiation, that dispute “shall be settle by a court of the Czech Republic having substantive and territorial jurisdiction.” On 8 December 2021, FD assigned the receivables arising from the two pecuniary loan contacts, amount to a total of EUR 153,740 to Inkreal, a company governed by Slovak law and domiciled in Slovakia.
Dúha reality failed to repay the pecuniary loans and on 30 December 2021, Inkreal brought an action before the Supreme Court of the Czech Republic (the “Referring Court”) seeking payment of debts owed and a determination of a Czech Court having territorial jurisdiction to rule on the merits of the case on the basis of the agreement conferring jurisdiction contained in the two pecuniary loan contracts.
Inkreal claimed that the agreement conferring jurisdiction was valid and that it complied with the requirements under Article 25(1) of the Brussels Recast Regulation and that there was no other special or exclusive jurisdiction of a court under that Regulation. The Referring Court held that the applicability of the Brussels Recast Regulation is subject to the existence of an international element and that it was uncertain whether the Regulation applied to the situation at issue where the international element was limited to an agreement conferring jurisdiction on the courts of a Member State other than that in which the contracting parties were established.
The Referring Court acknowledged that there are divergent views to the issue in both academic legal literature and national case law of the Member States. It declared that although the applicability of the Regulation could be justified by, inter alia, the need for a uniform interpretation and by the intention of the EU legislature to respect the contractual autonomy of the parties, the fact remained that the dispute in question could be classified as purely national on the ground that the mere will of the parties cannot suffice to confer an international character on their contractual relationship. With this backdrop in mind, the Referring Court stayed the proceedings and requested a CJEU preliminary ruling on whether the application of Article 25(1) of the Brussels Recast Regulation can be based solely on the fact that two parties with their seat in the same Member State agree on the jurisdiction of the courts of another EU member.
CJEU’s Considerations and Ruling
The CJEU considered the following:
- The wording of Article 25(1) of the Brussels Recast Regulation – the CJEU held that it is clear from this provision that if the parties, regardless of their domicile, agree on a specific court/s of a Member State, that court is to have jurisdiction to settle the dispute unless the agreement conferring jurisdiction is null and void as to its substantive validity under the law of that Member State. Article 25(1) of the Regulation does not preclude the choice of a court which is located in a Member State other than that in which both parties reside and are domiciled, even if that contract has no other connection to that other Member State.
- The context behind this provision of EU law – the CJEU said that it is settled case-law that for the jurisdiction rules of the Regulation to apply, the existence of an international element is required, yet it admitted that the Regulation does not contain a definition of what constitutes an international element. Considering this gap, the CJEU sought to refer to Article 3(1) of Regulation No. 1896/2006 creating a European order for payment procedure, which defines the equivalent concept of ‘cross-border litigation’ by reference to a dispute in which at least one of the parties is domiciled or habitually resident in a Member State other than the Member State of the court seized.
The CJEU felt that it is necessary to harmonise the interpretation of equivalent concepts used by EU legislature in the area of judicial cooperation in civil matters having cross-border implications. Furthermore, the CJEU held that it is clear from case law that an international element exists where the situation of the dispute concerned is such as to raise questions relating to the determination of international jurisdiction. The CJEU was of the opinion that the case at hand met the definition of the concept ‘cross-border litigation’ and raised a question relating to the determination of international jurisdiction.
- The objectives of the Regulation – the CJEU quoted the objective of respecting the autonomy of the parties and enhancing the effectiveness of exclusive choice-of-court agreement.
- The purpose pursued by this provision of EU law – the CJEU held that the Regulation seeks to unify rules on conflict of jurisdiction in civil and commercial matters by way of rules which are highly predictable. The Regulation’s main objective is therefore that of producing legal certainty and strengthening the legal protection of persons established in the European Union.
Taking into account the points considered under (1) to (4) above, the CJEU concluded that, firstly, by allowing parties established in the same Member State to choose another EU Member State’s court to hear and resolve any of their disputes without requiring additional connections to that chosen Member State, gives the parties the possibility to ascertain the court before which they may bring proceedings and enables the national court seized to be able to decide whether it has jurisdiction.
Secondly, the applicability of Article 25(1) of the Regulation to an agreement such as that in issue minimises the possibility of concurrent proceedings, ensures that irreconcilable judgements will not be given in different Member States and provides legal certainty.
Finally, the CJEU pointed out that an agreement conferring jurisdiction such as the one at issue reflects mutual trust in the administration of justice in the European Union and thus, contributes to maintaining and developing an area of freedom, security, and justice by facilitating access to justice, as referred to in Recital 3 of the Regulation. The CJEU held that the EU legislature consciously chose not to include a rule which is similar to that in Article 1(2) of the Hague Convention on choice of court agreements as it wanted to reach different objectives and develop an area of freedom, security, and justice.
Having regard to the above, the CJEU opposed the conclusion reached by Advocate General Richard De La Tour in his opinion delivered on 12 October 2023 and ruled that Article 25(1) of the Regulation must be interpreted as meaning that an agreement conferring jurisdiction by which the parties to a contract who are established in the same Member State agree on the jurisdiction of the courts of another Member State to settle disputes arising out of that contract is covered under that provision, even if that contract has no other connection with that other Member State. In effect, this ruling affirms that parties resident and domiciled in the same Member State may choose the courts of another EU Member State which they consider appropriate.
Disclaimer: Ganado Advocates is responsible for contributing to this law report but was not in any way involved as legal advisor for the parties in the judgement being covered in this law report.
This article was first published in The Malta Independent on 28/02/2024.
Author: Ria Micallef