Last week, the European Court of Justice held that choice of court agreements fall within the scope of Article 25(1) Brussels I Regulation if parties to a contract domiciled in the same Member State agree on the jurisdiction of the courts of another Member State, even if the contract has no further connection with that other Member State.
Facts of the case
In 2016 and 207, two parties domiciled in Slovakia concluded two loan agreements. In 2021, the lender assigned its claims to Inkreal, a company also domiciled in Slovakia. Both loan agreements and the assignment agreement contained a choice of court agreement in favour of the Czech courts. Other than that, there were no ties to the Czech Republic.
When the borrower failed to repay the loans, Inkreal filed an action with the Nejvyšší soud, the Supreme Court of the Czech Republic, on 30 December 2021. The action was brought on the basis of an choice of court agreement pursuant to Art. 25 (1) Brussels I Regulation. In its action, Inkreal pursued the loan claims and requested that the Nejvyšší soud determined which Czech court had local jurisdiction, according to Section 11 (3) of the Czech Code of Civil Procedure.
The Nejvyšší soud had doubts as to whether the Brussels I Regulation was applicable if the only international aspect was the fact that the contracting parties, who were domiciled in the same Member State, had agreed on the jurisdiction of the courts of another Member State. Hence, the court referred the following question to the European Court of Justice:
“From the perspective of the existence of an international element, which is required for Regulation (EU) No 1215/2012 (1) of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters to apply, is the application of that regulation to be based solely on the fact that two parties with their seat in the same Member State agree on the jurisdiction of courts of another EU Member State?”
Opinion of the Advocate General
In his Opinion of 12 October 2023, Advocate General Richard de la Tour proposed that the Court should answer the question to the effect that Articel 25 Burssels I Regulation “must be interpreted as meaning that in a purely internal situation, it is not applicable based solely on the fact that the parties domiciled in the same Member State have designated a court or courts of another Member State to settle any disputes between them which have arisen or which may arise.”
Decision
As predicted by Geert van Calster in his blog, the ECJ did not follow the Advocate General’s opinion in this case. The Court stated that when interpreting a provision of EU law, not only its wording, but also the context in which it stands and the purposes and objectives pursued by the legal act of which it forms part must be taken into account.
The wording alone suggests that Article 25 Brussels I Regulation applies to the facts of the main action. As far as the context of Article 25(1) Brussels I Regulation is concerned, the application of the Regulation requires, according to settled case-law, a foreign connection. However, the Regulation, including its recitals, does not contain a definition of the foreign connection on which its applicability depends. However, the recitals use the terms “civil matters having a cross-border element” and “cross-border litigation”:
“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.
Secondly, as the Czech Government and the [European] Commission submit, the dispute in the main proceedings raises a question relating to the determination of international jurisdiction, more specifically whether the courts having jurisdiction to settle this dispute are those of the Czech Republic, or those of the Slovak Republic as the Member State in which the two parties are established.
In those circumstances, a legal situation such as that at issue in the main proceedings has an international element within the meaning of the case-law as referred to in paragraph 18 of the present judgment, since the existence of an agreement conferring jurisdiction on the courts of a Member State other than that in which the parties are established in itself demonstrates the cross-border implications of the dispute in the main proceedings.”
Finally, the objectives stated in the Regulation, namely the preservation of the parties’ freedom of contract, the improvement of the effectiveness of exclusive choice of court agreements and the objective of legal certainty, also speak in favour of the applicability of Article 25 Brussels I Regulation to the present case.
Finally, the ECJ addresses the argument that the 2005 Hague Convention on Choice of Court Agreements, to which the European Union is a party, provides in Art. 1 (2) that “a case is international unless the parties are resident in the same Contracting State and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that State.” The ECJ states:
“Unlike the authors of that convention, however, the EU legislature chose not to include a similar rule in Regulation No 1215/2012, while stressing, in recital 3 of that regulation, the objective of maintaining and developing an area of freedom, security and justice by adopting measures relating to judicial cooperation in civil matters having cross-border implications.”
Comment
The ECJ’s decision is to be welcomed. The ECJ decides in favour of a broad and subjective interpretation of the foreign connection required for the applicability of the Brussels I Regulation and, in essence, leaves it up to the parties to bring this about.
From a German perspective, this means that parties domiciled in Germany are able to agree a foreign place of jurisdiction to a greater extent than would be possible under autonomous German law. If Article 25 of the Brussels I Regulation did not apply, only merchants (Kaufleute) within the meaning of the German Commercial Code (Handeslgesetzbuch, HGB) would be allowed to agree on the jurisdiction of a foreign court in accordance with Sections 38 and 40 of the German Code of Civil Procedure (ZPO). However, if the choice of a court in an EU member state renders Article 25 Brussels I Regulation applicable, non-merchants can also make use of this option – of course only within the scope of application of the Brussels I Regulation, i.e. not for consumer, labour and insurance contracts.
It remains to be seen whether the decision will have any practical significance. If parties in other EU member states perceive the German courts to be more attractive than their own domestic courts – for example, because these courts are increasingly coming under political influence – then “contracting in” into Germany might be an option, particularly in border regions.
Judgment of the Court (First Chamber) dated 8 February 2024, Rs. C-566/22 Inkreal s.r.o ./. Dúha realiy s.r.o.