Jurisdictional clause favouring English courts held invalid by Frankfurt District Court post-Brexit
In its interim judgment of 5 July 2023, the District Court (Landgericht, “LG”) in Frankfurt am Main[1] ruled on an important question of international jurisdiction in cartel damage cases that has gained increased relevance since Brexit: is a jurisdiction clause in favour of the English courts enforceable and can it lead to the derogation of a German court with original jurisdiction in a dispute over infringements of European or German competition law?
According to the LG Frankfurt, it cannot. The court held that a jurisdiction provision conferring jurisdiction to courts outside the European Union (“EU”) is precluded by an unwritten prohibition of derogation arising from German and European competition law. The court took account of the fact that, since Brexit, UK courts[2] – from the EU perspective – are third country courts. The judgment is, to the knowledge of the authors, the first ruling of a German court on the issue post-Brexit.
The judgment however leaves open whether the scope of the jurisdiction clause at issue extended to cartel damage claims at all, which had been the subject of the ECJ’s CDC and Apple Sales decisions. The court also touched upon the thorny issue of whether arbitration agreements covered cartel damages claims.
I. The facts of the case
The plaintiffs in the case are German public-sector banks. The two defendants own and run the Visa card payment system, with the first defendant being the English company operating the Visa system in Europe and a subsidiary of the second defendant, which operates the worldwide Visa payment system. The plaintiffs sought a declaratory judgment holding the defendants liable for damages incurred due to an infringement of the prohibitions of cartels and abuse of dominance in the German market. The plaintiffs brought their claim in Frankfurt arguing a statutory place of jurisdiction. The defendants contested the German court’s jurisdiction, relying on a jurisdiction clause in their contracts with plaintiffs which provided for the application of English law and the exclusive jurisdiction of the English courts.
In its interim judgment of 5 July 2023, the LG Frankfurt ruled that it had international and local jurisdiction, thus dismissing the jurisdiction clause. The court will now decide the merits of the claim.
II. The court’s findings
Prohibition of derogation to non-EU courts in competition law disputes
The LG Frankfurt declared that the jurisdiction clause in question did not apply and thus did not grant jurisdiction to the English courts.
While German civil procedural law allows for jurisdiction agreements among companies,[3] such agreements are not possible if the law provides for the mandatory jurisdiction of the German courts. The LG Frankfurt clarified that such mandatory jurisdiction does not have to be provided for expressly, but can also be derived from the purpose of the underlying German law. Based on this, the LG Frankfurt found the jurisdiction clause at issue to be invalid, holding that it was not possible to provide for the jurisdiction of non-EU courts due to an unwritten prohibition of derogation arising from competition (procedural) law.[4] Whilst the court did acknowledge the interest of companies operating internationally to obtain uniform decisions for all their contractual relationships in different countries, it ultimately held that this interest does not outweigh the public interest in protecting the effectiveness of German (or European) competition law.[5]
The LG Frankfurt reasoned that the prohibition of the abuse of dominance was among the elementary foundations of German law.[6] This is in line with European and German jurisprudence. Both the ECJ as well as the German Federal Court of Justice (Bundesgerichtshof, “BGH”) explicitly recognised the ordre public character of competition law.[7] According to the LG Frankfurt, non-EU courts could interpret German and European competition law differently from German or EU courts, and therefore arrive at different conclusions. The court reasoned that due to the different economic models and standards in the world, it could not assume that all third-country courts would attach the same importance to free competition as German or EU courts. In addition, the LG Frankfurt held that in the European system of parallel jurisdictions, legal certainty and uniform application of EU law had to be ensured by the national courts’ ability to refer questions to the ECJ – which non-EU courts cannot do. The court saw the risk that the protection of competition intended under German and European competition law could thus be weakened or altered by the interpretations and legal findings of third country courts. Given the great importance of non-dilution of German and EU free competition law, the LG Frankfurt concluded that allowing third-country courts to decide this issue posed an “unacceptable” risk.[8]
Since Brexit, UK courts are third country courts
In its judgment, the LG Frankfurt drew the consequences from the fact that, since Brexit and the end of the transition period on 31 December 2020, the UK is a so-called ‘third country’ from the perspective of the EU, i.e., not a member state. The court expressly held that it was irrelevant that the UK was part of the EU until only recently. In the court’s view, no court of a non-EU country should be able to rule on German or European competition law regarding infringements committed in the German market.[9]
According to the court, the prohibition of derogation did not depend on whether UK courts would apply German or European law according to Art. 6 of the Rome II Regulation.[10] The unwritten prohibition of derogation thus applied despite the fact that, under Art. 66 lit. b) of the Withdrawal Agreement,[11] the Rome II Regulation continues to be applied by UK courts to events giving rise to damages which occurred before 31 December 2020.[12]
Furthermore, the LG Frankfurt ruled that the defendants could not invoke Art. 25 of the Brussels Ia Regulation. Art. 25 of the Brussels Ia Regulation[13] provides a legal basis for jurisdiction clauses and supersedes the national prohibition of derogation in cartel cases.[14] However, since the UK is no longer part of the EU, and the action was brought after the end of the transition period, the provision was not directly applicable. The court rejected an analogous application of the Brussels Ia Regulation arguing that there was no unplanned regulatory gap due to Brexit. Such an unplanned gap, however, would be necessary for an analogous application under German case law.[15] However, neither a regulation comparable to the Brussels Ia Regulation nor its further applicability was agreed upon in the Withdrawal Agreement, although this was initially provided for in the draft. The regulatory gap could therefore not be considered unplanned.[16]
In its ruling, LG Frankfurt notably did not consider any other legal route forward, including that which has been advocated for in the wake of Brexit, namely the ‘resurrection’ of the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.[17] This Convention is the pre-predecessor of the Brussels Ia Regulation and also contained a provision for jurisdiction clauses.[18] There are a number of reasons why it would be difficult to argue for a revival of the 1968 Brussels Convention,[19] including due to the fact that the UK government does not mention the Convention in its list of retained EU laws.[20]
III. Open points
By way of obiter dicta, the court also touched upon the question of the scope of a jurisdiction clause, as well as how it would have viewed an arbitration clause under similar circumstances.
Scope of the jurisdiction clause
One such issue looked at by the LG Frankfurt was the scope of the jurisdiction clause in question. Given that it had assumed a prohibition of derogation, the court was not required to decide upon whether the clause would have covered the competition damages claims at issue. The LG Frankfurt instead referenced the requirements established by the ECJ and the BGH in this regard.[21]
In its CDC judgment, the ECJ had ruled that a jurisdiction clause only covers cartel damage claims for violation of Article 101 TFEU if it clearly refers to disputes in connection with liability incurred as a result of a cartel infringement.[22]
In contrast, in Apple Sales, the ECJ ruled that in the context of an action for damages brought on the basis of an infringement of Article 102 TFEU, a jurisdiction clause can cover those damage claims even if it does not expressly refer to disputes arising out of an infringement of competition law.[23] The ECJ held that while the conduct covered by Article 101 TFEU (namely an unlawful cartel) was in principle not directly linked to the contractual relationship between a member of that cartel and a third party harmed by it, the conduct covered by Article 102 TFEU (namely the abuse of a dominant position) can occur in contractual relations and by means of contractual terms that the dominant undertaking establishes.[24] The BGH recently applied Apple Sales and concluded that the wording of a jurisdiction clause covering “all disputes arising from the contract with the exception of payment and invoice disputes” did not provide sufficient evidence that it was intended to cover tort claims for loss by a contractual partner of the defendant due to an abuse of dominance.[25]
Relevance for arbitration clauses
While the LG Frankfurt was also not required to rule on arbitration clauses, the court nevertheless stated that its finding of a prohibition of derogation in competition law disputes was not precluded by the fact that these disputes can, at least in principle, be decided by a court of arbitration. The court reasoned that such arbitral courts are called upon to decide to a large extent on international commercial disputes. In addition, arbitral awards under German law are subject to a full judicial review regarding competition law infringements. The risk of an arbitral award having negative consequences for the German legal system was thus held to be much lower than in case of jurisdiction clauses.[26]
The court is correct insofar as cartel damage claims are capable of arbitration.[27] However, since the ECJ’s CDC judgment, there has been a debate in Germany on the issue of whether the ECJ’s reasoning regarding jurisdictional clauses also applies to arbitration clauses.[28] Although the ECJ did not expressly extend its ruling in CDC to arbitration clauses, its main arguments would appear to apply equally to arbitration clauses.[29] This has already been recognised in other jurisdictions, especially by the Dutch courts.[30] In contrast, the District Court of Dortmund did not apply CDC to an arbitration clause, holding that the standard arbitration agreement at issue covered follow-on cartel damage actions and the claim was therefore inadmissible.[31] The arguments made by the LG Frankfurt in favour of a prohibition of derogation for state courts also seem just as valid for courts of arbitration. They, too, may interpret European competition law differently than German or EU courts and they cannot refer questions to the ECJ. Therefore, contrary to the assumption of the LG Frankfurt, the risk that decisions in arbitration proceedings on damage claims based on German and EU competition law infringements may undermine the level of protection under European and German competition law does not appear to be any lower compared to judgments of third country courts.
IV. Conclusion
In its interim judgment, the LG Frankfurt has ruled on the validity of a jurisdiction clause for the English courts in a dispute over infringements of European or German competition law. The ruling clarified the consequences of Brexit in holding that jurisdiction in such cases could not be conferred by contract upon the English courts, as they now, post-Brexit, constitute third country courts from an EU perspective. The court considered it too high a risk for German and European competition law to be weakened or altered if it were to be applied by non-EU courts. Although competition law in the EU was harmonized until very recently and the English courts would still have to apply German and European competition law in other contexts, the LG Frankfurt saw no room for an individual assessment of the country in question if it were a non-EU state. Although the court indicated that it would have ruled differently on an arbitration clause, this question remains highly debated in Germany and across Europe. Nevertheless, the ruling provides more legal certainty to those who have suffered damages from infringements of German or European competition law and seek to pursue their damage claims under the statutory jurisdiction of German courts despite contractual jurisdiction clauses favouring English courts.
*Dr. Alex Petrasincu is Managing Partner in Düsseldorf and Berlin and Rebecca Apell is an Associate in Berlin
Footnotes
[1] LG Frankfurt am Main (hereafter: LG Frankfurt), Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System, the main parts of the judgment have been published in NZKart 2023, 499.
[2] The LG Frankfurt’s judgment explicitly refers to the jurisdiction of ‘English courts’, which cover England and Wales, however, its reasoning equally applies to all UK courts, which also include Scotland and Northern Ireland.
[3] Section 38 of the German Code of Civil Procedure (Zivilprozessordnung, “ZPO”).
[4] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System; previously on this prohibition of derogation see Higher District Court (Oberlandesgericht, “OLG”) Stuttgart, Judgment of November 9, 1990, 2 U 16/90, para. 48.
[5] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System.
[6] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System; previously BGH, Decision of October 25, 1966, KZR 7/65, para. 21 on the mandatory provisions of competition law.
[7] ECJ, Judgment of September 1, 1999, C-126/97 – Eco Swiss, para. 36; BGH, Decision of September 27, 2022, KZB 75/21, paras. 13, 15, in which the BGH ruled that arbitral awards are subject to full judicial review in fact and in law with respect to the application of competition law.
[8] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System.
[9] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System.
[10] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System. The Rome II Regulation is an EU Regulation which governs the conflict of laws and choice of law in civil and commercial matters regarding the law applicable to non-contractual obligations.
[11] Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, 2019/C 384 I/01.
[12] Thole, NZKart 2022, 303, 308 et seq.
[13] The Brussels Ia Regulation is an EU Regulation which contains a jurisdictional regime for the courts in EU members states to determine whether they have jurisdiction in a case brought before them.
[14] See BGH, Judgment of February 10, 2021, KZR 66/17 – Wikingerhof/Booking.com, para. 18; ECJ, Judgment of October 24, 2018, C-595/17 – Apple Sales, paras. 20-25; ECJ, Judgement of 21 May 2015, C‑352/13 – CDC, paras. 59-64.
[15] Settled case law, see for example BGH, Judgment of December 4, 2014, III ZR 61/14, para. 9 with further references.
[16] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System; see also Mankowski, EuZW 2020, 3, 9.
[17] See Lehmann/Zetschke, JZ 2017, 62, 64 et seq.
[18] Art. 17 of the 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
[19] See Steinbrück/Lieberknecht, EuZW 2021, 517, 518; Mankowski, EuZW 2020, 3, 10.
[20] UK Department for Business and Trade, List of retained EU laws, updated September 4, 2023.
[21] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System.
[22] ECJ, Judgement of 21 May 2015, C‑352/13 – CDC, paras. 69 et seq.
[23] ECJ, Judgment of October 24, 2018, C-595/17 – Apple Sales, paras. 26 et seq.
[24] ECJ, Judgment of October 24, 2018, C-595/17 – Apple Sales, para. 28.
[25] BGH, Judgment of February 10, 2021, KZR 66/17 – Wikingerhof/Booking.com, para. 24.
[26] LG Frankfurt, Interim Judgment of July 5, 2023, 2-06 O 257/21 – Visa-System.
[27] See ECJ, Judgment of June 1, 1999, C-126/97 – Eco Swiss, paras. 31 et seq.
[28] See Steinle/Wilske/Eckardt, SchiedsVZ 2015, 165, 168 and Petrasincu/Westerhoff, WuW 2017, 585, 588 in favour of and Thiede, NZKart 2017, 589, 591 against the applicability of the CDC judgment for arbitration clauses.
[29] Petrasincu/Westerhoff, WuW 2017, 585, 587 et seq.
[30] For example Rotterdam District Court (Rechtbank Rotterman), Judgment of Mai 25, 2016, ECLI:NL:RBROT:2016:4164 – Stichting de Glazen Lift/ Kone et al, paras. 2.9 et seq.; see also Petrasincu/Westerhoff, WuW 2017, 585, 590.
[31] District Court (LG) Dortmund, Judgment of September 13, 2017, 8 O 30/16 (Kart) – Schienenkartell, paras. 34 et seq; see for a detailed analysis Petrasincu/Westerhoff, WuW 2017, 585.
