In a recent ruling (Judgment C-366/13 of 20 April 2016) the CJEU, on questions for preliminary ruling submitted by the Court of Milan, gave some clarification on the conditions of validity and enforceability against third parties of the clauses of prorogation of jurisdiction contained in a bond issue prospectus, in respect of Article 23 of the Regulation (EC) No. 44/2001, the “Brussels 1 Regulation” (Article 25 of the recast Regulation No. 1215/2012 – Brussels 1a).
The case pending before the Italian court relates to a litigation between the Commerzbank (originally Dresdner Bank), issuers of credit-linked bond securities, Redi, a financial intermediary approved by the UK financial authority and subscriber of bond securities on the primary market, and Profit, an Italian company and the acquirer of the disputed bond securities on the secondary market.
The general rule of the programme and conditions of issue of securities had been defined by Dresdner Bank in a prospectus, approved by the Irish Stock Exchange, which contained a clause conferring jurisdiction to the English courts for any dispute arising out of or related to the securities issued.
Following a default of payment by the reference entity, Profit was put into liquidation and it brought an action before the Court of Milan against, in particular the issuer, Commerzbank, the financial intermediary, Redi, and its parent company, Profit Holding, in order firstly, to obtain the cancellation of the contract by which the disputed securities were acquired and secondly to recognise the liability of Profit Holding and Redi.
The jurisdiction of the Court of Milan having been challenged, it has referred to the CJEU for several preliminary rulings, one of which is on the form and scope of the clause conferring jurisdiction.
On the question of whether the insertion of a clause conferring jurisdiction in a bond securities issue prospectus met the written form requirements required by the Brussels 1 Regulation, the CJEU responded that this was only the case if the contract signed by the parties at the time of issue of the securities on the primary market mentioned the acceptance of this clause or contained an express reference to this prospectus.
With regard to the enforceability of the clause on the third party purchaser of the securities issued on the basis of the prospectus, the CJEU has accepted such enforceability if (i) it is established on the one hand, that the clause is valid in the relationship between the issuer of the securities and the financial intermediary, and on the other hand, that the third party and (ii) the third party by subscribing on the secondary market for the securities in question has been subrogated in the rights and obligations attached to these securities under national law of the said intermediary and, finally, (iii) such third party had the opportunity to familiarise themselves with the prospectus containing the clause.
The CJEU, assuming the response to these two first questions to be negative, has specified that the insertion of a clause conferring jurisdiction in a bond issue prospectus could be admitted following the usage of international trade rules under the Brussels 1 Regulation, assuming the consent of the other party to which it is opposed. However such admission is only recognised for operators of the branch do conclude contracts of this type and, secondly, whether the parties maintained a prior business relationship between each other or with other parties operating in the sector under consideration, or whether the conduct in question is sufficiently known to be able to be considered as an established practice.
The ruling also clarified the concept of contract under Article 5-1 of the Brussels 1 Regulation (Article 7-1 of the Brussels Regulation 1a) by indicating that actions for obtaining the cancellation of a contract and the restitution of sums unduly paid on the basis of that contract, also fall under the scope of contract matters. The CJEU has indeed taken the view that it would be inappropriate for a party to avoid the application of Article 5-1 simply by claiming that the contract does not exist.
The Court also specified the conditions of application of Article 6-1 of the Brussels 1 Regulation (Article 8-1 of the Brussels Regulation 1a) on the rules of jurisdiction with regard to co-defendants and the concept of associated applications.