HUNGARY – PERSONAL SCOPE EXTENSION OF JURISDICTION CLAUSE TO NON-SIGNATORY UNDER BRUSSELS IBIS

03 May 2024

Does the principle of independence of the choice-of-court agreement require that parties shall expressly transfer the dispute resolution clause in case of transfer of the main contract? When can the personal scope of a jurisdiction agreement be extended to a non-signatory? A Hungarian appellate court decided upon these questions under the Brussels Ibis Regulation in a recent judgment

Facts

In 2019, the Hungarian plaintiff (“Plaintiff”) entered into a public procurement contract with a contractor, a Hungarian company (“Contractor”), for the installation of slaughterhouse equipment.

The Contractor as buyer purchased a specific equipment from an Italian company as seller (“Defendant”) under a sales contract (“Sales Contract”).

The Sales Contract, which was governed by Hungarian law, contained a jurisdiction clause, according to which "in all disputes the Hungarian court shall have jurisdiction". (“Jurisdiction Clause”)

Later in 2019, a tripartite agreement (“Tripartite Agreement”) was concluded between the Contractor, the Plaintiff and the Defendant, to transfer the position of the Contractor in the Sales Contract to the Plaintiff.

By signing the Tripartite Agreement, the Contractor transferred to the Plaintiff its warranty claims and rights in relation to any defects that may arise in the performance of the Sales Contract with the Defendant, giving the Plaintiff the right to enforce directly against the Defendant the warranty rights arising from the defective performance by the Defendant.  At the same time, the Tripartite Agreement was silent on the transfer of the Jurisdiction Clause.

Statement of claim and defence

The Plaintiff sued the Italian Defendant in front of the Hungarian court, and requested to order the latter to hand over the equipment subject to the Sales Contract and to pay liquidated damages for late performance and to pay damages caused by the defective performance.

The Plaintiff held the Hungarian courts had jurisdiction over the dispute because the Sales Contract between Contractor and the Defendant contained the Jurisdiction Clause and, according to the Tripartite Agreement, the Plaintiff had assumed the position of Contractor in the Sales Contract.

The Defendant, primarily, objected to the jurisdiction of the Hungarian courts, arguing that the Jurisdiction Clause in the Contract could not be extended to the legal relationship between the Plaintiff and Defendant, as the Plaintiff only subsequently entered into the Sales Contract by way of the Tripartite Agreement.

First instance court decision

The first instance court (“First Instance Court”) dismissed the case. It held that the rules on assignment of the Hungarian Civil Code apply to the Tripartite Agreement, under which the Jurisdiction Clause has not been transferred to the Plaintiff, only the right to bring a claim for defective performance.

In the opinion of the first instance court, the Brussels Ibis Regulation considers exclusive choice of court agreements as an agreement independent from the other terms of the contract, which implies that the mere assignment of the possibility to enforce a defective performance cannot imply an assignment of the choice of court agreement without a clear agreement between the parties.

In the light of the above, the First Instance Court held that there was no valid jurisdiction agreement between the Plaintiff and the Defendant, and consequently, the jurisdiction of the Hungarian court to the dispute could not be established by the Jurisdiction Clause.

Appeal and second Instance Court decision

The Plaintiff appealed against the First Instance Court’s order terminating the procedure.

It emphasised that the jurisdiction agreement relates to a legal relationship, not to the parties concerned, and that the intention to apply Hungarian jurisdiction in relation to the Sales Contract existed on both sides, for the Defendant at the signing of the Sales Contract and for the Plaintiff at the latest when it brought the action before the Hungarian court.

The Second Instance Court found that the appeal was well founded.

The Second Instance Court stated that Brussels Ibis Regulation does not specify whether a jurisdiction clause may be transferred, in whole or in part, beyond the contracting parties to subsequent parties to the contract or to the legal successors in title to the rights and obligations of the original contracting party as third parties.

A jurisdiction clause in a contract can, generally, have effect only between the parties who have consented to be bound by it. To be invoked the jurisdiction clause against a third party, it is in necessary for the latter to give its consent to that effect.

A jurisdiction clause to which the third party has not consented may be binding only if, in accordance with the national law applicable to merits, the third party has succeeded the original contracting party in respect of all rights and obligations.

There has been no change in the identity of the Defendant as a party to the Sales Contract, consequently, only the Plaintiff can be regarded as a third party in the relationship between the parties, for whom it is necessary to examine whether the Jurisdiction Clause extends to it as a legal successor, and whether it has consented to it.

However, the Plaintiff, as the legal successor, expressly accepted Hungarian jurisdiction by submitting the statement of claim based on the Jurisdiction Clause, thereby the Defendant cannot argue that the Jurisdiction Clause shall not apply to the Plaintiff.

The Defendant, on the other hand, is bound by the Jurisdiction Clause by signing the Sales Contract in which the clause is stipulated.

Comment

In this case the Hungarians courts had to apply the provisions of the Brussels Ibis Regulation together with the case law of the CJEU.

While the first instance court has found a relevant legal principle, i.e. the independence of the jurisdiction clause, but it applied that principle wrongly, the second instance court has solved the case in a manner which is in line with the case law of the CJEU.

Independence of jurisdiction agreement

The first instance court held that the parties should have expressly agreed that the Jurisdiction Clause shall be transferred from the Contractor to the Plaintiff, and in the absence such an express agreement, the independent nature of the Jurisdiction Clause precludes the transfer of the clause.

The principle of independence of the jurisdiction clause from the main contract was first elaborated by the CJEU in the Benincase case[1], and now it is reflected in Article 25 (5) of the Brussels Ibis Regulation.

However, the first instance court wrongly applied the principle of independence, because it does not require that in case of a transfer of contract, containing a jurisdiction clause, the latter should be transferred by the parties expressly.

Such requirement runs counter business reality, since it presupposes that ordinary businessmen are aware of the legal independence of the dispute resolution clause from the other provisions of the contract, which is not the case.

Instead, the better view is that in case of a transfer of the whole contract, it shall be presumed that the parties intended to transfer the legally independent dispute resolution clause, as well.

Personal scope extension of the clause

When it comes to the personal scope extension of jurisdictions clause to a non-signatory, two decisions of the CJEU shall be considered.

In the Refcomp case[2], the CJEU laid down that a jurisdiction clause incorporated in a contract can produce effects only in the relations between the parties who have given their agreement to the conclusion of that contract. For a third party to rely on the clause it is, in principle, necessary that the third party has given his consent to that effect.

In the Hydrogen Peroxide-case[3], the CJEU held that the jurisdiction clause to which the third party has not consented can only bind him if, in accordance with the national law applicable, the third party has succeeded the original contracting party in respect of all rights and obligations.

In the present case the personal scope extension of the Jurisdiction Clause can be established on the basis of both above judgments.

When it comes to the issue of the consent of the non-signatory, it can be concluded that by starting litigation in front of the Hungarian courts and by relying on the Jurisdiction Clause, Plaintiff has given his consent to the transfer of the dispute resolution clause.

In relation with the succession in the underlying legal relationship under the lex causae (i.e. the Hungarian law), it shall be highlighted that by reason of the Tripartite agreement, the Plaintiff has succeeded the Contractor in the Sales Contract in respect of all rights of obligations under the Hungarian Civil Code. This shall include the legal succession in respect of the rights and obligations arising out of the Jurisdiction Clause, as well.

Consequently, in the light of the abovementioned case law of the CJEU, the second instance Hungarian court held correctly that the personal scope of the Jurisdiction Clause could be extended to the non-signatory Plaintiff, and the Defendant’s jurisdictional objection was unfounded.

 

In the article we examined judicial decision published under No. BDT2024.4767. (Regional Court of Appeal of Pécs - Gpkf.IV.45.102/2023/2.)