Judgment of Amsterdam Court of Appeal relevant for shipping finance

February 28, 2020 | Blog

In this case, the Court of Appeal ruled on the question of whether the pledgee of a disclosed pledge can rely on a choice of forum agreed between the pledgor and the debtor.

The answer to this question is, among other things, important for shipping financing practice, as in shipping financing, the pledging of charter parties (the income) and insurances is usually part of banks’ security packages. In shipping, such types of contracts often include choice of law and forum clauses. As this judgment shows, these are clauses which the bank, as a pledgee, will have to tolerate.

The French company LCS concluded a licence agreement with the Dutch company FL Sport. The agreement was governed by Dutch law and contained a choice of forum designating the court in Amsterdam. The claim for payment of an annual royalty fee that ensued from the license agreement had been pledged by FL Sport to Rabobank without notice to LCS. FL Sport went bankrupt, Rabobank disclosed its pledge and LCS refused to pay the royalty fees due. In accordance with the choice of forum clause, Rabobank instituted proceedings before the Dutch court seeking performance, but LCS believed that the court should declare the case outside of its jurisdiction.

The parties’ dispute focuses on the question of whether the choice of forum agreed between LCS and FL Sport is also valid in the relationship between LCS and the bank (which as a pledgee is authorised pursuant to Article 3:246 of the Dutch Civil Code (DCC) to demand performance of FL Sport’s claims against LCS and to receive payments), or whether the bank should have sued LCS before the French court (the place of LCS’s establishment).

Choice of Forum
The starting point is that the jurisdiction of the court in this matter must be assessed on the basis of the Brussels I Regulation. The question of the applicability of the choice of forum clause agreed by LCS and FL Sport is governed by the provisions of Article 25(1)(a) Brussels I Regulation and the court decisions of the Court of Justice of the EU concerning the interpretation of this article. From these court decisions it follows that, in principle, a choice of forum applies only between the parties who have agreed to it, but that an exception to this rule is accepted in cases where the choice of forum transfers to third parties pursuant to the applicable law by means of a transfer of rights and obligations.

As regards the validity of the choice of forum clause, it is established that the licence agreement between LCS and FL Sport is an “agreement conferring jurisdiction” as referred to in Article 25(1) Brussels I Regulation. This means that a choice of forum has been agreed in writing and actually expresses the consensus of the parties. If the choice of forum clause has been agreed in the general terms and conditions of the pledgor or debtor, the pledgee must, of course, ascertain that those general terms and conditions actually apply. If the general terms and conditions do not apply, the possible third-party effect of a choice of forum does not apply under these circumstances either.

When is the valid choice of forum binding?
In principle, a valid choice of forum clause is only binding on the parties that have voluntarily agreed to it. According to the Court of Justice, third-party effect only exists if the third party has consented to the relevant clause.

For example, with regard to bills of lading, it has been held on several occasions that the acquirer succeeds to all rights and obligations of the holder of the bill of lading under the applicable national law. Therefore he is bound by the choice of forum clause included in the bill of lading. There is no reason to assume that the opinion given in the aforementioned judgment is limited to the legal relationship at issue there between a carrier and a third party holding a bill of lading. The Court in Amsterdam ruled that there is also no reason to assume that the exception accepted by the Court of Justice does not apply in a case as the Rabobank LCS situation. Although the Rabobank did not succeed to all obligations of FL Sport (the pledgor), it was given the authority, as a pledgee (by disclosing the pledge to the debtor of the pledged claim), to collect the pledgor’s claim and to recover it from the debtor’s assets, using all means previously available to the pledgor. This authorisation to collect also includes instituting proceedings before the court designated by the pledgor and the debtor for the purpose of obtaining a title in respect of the pledged claim, and the rights that the pledgee may exercise against the debtor as determined by the original legal relationship between the pledgor and the debtor in the context of that authorisation to collect. The bank could therefore rely on the choice of forum laid down in the licence agreement.

Binding force of a choice of forum clause follows from the consent given by the relevant third party or from a transfer by universal or particular title, provided that in the latter case the choice of law clause was apparent to the third party. Strictly speaking, a case in which a third party exercises another party’s claim in its own name falls outside the scope of the court decisions of the Court of Justice. However, its application is justified by the fact that a third party’s authority to collect and claim are closely linked, resulting in “secondary connection” or “derived jurisdiction” based on the choice of forum clause. The claim and the rights and obligations ensuing from it do not change when that claim is exercised by a third It is only logical to deem the third party bound by the choice of forum clause applicable to the relevant claim, even if the third party was not involved in the creation of that clause.

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