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Freshfields Risk & Compliance

| 4 minutes read

The Court of Appeal of England and Wales on apparently competing jurisdiction clauses. Again.

It is a story as old as the financial crisis: Italian Borrower meets Bank, they enter into a loan agreement subject to Italian law and (exclusive) jurisdiction, and are very happy when (a short time later) an interest rate hedging transaction arrives on 1992 ISDA Master Agreement terms providing for English law and (exclusive) jurisdiction. However, time passes; eventually Borrower defaults, and Bank seeks to take advantage of the swap terms to issue proceedings in the English courts. Some months later, Bank serves its English claim form on Borrower, who responds by commencing proceedings in the Italian courts under the loan agreement and, in parallel, challenging jurisdiction in England. Ultimately, the Court of Appeal is asked to decide which jurisdiction clause is engaged and/or prevails.

So it was in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 768, where the Court of Appeal reviewed recent authority (including its own recent decision in Deutsche Bank v Savona [2018] EWCA Civ 1740) and helpfully summarised the approach to be taken (at para.68, omitting citations):

“(1) Where the parties’ overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract.

(2) A broad, purposive and commercially-minded approach is to be followed.

(3) Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme. 

(4) It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses.

(5) The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, provided the language and surrounding circumstances so allow. 

(6) The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other.”

A number of helpful points might be observed in the Court’s application of that approach to the matter before it.

First, in what is fast-becoming a familiar appellate refrain, the Court of Appeal reiterated that “[t]he role of foreign law experts in relation to issues of contractual interpretation is a limited one. It is confined to identifying what the rules of interpretation are”: para.45. Dicta from Morgan Grenfell v SACE [2001] EWCA Civ 1932, which might have been taken to suggest otherwise, could not stand in light of Vizcaya Partners Ltd v Picord [2016] UKPC 5 (at [60]) and Savona (at 15). Accordingly, those parts of TRM’s expert evidence, opining as to how an Italian Court would interpret the Italian jurisdiction clause, or giving the expert’s own views as to what it meant, were “inadmissible and irrelevant”: para.49.

Secondly, agreeing with the trial judge, the Court of Appeal held that the scope of a jurisdiction clause falls to be construed “at the time that jurisdiction agreement is made”; interpretation “is therefore necessarily forward looking and looks towards the general nature of dispute or disputes that would fall within the clause”: paras.56-57. Whether a particular claim falls within the scope of a jurisdiction clause is to be determined at the time of the claim’s issue, and “[t]he answer to this question cannot change by reason of subsequent events” – such as a defence raised to the claim in question, or proceedings (like those issued by TRM in Italy) issued subsequently: para.61.

Thirdly, the Court of Appeal observed that “the starting point” is that the parties to a contract containing a jurisdiction agreement intended that it should apply to claims arising under that contract, or (e.g.) tortious claims “relating to” that contract, but not claims arising under or in relation to another contract – especially where that other contract has its own jurisdiction provision. In this case, the parties to a significant project financing transaction had, in pursuit of that transaction, entered into a number of different contracts. Those included a financing agreement, between the borrower (TRM) and a syndicate of banks led by BNPP, which provided for the exclusive jurisdiction of the courts of Turin, Italy. The financing agreement also (among other things) obliged TRM to enter into an interest rate hedging transaction with the Hedging Bank – also BNPP – which (as noted above) TRM did, on 1992 ISDA Master Agreement terms, providing (among other things) for the exclusive jurisdiction of the English courts.

In those circumstances, the Court of Appeal (like the judge below) had little difficulty in holding that the natural interpretation of those jurisdiction agreements was that each was to govern disputes arising under the contract in which it was contained, and that those categorisations were mutually exclusive: paras.75-76. There being, on their true construction, no conflict between those jurisdiction agreements, a provision in the swap agreement acknowledging that in cases of conflict the terms of the financing agreement would prevail had no application: para.87.

Having regard in particular to the inclusion of an entire agreement clause in the 1992 ISDA Master Agreement, the Court – as had the Court of Appeal in Savona – similarly held in the context of Art.25 of the Brussels Regulation Recast that the Borrower and the Bank had two distinct ‘particular legal relationships’ which the respective jurisdiction agreements had been entered into in connection with: a general borrower/lender relationship as set out in the financing agreement, and the specific swap relationship set out in the relevant transaction documents: paras.82-83. This was so even though, as TRM had argued, it was clear on the face of the documents that the swap had been entered into “in connection with” the financing agreement, and that the parties’ “respective rights under this [Swap] Agreement are subject to the terms and conditions of” the financing agreement and its Italian jurisdiction clause: paras.85-86.

The moral of the story? It is simplest – and often safest – to ensure a consistent choice of (law and) jurisdiction across transaction documents. Doing so minimises the opportunity for expensive and time-consuming jurisdiction challenges or – potentially worse still – parallel proceedings. Where there are good commercial reasons for subjecting different parts of a transaction to differing (governing law and) jurisdiction provisions, parties and their advisers would be well-served by thinking carefully through the implications before committing to that course.