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21 May 2019

Further Court of Appeal clarification on the treatment of competing jurisdiction clauses

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The Court of Appeal has given further clarification on the treatment of competing jurisdiction clauses in its recent decision in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 786, confirming its position as stated in Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740 (27 July 2018).

Background

Both Trattamento and Savona had similar facts, and dealt with the issue that commonly arises in cases relating to interest rate swaps and other hedging arrangements, where the contractual framework that governs the underlying relationship between the parties has a jurisdiction clause that differs from the jurisdiction clause of the ISDA Master Agreement that the parties separately enter in to in respect of interest rate and other swaps. The first instance decision in Trattamento had been followed by the Court of Appeal in Savona.

In Trattamento, the parties had entered into a financing agreement which gave the Courts of Turin exclusive jurisdiction, whilst an ISDA Master Agreement that the parties subsequently entered into, in respect of related interest rate swaps, gave the English Courts jurisdiction.  BNP Paribas issued proceedings in England seeking declarations in respect of the validity of the swaps and Trattamento challenged the jurisdiction of the English Court.

At first instance, the Judge had found, in short, that the declarations sought derived directly out of the language of the ISDA Master Agreement, and the English Court therefore had jurisdiction to hear BNP Paribas' claim. The language of the two jurisdiction clauses made it clear that one was concerned with the financing agreement and one with the ISDA Master Agreement, which reflected the fact that the parties had more than one relationship. The Judge further found that the most compelling reason for reaching his decision in respect of the jurisdiction clause in the ISDA Master Agreement was the fact that ISDA Master Agreements are worldwide standard documents that parties enter into for the purpose of achieving consistency, certainty and predictability. Although relevant background is to be taken into account in matters of contractual interpretation, a standard form document is not context specific and therefore evidence of the particular factual background or matrix has a much more limited, if any, part to play in its interpretation.

The appeal

Despite the Judge’s reasoning being followed by the Court of Appeal in Savona, Trattamento appealed the first instance decision on the following grounds (amongst others):

  1. The Judge did not correctly undertake the contractual analysis necessary to dispose of Trattamento's application;
  2. The Judge did not correctly undertake the analysis required by Article 25 of the Regulation before concluding that the Court had jurisdiction by virtue of Article 25 (Article 25 provides that, if the parties agree that a court of a Member State has jurisdiction to settle a dispute which has arisen in connection with a particular legal relationship, that court shall have jurisdiction); and
  3. The Judge was wrong to find that “with [one] exception …., all of the declarations sought derive directly from the contractually agreed language of the Swap, and in particular the ISDA Master Agreement…."

The Court of Appeal dismissed the appeal on all grounds. In reaching its decision the Court found that the Judge below had been correct in all of his conclusions. In particular, the "particular legal relationship" under Article 25 for the purposes of the English jurisdiction clause was the interest rate swap relationship between Trattamento and the Bank, not the relationship under the financing agreement.

The Court also confirmed that the approach, when deciding between competing jurisdiction clauses, should be as follows:

  1. A jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under related contracts;
  2. A broad purposive and commercially minded approach is to be followed;
  3. Where jurisdiction clauses are part of a series of agreements, they should be interpreted in light of the transaction as a whole, taking account of the overall scheme of agreements;
  4. It is to be recognised that sensible business people are unlikely to intend similar claims to be subject to inconsistent jurisdiction clauses;
  5. There is a presumption that competing jurisdiction clauses will be interpreted on the basis that each will deal exclusively with its own subject-matter and that there is to be no overlap; and
  6. In the event that language and surrounding circumstances make it clear that a dispute falls within the ambit of both of the competing clauses, the result may be that either clause may apply rather than one clause should apply to the exclusion of the other.

Comment

The Court of Appeal concluded that the decision that BNP Paribas’ claims fell within the English jurisdiction clause contained in the ISDA Master Agreement accorded with the commercial imperative that jurisdiction clauses provide certainty for parties, from the outset, as to where their disputes will be resolved. Further, the decision underlines the importance of standard terms, such as the ISDA Master Agreement, providing consistency, certainty and predictability for parties.

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