Competing Jurisdiction Clauses: A Case of Construction

In June 2018 and July 2018, judgments were handed down in two remarkably similar cases. In both cases the issue was whether the English Court had jurisdiction when there were two competing contracts, one with an English jurisdiction clause and the other with an Italian jurisdiction clause.

Background to the disputes

BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA (BNPP and TRM respectively)

BNPP, the Claimant, was seeking a number of declarations from the Commercial Court in London relating to a 1992 multicurrency ISDA Master Agreement (the Master Agreement) which was signed by the parties in March 2010. The Master Agreement was governed by English law and contained an English jurisdiction clause. On 23 March 2010, the parties entered into an interest rate swap transaction under the Master Agreement.

TRM made an application, heard by Mr Justice Knowles, disputing the English Court’s jurisdiction due to the Italian jurisdiction clause contained within a financing agreement for loan financing of €413m entered into between TRM and a syndicate of banks led by BNPP in October 2008 (as amended) (the Financing Agreement).

The Financing Agreement was governed by Italian law and contained a jurisdiction clause for the “exclusive competence of the Court of Turin”. It provided for a “Hedging Strategy” for derivative contracts between TRM and BNPP. The Master Agreement was part of this strategy.

Deutsche Bank AG v Comune Di Savona (DB and Savona respectively)

Similar to BNPP, the Claimant DB, was seeking a number of declarations from the Commercial Court in London relating to a 1992 multicurrency ISDA Master Agreement entered into in June 2007 (the ISDA Agreement). The ISDA Agreement was governed by English law and contained an English jurisdiction clause. The ISDA agreement also contained an entire agreement clause. On 14 June 2007, the parties entered into two interest rate swap transactions subject to the terms of the ISDA Agreement.

Savona challenged the jurisdiction of the English Court over part of DB’s claim due to the jurisdiction clause contained within a written agreement between DB and Savona signed on 22 March 2007 under which DB agreed to provide certain services to Savona, including advisory services (the Convention). The Convention was governed by Italian law and contained a jurisdiction clause for “the exclusive jurisdiction of the Court of Milan”.

Savona’s application was heard on 05 May 2017 and HHJ Waksman QC sitting as a Judge of the Commercial Court declared that the English Court did not have jurisdiction and dismissed the claim. This decision was appealed and the appeal was heard by Longmore LJ, Gross LJ and Floyd LJ.

Competing jurisdiction clauses

Notably, in both cases it was held that the English governing law and jurisdiction clauses contained within the ISDA Master Agreement’s had primacy and the English Court had jurisdiction.

The court was “faced with a question of construction or interpretation” in both cases. Mr Justice Knowles in BNPP v TRM stated that the court's approach to the construction of a jurisdiction clause should “be broad and purposive”. Meanwhile, Longmore LJ in DB v Savona emphasised that while it is “desirable that potentially conflicting jurisdiction clauses should be given mutually exclusive construction… it may be unrealistic if not impossible, always to ensure a mutually exclusive construction”, nonetheless, in this case he held that the clauses were mutually exclusive.

Mr Justice Knowles in BNPP v TRM, held that both jurisdiction clauses clearly concerned the specific agreements in which they were contained. This view recognises that the parties had more than one relationship. While the two contracts did relate, the parties had specifically agreed jurisdiction in favour of the English Courts under the Master Agreement and “there is no basis for rewriting the contracts”.

Further, the declarations being sought related directly to the Master Agreement and Mr Justice Knowles stated that “the most powerful point of context” was the use of ISDA documentation and the ISDA jurisdiction clause. He emphasised the importance of dispute resolution provisions providing certainty and stated that the worldwide use of ISDA documentation signals the interest of parties to achieve consistency and certainty when transacting.

Similarly, in DB v Savona, Longmore LJ held that as separate contracts had been proposed and approved, the relationship agreed in each would be the “particular legal relationship” referred to in Article 25 of the Recast Brussels Regulation and therefore, any dispute in relation to one contract would relate to the relationship established under it for the purposes of Article 25. In addition, he held that the existence of an entire agreement clause was “strong confirmation” that the contracts were separate and that any dispute relating to them would come within the jurisdiction clause set out in the contract to which it relates. As the particular declarations under dispute related to the ISDA Agreement, the English Court had jurisdiction to hear the claim. Gross LJ confirmed, stating that any decision to the contrary “would be highly damaging to market certainty”.

The approach in both cases shows that without significant reasons to the contrary, where a dispute is in relation to a specific contract the court will place reliance on the jurisdiction clause contained within that contract, regardless of a conflicting jurisdiction clause in a prior/related agreement. These cases also demonstrate the importance placed on the ISDA Master Agreement and the need for parties to have certainty when entering into it.

Declarations as a defence in another jurisdiction

Both cases referred to the first instance judgment of HHJ Waksman QC in DB v Savona, where he considered how declarations in proceedings in this jurisdiction could be used as defences in a claim in another jurisdiction.

Mr Justice Knowles stated that this position “risks taking the focus away from the relevant dispute for the purpose of the question whether the English Court has jurisdiction”. Longmore LJ supported this approach and stated that while the contracts were in different terms in BNPP v TRM and therefore he could not approve or disapprove the decision, he agreed in principle with the approach of focusing on the question of whether the English Court has jurisdiction rather than trying “to predict whether the declarations, if made, would act as defences in another jurisdiction” .

Expert evidence: a warning

Both judgments referred to the use of expert evidence and criticised the parties for not seeking directions from the court. In both cases the judges found the use of expert evidence unnecessary and a waste of both time and costs.

Longmore LJ was particularly disparaging and stated that he had “considerable unease about the proliferation of expert evidence of foreign law on jurisdiction applications which are supposed not to be excessively complicated and to be capable of determination in hours rather than days”. Gross LJ re-iterated this position and both proposed that the Commercial Court Users Committee consider whether the permission of the court should be obtained before expert evidence of foreign law can be adduced on interlocutory applications.

Lessons learnt

Following these decisions, contracting parties should pay due consideration to the following points:

• when negotiating contracts consider maintaining the same jurisdiction and governing law across contracts that interrelate. If this is not practical, consider which jurisdiction you wish to take precedence and expressly state this within the contracts, and
• in the event of a dispute over jurisdiction, consider whether expert evidence of local law is really necessary and, if it is, think carefully about seeking directions from the court before instructing an expert.