Cayman Islands: All The World’s A Stage: Conflicting And Complimentary Jurisdiction Clauses In International Multi-Contractual Arrangements

Last Updated: 5 October 2009
Article by Nicholas Holland

It might surprise, and it should worry, the average businessman to see the impressive variety of different jurisdiction clauses in a typical multi-contractual relationship. There are no doubt good and bad reasons why these clauses have found their way into the final set of documents. These range from the reality that some of the documents are boilerplate which have already been interpreted by certain courts in favourable, or at least certain, ways (although even this should not always favour a choice of jurisdiction rather than merely a choice of law clause) through to the sad reality that, in some circumstances, the different clauses and the potential hazard arising from them may not have been considered at all.

Two recent and superficially conflicting but actually comprehensively complimentary judgments as to the appropriate analysis of these issues have just been released. They deserve our attention.

In the first of these, the recent Court of Appeal decision in UBS AG and UBS Securities LLC v HSH Nordbank AG, at least 6 different choice of law/jurisdiction clauses were contained in the various contracts making up a collateralized debt obligation ("CDO") which had become the subject of proceedings in both New York and London. This bewildering array of private international clauses included an exclusive jurisdiction clause requiring any dispute to be addressed in the English courts (in the Dealer's Confirmation) and, in at least two of the other agreements, a form of non-exclusive jurisdiction clause permitting disputes to be heard by the courts in New York. None of the parties were domiciled in England; thus only if the parties had expressly so agreed would the English courts have a jurisdiction over the matter under Council Regulation 44/201 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the "Brussels I Regulation"). All of which convolutions gave rise to the issue in the English proceedings, commenced by UBS, whether the dispute in issue fell within the jurisdiction clause in the Dealer's Confirmation and, therefore, precluded the New York proceedings which had been commenced by HSH Nordbank.

The applications judge (Walker J., who wrote the judgment of first instance in both this decision and the second decision discussed herein) held that, whilst it was the case that a jurisdiction clause in a stand alone contract should be construed broadly, so as not to unduly preclude proceedings in a jurisdiction selected by the parties, in construing a variety of agreements with inconsistent jurisdiction clauses the Court should instead attribute the dispute to a particular contract with which the cause of action (rather than the remedy) was most closely associated and then invoke the jurisdiction clause in that agreement. As the cause of action in this instance alleged there were misrepresentations made in the discussions leading up to the entire relationship, the cause of action was more closely tied to the other agreements which permitted or granted jurisdiction in New York. In the absence of contractual agreement, the English courts had no jurisdiction over the matter. UBS appealed.

Lord Collins of Mapesbury wrote the Judgment of the Court of Appeal. UBS made attractive, albeit unsuccessful, arguments that the application court's analysis was flawed in that it approached its task from the wrong end: the issue for the applications judge was whether any of the claims related to the Dealer's Confirmation because if they did then the English courts had jurisdiction simpliciter to deal with the matter; conversely, the issue was not to decide to which contract the causes of action, as a whole, were most closely related, particularly where the English jurisdiction clause was exclusive (and therefore had priority) and the other jurisdiction clauses were not exclusive (and so did not preclude English proceedings even though they contemplated proceedings in New York).

However, the Court of Appeal held that as its task was to construe the jurisdiction clause in issue by looking at the transaction as a whole and that, as it would be unreasonable to assume that business people would have ex ante contemplated that a dispute could fall within two inconsistent jurisdiction clauses, the parties must have intended that where a dispute fell within both jurisdiction clauses that the one contained in the agreement most closely connected with the cause of action must prevail.

The Court of Appeal was also at pains to point out the reality that the Dealers Confirmation (including its jurisdiction clause) was boilerplate. In the context of the relationship as a whole, it was reasonable to assume that the parties only intended that the boilerplate jurisdiction clause in a boilerplate agreement would only apply to technical disputes regarding same agreement and that it did not apply to disputes which went to the commercial core of the overall relationship.

The importance and meaning of the inconsistency in the jurisdiction clauses on which this decision depends was emphasized in Deutsche Bank AG v Sebastian Holdings Inc, which was released shortly after the Court of Appeal's decision in UBS v. HSH Nordbank and in contemplation of it. Deutsche Bank started proceedings in London and Sebastian Holdings, having already issued other claims in New York, challenged that jurisdiction based on the contracts between the parties. Again, the Court was faced with a stunning variety of choice of law and jurisdiction provisions in a number of agreements. Again, as neither of the parties was domiciled in England, the English courts would only have jurisdiction under the Brussels I Regulation if there was contractual agreement that any dispute could be dealt with in the English courts.

The two decisions might at first glance appear to conflict. For in Deutsche Bank v Sebastian Holdings, Walker J. held that there was no need for the court to select a particular agreement as being at the "commercial centre of the transaction" or at the core of the cause of action and to give primacy to its jurisdiction clause, as His Lordship and the Court of Appeal had done in UBS.

In fact Walker.J., the applications judge, accepted that there was nothing unreasonable with the assumption that the parties had contemplated parallel proceedings in different jurisdictions in this multi-contractual relationship. Indeed, given the decision in Royal Bank of Canada v. Co-operative Centrale Raiffeisen-Boerenleenbank BA [2004] 2 All ER (Comm) 847, it was likely the parties understood that any non-exclusive jurisdiction clause modeled on the International Swap Dealers Association Master Agreement ( as were some of the contracts in question ) would be interpreted this way.

Importantly, the applications judge accepted the suggestion that the overall institutional relationship could be divided into two general spheres: i) the securities trading agreements and ii) the foreign currency exchange trading agreements. The securities agreements universally recognized the jurisdiction of the English courts (though some contemplated exclusive and others non-exclusive jurisdiction), whilst the foreign currency exchange contracts contained jurisdiction clauses granting non-exclusive jurisdiction to both New York and London. By accepting this distinction, the judge was able to distinguish the case from UBS, and avoid the difficulty faced in UBS of the inherent conflict between a permissive choice of jurisdiction clause in one agreement and an exclusive jurisdiction choice of jurisdiction in another, where each contemplated a different jurisdiction and covered the same relationship between the parties.

Indeed, in this distinction lies, at least in part, the jurisprudential importance of the two decisions and provides an interesting key to the interpretation of the jurisdictional clauses in multi-contractual international arrangements. Where the relationship (or the portion of the relationship) in issue involves a variety of agreements with conflicting jurisdictional clauses, the court must find the agreement most closely connected with the cause of action and the commercial centre of the overall arrangement. The court must then apply the jurisdictional clause in that central agreement to the exclusion of the others. However, where there is no conflict in the jurisdictional clauses, the court must determine whether any of the causes of action relate to a dispute in an agreement with a jurisdictional clause which gives that court jurisdiction.

The trick, of course, is in knowing ex ante whether there is a conflict in the agreements. That is not a simple matter. In the UBS case, UBS persuasively argued that there was no functional conflict between a non-exclusive jurisdiction clause permitting proceedings in New York and an exclusive jurisdiction clause requiring proceedings in London because proceedings in London were permitted by both contracts. UBS was proved wrong as the applications judge and the Court of Appeal found that this did amount to an inconsistency as the one agreement reflected an intention that proceedings could be prosecuted in New York and the other did not permit such proceedings. Conversely, in Deutsche Bank, there were potentially inconsistent exclusive jurisdiction clauses and permissive jurisdiction clauses and, on the basis of UBS, these could persuasively be argued to be inconsistent requiring the court to choose the most appropriate contract based on an analysis of the commercial heart of transaction or the core of the cause of action and enforce its jurisdiction clause. Again, that proved wrong as the inconsistency was removed through the bifurcation of the relationship into the securities trading and foreign currency exchange arrangements.

Following the UBS and Deutsch Bank decisions it seems the courts will now analyse a multiplicity of differing jurisdiction clauses in international multi-contractual relationships (where neither party is domiciled in England) in accordance with the following decision tree:

1. Is the relationship a unitary one (or should the relationship be divided into various subparts)?

a. If unitary, then are there competing exclusive jurisdiction clauses in any of the agreements?

  1. If yes, then the court must find the agreement with the closest relationship to the cause of action or at the commercial core of the relationship. The court must then apply that contract's jurisdiction clause.
  2. If no, then the court should determine if any of the causes of action relate to an agreement which grants the court jurisdiction. If they do, the court has jurisdiction; if they do not; it does not.

b. If the relationship is binary (or even more fragmented), then is there an exclusive jurisdiction clause in one of the parts of the relationship where another agreement in that part also contains a non-exclusive grant to another jurisdiction?

  1. If yes, then the court must find the agreement with the closest relationship to the cause of action or at the commercial core of the part of the relationship. The court must then apply that contract's jurisdiction clause.
  2. If no, then the court should determine if any of the causes of action relate to an agreement which grants the court jurisdiction. If they do, the court has jurisdiction; if they do not; it does not.

This is complicated and the Courts do not even begin to suggest that the parties actually considered and agreed with the results of this approach; they frankly acknowledge that the analysis is driven by principles of contractual interpretation, based on the approach of considering the understanding of the agreements that would be had by a reasonable businessman with knowledge of the background of the situation, to determine what the judges believe the parties would have done had they considered the matter. However, the alternative, that any exclusive grant of jurisdiction would always trump any non-exclusive grant, even where the agreement containing the exclusive grant of jurisdiction was otherwise inconsequential boilerplate, is likely worse. Furthermore, whilst it might appear difficult to determine if the relationship as whole should be further bifurcated or otherwise divided, this must conform to the reasonable expectations of many institutions participating in a number of independent transactions. In large financial institutions, it would work real mischief to collapse all of their various arrangements with one another into a unitary whole.

In many cases, this issue might be avoided during the drafting of the original contracts. Presumably, an overarching agreement regarding jurisdiction and choice of law could be prepared, and the jurisdiction clauses in the various agreements removed. Even if problematic and contentious, and even ambiguous, such an agreement surely must be better than the current floating concept of jurisdiction in which the parties' decision is made by the Court (which itself candidly admits that it is guessing what the parties might have done rather than actually determining what was agreed on this issue). Far better that the parties themselves should actually consider the matter, especially given the amount of money, time and effort spent on the rest of the relationship. The alternative, that the parties expressly agree almost everything except where to resolve any dispute, has proven absurd and very costly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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