A recent decision of the English Court of Appeal should provide
relief to counterparties who have nominated different courts as
having jurisdiction in multiple related agreements.
Sebastian Holdings Inc v Deutsche Bank AG
In 2006 Sebastian Holdings Inc
("Sebastian") entered into a 1992 ISDA
Master Agreement and schedule with Deutsche Bank AG (the
"Bank") for the purposes of trading
equities. Later that year, Sebastian entered into a series of
foreign exchange ("FX") agreements with
the Bank, including a Prime Brokerage Agreement and Agent Master
Agreement. The Prime Brokerage Agreement enabled Sebastian to enter
into FX and related transactions with specified counterparties as
agent for the Bank. The Agent Master Agreement, which also used the
1992 ISDA Master Agreement, provided for off-setting transactions
to be entered into between Sebastian and the Bank.
In early 2008 the parties entered into further
agreements, including a Master Netting Agreement that provided for
a net termination payment upon termination of the Prime Brokerage
Agreement and the ISDA Master Agreement. The fora for disputes
designated in the various agreements were as follows:
ISDA Master Agreement and Agent Master
Agreement: non-exclusive jurisdiction of the English
Master Netting Agreement: exclusive
jurisdiction of the English courts.
Prime Brokerage Agreement: non-exclusive
jurisdiction of New York courts.
During October 2008 the Bank made margin calls totalling
approximately US$436m after Sebastian had suffered heavy FX trading
losses. The Bank subsequently closed out its positions with
Sebastian and demanded payment of more than $120m under the Agent
Master Agreement (for FX losses) and $125m under the Master Netting
Agreement (for equities losses).
In November 2008 Sebastian issued proceedings in New York
claiming damages of at least $750m from the Bank. Sebastian
alleged, among other things, that it had agreed with the Bank to
limit its exposure on foreign exchange trading to $35m and claimed
damages for breach of the Prime Brokerage Agreement. In response,
the Bank issued a claim in the Commercial Court in England in
respect of approximately $250m it was owed under the Agent Master
Agreement and Master Netting Agreement. The Bank denied that it
agreed to limit Sebastian's exposure. Sebastian subsequently
sought a declaration from the Commercial Court that it did not have
jurisdiction to hear the Bank's claim.
Counsel for Sebastian argued that the court should presume that
the parties intended any claim or dispute arising in respect of
multiple agreements to be subject to a single jurisdiction. Counsel
argued that this jurisdiction should be that specified in the
contract at the "centre of gravity" of the dispute and
the jurisdiction clauses in the contracts should be interpreted to
give effect to this presumed intention. Counsel further argued that
as all claims and disputes arose from FX trading, it must be
inferred that the parties had intended that any claim be heard in
the jurisdiction chosen in the Prime Brokerage Agreement, that is,
English court's reluctance to re-write clearly drafted
The Court of Appeal affirmed the decision of the Commercial
Court and unanimously rejected Sebastian's claim even though
such decision potentially resulted in a "degree of
fragmentation in the resolution of disputes between parties to the
series of agreements".
Lord Justice Thomas stated that the objective of the court was
to focus on finding the commercially rational construction of a
contract and to give effect to the parties' agreements. Here,
the Bank's claims were being made under the Agent Master
Agreement and the Master Netting Agreement. Both of these
agreements contained an express right to bring proceedings in
England and this was clearly the intention of the parties. The fact
that Sebastian raised a defence based on the Prime Brokerage
Agreement (in which New York was designated as the forum for
disputes) was insufficient to override the intention of the parties
that was obvious from the plain wording of the agreements.
The court held that rather than giving effect to the intention
of the parties, Sebastian's suggested interpretation of the
agreements would in fact frustrate it:
"... the wording of the clauses in the agreements shows
that the parties plainly intended the Bank to be able to bring a
claim under an agreement under which a debt was due in the
jurisdiction provided for in that agreement. ...The language of the
agreements plainly envisages [claims being brought under different
agreements in different jurisdictions and] it is entirely rational
for businessmen to agree to this."
This case is one of several recent English decisions that have
given effect to the intention of the parties as evidenced by
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Investment funds with high net worth individuals as investors will need to have a client agreement with their high net worth investors.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).