Ireland: Swaps Mis-Selling Case Struck Out For Want Of Jurisdiction

Last Updated: 19 February 2014
Article by Conor McDonnell, Colin Monaghan and Amelia Walsh

The Commercial Court has dismissed proceedings commenced by a number of commercial entities domiciled in the British Virgin Islands in respect of the alleged mis-selling of interest rate swaps by The Royal Bank of Scotland plc (Agios Steamship Inc., Beautiful Steamship Inc., Eastwynd Steamship Inc. and Kingdom Steamship Inc. v The Royal Bank of Scotland plc (Ms Justice Finlay Geoghegan, 16 January 2014)).

BACKGROUND

Each of the Plaintiffs are entities registered and incorporated in the British Virgin Islands and were formed for the purposes of entering into and/or taking the benefit of, among other things, ship building contracts and corresponding financing contracts. By way of a loan agreement, the Royal Bank of Scotland plc (the "Bank") had advanced a term loan to part-finance four Supermax Bulk Carriers to be constructed at STX (Dalian) Ship Building Company Limited in Dalian, China. This loan agreement provided for the exclusive jurisdiction of the English Courts.

The Plaintiffs subsequently entered into a number of interest rate swap transactions with the Bank in 2008 (the "Swaps"), to hedge their liability for interest on foot of the loan agreement. An ISDA Master Agreement was entered into on 26 July 2007 which provided that it would be governed by and construed in accordance with the laws of England and, accordingly, be subject to the jurisdiction of the English Courts. The respective confirmations of the Swaps executed by the parties further provided for the jurisdiction of the English Courts (with the exception of one swap, which provided for the non-exclusive jurisdiction of the courts of the State of New York, though this was subsequently replaced in 2009 and 2010).

ENTRY TO THE COMMERCIAL LIST

The proceedings were initiated by the Plaintiffs in August 2013 alleging that the Swaps had been mis-sold and seeking, among other things, restitution for the total sum in respect of the Swaps, an equitable account for profits and damages for breach of contract and breach of duty (including statutory duty). A Conditional Appearance Subject to Jurisdiction was subsequently entered into on behalf of the Bank on 11 October 2013, without prejudice and solely for the purpose of contesting the jurisdiction of the High Court. The proceedings were entered into the Commercial List of the High Court on 14 October 2014.

Arthur Cox, on behalf of the Bank, issued a motion to strike out the proceedings and/or contest jurisdiction on foot of EC Regulation No 44/2001 on 4 November 2013. This application was heard before Ms Justice Finlay Geoghegan on 16 January 2014.

JUDGMENT

It was accepted by the parties that the jurisdiction of the Irish Court to hear and determine the Plaintiffs' claim was governed by EC Regulation No 44/2001 by reason of the fact that the Bank is a company domiciled in a Member State of the European Union, i.e. Scotland. It was further accepted that the fact that the Bank has a branch in this jurisdiction does not of itself give the Irish Courts jurisdiction to hear the proceedings.

In this regard, the Bank contended that, in circumstances where it is registered and domiciled in Scotland pursuant to Article 60 of EC Regulation No 44/2001, it may not be sued in the Courts of Ireland save by virtue of the exceptions to the general rule on domicile set out in Sections 2 to 7 of Chapter II of EC Regulation No 44/2001. The Bank further contended that, as the Plaintiffs' claim did not fall within the ambit of any of the exceptions set out in Sections 2 to 7 of Chapter II, in that the dispute did not arise out of the operations of the Bank's branch in Ireland, there was no basis upon which the proceedings could be maintained against the Bank in this jurisdiction.

The Court took into account the contention by the Bank that, even if the Court otherwise had jurisdiction to hear and determine the proceedings, the parties had agreed to submit to the exclusive jurisdiction of the English Courts in the event of any disputes arising out of the loan agreement and the various Swaps.

The Court, in relying on the judgment of Bio-Medical Research Limited trading as Slendertone v Delatex SA [2004] IR 307, accepted that the only basis upon which the Courts of Ireland could have jurisdiction to hear and determine the Plaintiffs' claim would be if the parties could be deemed to have reached a clear and precise agreement to confer such jurisdiction, which would amount to a prorogation of jurisdiction for the purposes of Article 23 of EC Regulation No 44/2001. In circumstances where no such agreement was evident from the provisions of the loan agreement and the Swaps, the onus of which in any event was on the Plaintiffs to prove, there was no basis upon which the Plaintiffs could establish jurisdiction in favour of the Courts of Ireland:

"In those circumstances, it appears to me, and I conclude that there is no agreement between the parties which, for the purposes of Article 23 of the Regulation, confers, by agreement, jurisdiction on the Courts of Ireland. And that is the only basis upon which the Plaintiffs have now advanced their entitlement to maintain the proceedings in this jurisdiction".

The Court ultimately declared that it had no jurisdiction to hear and determine the Plaintiffs' claim and, accordingly, struck out the proceedings for want of jurisdiction.

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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