UK: The Italian Job: Court Of Appeal Provides Guidance On Competing Jurisdiction Clauses

Last Updated: 10 September 2018
Article by Felicity Ewing, Thomas Leyland and Ami Ndukwe

The Court of Appeal recently considered the question of competing jurisdiction clauses. The dispute in Deutsche Bank AG v. Comune di Savona1 concerned interest rate swaps entered into by the defendant with Deutsche Bank (the Bank) pursuant to an ISDA Master Agreement which contained an exclusive jurisdiction clause in favour of the English court (the ISDA). Prior to entering into the ISDA, the parties had also entered into another agreement under which the Bank was to provide certain advice (the Convention). The Convention contained an exclusive jurisdiction clause in favour of an Italian court. The issue before the Court of Appeal was whether certain declarations sought by the Bank in English proceedings under the ISDA were in fact subject to the exclusive jurisdiction of the Italian court because they fell within the scope of the Convention and not the ISDA.

The Appeal Court recognised the difficulty in construing competing jurisdiction clauses. Each case will require careful analysis of principles of construction and, where European law is in play, the "particular legal relationship" between the parties for the purposes of Article 25 of the Recast Brussels Regulation2 to determine jurisdiction. The court noted the presumption that parties will not be taken to have intended a particular dispute to fall within the scope of two inconsistent clauses, but concluded there will be cases "where it is genuinely difficult, or actually impossible, to assign a particular dispute to one jurisdiction clause or another".

The court also called for the Commercial Court Users' Committee to consider changes to the Commercial Court Guide in order to restrict the use of foreign law expert evidence on interlocutory applications.

Facts

In March 2007, an Italian local authority (Savona) entered into an agreement (known as the Convention) with the London branch of the Bank, pursuant to which the Bank agreed to provide advice and support to Savona in relation to its debts and choice of financial instruments. The Convention was governed by Italian law and conferred jurisdiction on the court of Milan. In June 2007 the Bank and Savona entered into the ISDA, which included an English governing law and English court jurisdiction clause. Savona subsequently executed two interest rate swap transactions (the Transactions), with confirmations stating that the Transactions were subject to the terms of the ISDA.

In June 2016, the Bank commenced proceedings in the Commercial Court in London for 12 separate declarations as to the validity of the Transactions. Savona contested the jurisdiction of the English court in relation to five of the declarations sought, which concerned at their core the issue of whether the Transactions were entered into pursuant to advice given by the Bank.

"Generic relationship" v. "Specific relationship"

The judge held at first instance3 that, as the Convention was concerned with the Bank as an adviser and as the Transactions were concerned with the Bank as a counterparty, a dispute about the Bank's role as an adviser fell more naturally within the scope of the Convention than of the ISDA, even though the declarations sought related to non-reliance clauses contained in the ISDA.

Longmore LJ, giving the leading judgment of the Court of Appeal, disagreed with the dividing lines drawn by the judge at first instance. He considered the distinction between the Bank's role as adviser and as counterparty to be unhelpful. Instead, his Lordship drew a distinction between what he called a "generic relationship" set out in the Convention and a "specific relationship" set out in the ISDA. Having distinguished between the two, his Lordship found that the "particular legal relationship" over which the dispute had arisen was the relationship under the ISDA and therefore the dispute was subject to the jurisdiction of the English court. A key factor in this particular case was that the terms of the Convention provided that contracts or transactions proposed by the Bank would be subject to an approvals process by Savona and, if approved, would be the subject matter of a separate contract. Accordingly, the court found the relationship agreed by that separate contract, in this case being the ISDA, to be the "particular legal relationship" envisaged by Article 25.

The court did note that mutually exclusive construction of jurisdiction clauses may not always be realistic or possible. In some cases "the true position may be that the parties have agreed that either jurisdiction clause can apply rather than that one clause must apply to the exclusion of the other" . In such circumstances "the court should not shrink from recognising that ... and should certainly not adopt a convoluted construction merely to ensure that the two clauses are mutually exclusive."

Foreign law evidence on jurisdiction applications

The judges in the Court of Appeal raised concern about the use of expert evidence on jurisdiction applications, in this case commenting that the evidence of Italian law adduced by Savona exceeded its proper ambit, was not permitted and was in fact unnecessary. Indeed, Gross LJ went as far as to express the view that the expert evidence had led the judge at first instance astray. The Court of Appeal confirmed foreign law expert evidence on jurisdiction applications should be limited to the comparatively straightforward exercise of informing the English court of any relevant differing principles of construction. The appeal judges explored whether permission had been obtained for expert evidence, which it had not, noting the apparent gap in the rules, where permission is required for expert evidence for trial but not for interim applications. Their Lordships' call for the Commercial Court Users' Committee and, more generally, the Civil Procedure Rule Committee to consider this issue signals that the scope for adducing foreign law expert evidence may well be codified and curtailed in the near future.

Comment

This judgment provides welcome guidance on the analysis to be conducted when determining the jurisdiction for a particular dispute, where contracts between the parties provide grounds to argue for more than one option. However, the existence of the jurisdiction dispute itself demonstrates the need for clarity and precision when drafting jurisdiction clauses. Further, institutions that contract with the same party on a regular basis, in related fields but in different jurisdictions, would be advised to have systems in place to ensure consideration is given to the potential for conflicting clauses on an ongoing basis before they conclude new contracts so issues can be identified and addressed at the drafting stage. We acknowledge that, unless firms have up-to-date contract management systems, such risk measures might be difficult to implement and monitor in practice.

Footnotes

1. [2018] EWCA Civ 1740.

2. Regulation (EU) No.1215/2012 provides that, regardless of domicile, where parties have agreed that courts of an EU member state have jurisdiction over "disputes which have arisen ... in connection with a particular legal relationship, that court or courts shall have jurisdiction".

3. [2017] EWHC 1013 (Comm).

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