The Court of Appeal has overturned the first instance decision of HHJ Waksman QC and held that the relevant jurisdiction clause was that contained within the ISDA Master Agreement, and not the clause in the agreement which governed the wider advisory relationship between the parties. This was an appeal in relation to two theoretically competing jurisdiction clauses in a European law context.
In March 2007, Deutsche Bank AG (“the Bank”) and Comune di Savona (“Savona”) entered into an agreement whereby the Bank agreed to provide Savona with advisory services in relation to the management of debt and identification of appropriate financial instruments, which would be dealt with by way of separate agreements (the “Convention”). The Convention contained a clause stating that it was governed by Italian Law and that the Court of Milan had exclusive jurisdiction (the “Italian Clause”).
In June 2007, the parties entered into two interest rate swaps (the “Swaps”) which incorporated a multicurrency ISDA Master Agreement with an amended schedule (the “ISDA Master Agreement”), which was stated to be governed by English Law and gave the English court exclusive jurisdiction (the “English Clause”). It also contained an ‘entire agreement clause which confirmed that the ISDA Master Agreement constituted the entire agreement and understanding of the parties and a non-reliance clause which stated that Savona was not relying on any advice from the Bank in relation to the entering into of the Swaps.
In June 2016, in response to the threat of potential legal action in Italy in relation to the validity of Savona’s entry into the Swaps, the Bank issued a claim against Savona in the Commercial Court in London seeking various declarations in relation to the knowledge and understanding of the parties in relation to the Swaps. Savona challenged the English court’s jurisdiction in relation to 5 of the declarations sought, which largely tracked the relevant terms of the ISDA Master Agreement.
The decision at First Instance
Savona’s jurisdiction challenge was upheld. HHJ Waksman QC interpreted the Italian Clause (considering lengthy expert evidence on Italian Law) and the English Clause and found that if one considered the ‘particular contractual context’, the Bank was acting as advisor in accordance with the terms of the Convention, whereas pursuant to the ISDA Master Agreement the Bank was simply acting as a counterparty. As such, he held that any dispute which related to the Bank’s role as advisor should be governed by the Italian Clause rather than the English Clause,commenting that this was also the effect of the Italian expert evidence.HHJ Waksman QC also rejected the argument that the ‘entire agreement’ clause precluded Savona from relying on the Italian Clause.
The Court of Appeal decision
The Court of Appeal allowed the Bank’s appeal and held that the English courts have jurisdiction. The court considered Article 25 Regulation (EU) No. 1215/2012, which applies where the parties have agreed that a particular court has jurisdiction over “disputes which have arisen … in accordance with a particular legal relationship”,andheld that as the Convention provided that any financial instruments identified by the Bank were to be submitted to Savona for prior approval and would be subject to a separate contract, there was a natural and reasonable distinction between the generic relationship set out in the Convention and the specific relationship set out in the Swap contracts which incorporated the ISDA Master Agreement. The court also said that the existence of the ‘entire agreement’ clause was even stronger confirmation that the contracts relating to the Swaps were separate, self-contained contracts and that any dispute relating to them fell within the jurisdiction clause in those contracts. The court therefore found that the particular declarations that were being challenged related to the Swaps and were, therefore, governed by the English Clause.
The decision is in line with existing authorities and confirms that the outcome of potentially competing jurisdiction clauses is a question of construction and will depend on the terms of the individual contracts. Furthermore, whilst it is desirable that such clauses are mutually exclusive, a court will not adopt a convoluted construction merely to achieve this. This reinforces the need for clear and precise drafting in order to avoid issues of this nature. Finally, as the approach is one of construction, the court also made it clear that expert evidence on foreign law was only required if there was a difference in construction in the foreign jurisdiction. As such, the court urged the Commercial Court Users Committee to consider amending the Commercial Court Guide to make it clear that evidence should only be permitted with consent from the court.
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