CALYON v Wytwornia Sprzetu Komunikacynego PZL Swidnik SA [2009] EWHC 1914 (Comm) involved an application by the defendant Wytwornia Sprzetu Komunikacynego PZL Swidnik SA (“PZL”) for a declaration that the High Court had no jurisdiction to try a claim brought against it by CALYON in relation to a series of transactions governed by a substantially unamended form of the 1992 Master Agreement (Multicurrency Cross Border) (the “ISDA Master Agreement”) referred to in a long-form confirmation (the “Confirmation”).
Points of contention
In particular, “[o]ne such contract was entered into over the telephone on 13 August 2008, with Mr. Dariusz Frejowski acting for PZL and Mr. Grzegorz Klimczyk acting for CALYON. The transaction involved was called a Strip of Ratio Forwards (“SRF”). A confirmation of the transaction setting out its terms was sent by CALYON’s London Branch to PZL on 20th August 2008. Those terms provided, inter alia, that: (i) there were to be bi-weekly “fixings” in the period September 2008 to May 2009; (ii) the governing law of the SRF was English law; and (iii) the transaction was subject to the provisions of [the ISDA Master Agreement].”
PZL did not sign the Confirmation. After permitting a number of payments out of its bank account in discharge of sums CALYON said were due under the SRF, PZL refused to make further payments alleging that it had not agreed to the terms set out in the Confirmation. In particular, PZL said that it had not agreed to bi-weekly fixings for October 2008 to May 2009. Some four months after receipt of the Confirmation, PZL first explicitly stated that the transaction was not governed by the terms of the ISDA Master Agreement.
On 1 December 2008, CALYON issued proceedings in the High Court seeking, inter alia, specific performance of the terms of the subject transactions. On 22 December 2008, PZL commenced proceedings in the Polish courts for the recovery of payments made under the SRF on the grounds, inter alia, that Mr. Frejowski had no authority to make an agreement with CALYON on the terms of the ISDA Master Agreement and that PZL had never agreed to bi-weekly fixings.
Consideration of Article 23(1) of the Brussels I Regulation
The High Court first considered Article 23(1) of the Brussels I Regulation and the applicable standard of proof. Article 23(1) of the Brussels I Regulation provides:
“If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:
(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have established between themselves; or
(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”
The ruling
After reciting Article 23(1) of the Brussels I Regulation, Mr. Justice Field stated:
“8 Theoretically, Article 23(1) contains two requirements: (i) an agreement (“consensus”) between the parties that disputes between them are to be settled in the courts of a Member State of the EU; and (ii) the satisfaction of the formalities specified in (a), (b) or (c)…
12 It is clear from [Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH [1976] ECR 1831] that the purpose of establishing paragraphs (a), (b) and (c) of Article 23 is to ensure that the consensus between the parties is in fact established. Further, the establishment of (b) and/or (c) gives rise to a presumption of actual consensus, see Mainschiffahrts Genossenschaft eG (MSG) v Les Gravières Rhénanes Sarl (Case C 106/95); [1997] QB 731 (ECJ), at p.755 at para 19; The “Kribi” [2001] 1 Lloyd’s Law Reports 76, at para 64.
13 It is common ground that (i) the approach of the ECJ in Estasis Salotti applies to Article 23(1) of the Brussels I Regulation; (ii) it is for CALYON to demonstrate clearly and precisely to the applicable standard of proof that the jurisdiction clause contained in Clause 13(b) of the ISDA Master was in fact the subject of a consensus between the parties; and (iii)“consensus” for the purposes of Article 23 has an autonomous meaning.”
In addition to submitting that “consensus” had been established through the incorporation by reference of Clause 13(b) of the ISDA Master Agreement into the SRF contract, CALYON argued that “consensus” had been established by a course of dealings between the parties in the period of February to August 2008. Accordingly, the High Court reviewed the correspondence between the parties during such period and the evidence of CALYON and PZL personnel.
A complicating factor here was that a Polish law master agreement had been previously entered into between CALYON and PZL and had been used to document vanilla swap transactions between the local branch of CALYON and PZL. Following such review, Mr. Justice Field stated as follows:
“79 In my judgement, by virtue of its case on course of dealing, CALYON has a much better argument than PZL on the application of Article 23(1) to the SRF. In reaching this conclusion I have kept in mind that the purpose of the requirement that consensus be clearly and precisely established is “to neutralise the effect of jurisdiction clauses that might pass unnoticed in contracts.” [Partenreederei Ms.. Tilly Russ and Another v Haven & Vervoebedrijf Nova NV and Another (Case 71/83); [1985] 1 QB 931 at 954, para. 24 (ECJ).] In my view, what that means in a case where consensus stands to be presumed is that the course of dealing must be such as to have put the counterparty fairly and reasonably on notice that the contract would contain the jurisdiction clause contended for.
80 I also leave out of account Mr. Klimczyk’s evidence that he specifically explained to Mr. Frejowski over the telephone that transactions such as the TRF and the SRF were made with CALYON London and were subject to ISDA terms. I do so because, this being an interlocutory hearing, neither of these witnesses has been cross examined and there has been no order to give disclosure.
81 The reasons for my conclusion are as follows. Acting, inter alios, by Mr. Frejowski, PZL signed the four TRF Confirmations and sent them to CALYON’s London Office. It was clearly stated in those documents that: (i) CALYON had entered into those transactions through its London Office; (ii) the transaction was subject to the ISDA Master Agreement; and (iii) those transaction were subject to English law. Further, before the Confirmations were sent to CALYON’s London Office: (1) Mr. Klimczyk had spoken to Ms. Ignaciuk of PZL’s Finance Department and explained to her that in respect of structured transactions recorded in London, such as the TRFs, the ISDA document should be signed and would represent the framework of the parties’ co operation; transactions recorded in Poland, on the other hand, such as the two transactions “with Warsaw” were governed by the local framework agreement; and (2) PZL, acting, inter alios, by Mr. Frejowski, had signed the Settlement Instructions which referred to “other transactions consisting in combination of various financial products referred to as structured transactions, between [PZL] and CALYON London,” [emphasis supplied]. In addition, shortly before or shortly after the TRF Confirmations were sent to London, Ms. Jakobczyk of CALYON spoke to Mr. Frejowski to discuss PZL entering into an ISDA Master Agreement and was told by Mr. Frejowski that he would send a draft of the ISDA Master Agreement to his legal department for them to review. It ought therefore to have been plain to PZL that the TRF transactions were: (i) not governed by the Polish Master Agreement but were entered into by CALYON’s London Office and governed by the ISDA Master Agreement; and (ii) CALYON regarded TRFs as being structured transactions. Further, the ISDA Master Agreement was freely available and its terms as to jurisdiction are clear and straightforward: if the transaction is governed by English law, the Courts of England have jurisdiction in respect of any suit, action or proceeding on the agreement.
82 Moving now to the discussions between Mr. Frejowski and Mr. Klimczyk over the period 8th to 13th August 2008, it is clear that an SRF, which is essentially the same as a TRF but without a knock out condition, was considered alongside a TRF. The evidence also strongly indicates that, in contrast to the two simple option trades made under the Polish Master Agreement, Mr. Frejowski must have realised that CALYON’s London office was playing a significant role in the negotiations by providing the pricing and other details of the transaction.
83 It follows, in my opinion, that it ought to have been clear to PZL that the SRF was not the type of transaction that was governed by the Polish Master Agreement but was of a type that would be treated by CALYON in the same way as the TRFs had been. In short, PZL had fair and reasonable notice that the SRF would be entered into on ISDA terms. In this connection, I observe that although PZL challenged the values set out in the SRF Confirmation on 20th August 2008, there was no challenge to the applicability of the ISDA Master Agreement and English governing law until 15 December 2008, and no mention of the Polish Master Agreement until 14th October 2008.
85 It is to be noted that paragraph (b) of Article 23 (1) is an alternative to paragraph (a). It is accordingly immaterial whether the jurisdiction agreement was the subject of a prior oral agreement or was an agreement in writing or is evidenced in writing.
86 My decision that CALYON has shown to the requisite standard that Article 23(1) (b) applies to Clause 13(b) of the ISDA Master Agreement renders it unnecessary to deal with Mr. Gaisman’s submissions as to paragraphs (a) and (c) of Article 23(1) and I decline to do so. Suffice it to say that I have doubts that: (i) that the signature by PZL of the four TRF Confirmations and the wording of those documents alone would be sufficient to establish the applicability of paragraph (a); and (ii) the ISDA Master Agreement is sufficiently prevalent for paragraph (c) to be established.
PZL also argued that, since PZL was contending in the Polish proceedings that Mr. Frejowski had no authority to agree to a transaction governed by the ISDA Master Agreement, the courts of Poland had exclusive jurisdiction over the SRF dispute between the parties as a result of the application of Article 23(5) of the Brussels 1 Regulation which provides “Agreements …shall have no legal force if … the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 22.” Article 22(2) of the Brussels 1 Regulation provides that “The following courts shall have exclusive jurisdiction, regardless of domicile:…2. in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law.”
On this point, Mr. Justice Field held:
“93 It is clear that Article 22(2) should be read narrowly and by reference to its central objective which is one of centralising jurisdiction in order to avoid conflicting judgements being given as regards the existence of a company or as regards the validity of the decisions of its organs; see Hassett v South Eastern Health Board (Case C 372/07) (ECJ First Chamber), para 20. This is important for otherwise the right to agree jurisdiction conferred by Article 23 would be illegitimately circumscribed.
94 Adopting the approach of Knox J in Newtherapeutics Ltd v Katz, the question is whether the proceedings brought in this court by CALYON are in substance or principally concerned with whether Mr. Frejowski lacked actual authority under PZL’s Articles of Association to enter into an SRF that was governed by the ISDA Master Agreement. In my opinion, the subject matter as a whole of the proceedings is the enforcement of the oral SRF contract made on 13th August 2008 which will depend on the determination of four main issues: (i) whether there was consensus as to the commercial terms recorded in the SRF Confirmation; (ii) whether PZL has a defence based on lack of diligence; (iii) whether Mr. Frejowski had actual authority to enter into the transaction under PZL’s Articles of Association; and (iv) whatever the position under (iii), whether Mr. Frejowski had apparent authority to enter into the transaction on behalf of PZL.
95 Issue (iv) stands separately from issue (iii) not only because it raises distinct conceptual issues but also because questions of apparent authority under the conflict of laws are governed by English common law conflict rules, pursuant to which the governing law is that chosen by the parties to govern the contract sued upon; see Dicey, Morris and Collins on The Conflict of Laws, 14th ed paras 33R 428 33–433.
96 Issue (iii) is therefore but one of four main issues and is not in my opinion the substance of the proceedings nor a matter with which the proceedings are principally concerned.
97 PZL’s submissions based on Article 22(2) are accordingly rejected.”
Points of interest
The case highlights 2 points:
Firstly, when relying on the deemed execution of the ISDA Master Agreement, it should be clearly spelt out to the counterparty that the ISDA Master Agreement applies (including the governing law and jurisdiction clause) and that any transactions governed by such deemed ISDA Master Agreement will be governed by English law; and
Secondly, acknowledgements of confirmations should be obtained, even where the confirmation contains a deemed acceptance clause
