In a previous blog post we considered how Brexit is likely to impact the UK’s rules on jurisdiction, governing law, service and enforcement. This post considers briefly how changes to the rules on jurisdiction and enforcement may impact transactions documented under the ISDA Master Agreements, and what can be done by financial institutions to mitigate the potential risks.
To understand how Brexit might impact the jurisdiction clauses in the ISDA Master Agreements, it is important to start by understanding how the clauses are drafted. The 1992 and 2002 ISDA Master Agreements confer exclusive jurisdiction on the English courts for claims brought in “Contracting States” and “Convention Courts” respectively. These definitions are not beyond challenge, having arguably shifted in meaning as a consequence of the gradual re-shaping of the European Union over time.
For example, the definition of “Contracting States” in the 1992 ISDA Master Agreement draws on the Civil Jurisdiction and Judgments Act 1982, and is designed to encompass states applying the original 1968 Brussels Regulation and the then-current 1988 Lugano Convention. However, as European legislation has evolved, in particular following the introduction of the Brussels Regulation, the definitions in the 1982 Act have changed. As a result, it is now at least arguable that the jurisdiction clause in the 1992 ISDA does not operate to confer exclusive jurisdiction on the English Court in respect of claims brought in courts of current EU Member States, or EFTA states, in the way originally intended.
A similar argument exists in relation to the 2002 ISDA Master Agreement, which confers exclusive jurisdiction on the English court where claims are brought in a “Convention Court”, meaning courts which apply the 1968 Brussels Convention or the 1988 Lugano Convention. Given the 2002 ISDA Master Agreement defined Convention Court by reference to the 1968 Brussels Convention, rather than the 2001 Brussels Regulation which was in force when the 2002 ISDA Master Agreement was produced, it is at least arguable that the 2002 ISDA Master Agreement does not confer exclusive jurisdiction on the English court in respect of claims brought in the courts of current EU Member States or EFTA states.
Of course, these potential vulnerabilities already existed prior to the UK’s referendum outcome. However, the consequences of the UK’s departure from the EU is likely to compound the issue. Member State courts may find themselves interpreting an ISDA jurisdiction clause that sets the scope of exclusive jurisdiction by reference to historic European Conventions and an Act of a former EU Member State. The potential for inconsistent interpretation as to the scope of such a clause is not insignificant.
Given these uncertainties, parties to the ISDA Master Agreements who have a strong desire to give exclusive jurisdiction to the courts of England and Wales may want to make this explicit in their contracts, and avoid any scope for argument over the definitions of “Contracting States” or “Convention Courts”.
As a secondary point, one of the main attractions for EU counterparties in giving jurisdiction to the English courts in the first place is the ease of enforcing judgments within the EU. As discussed in our previous post, it is hoped that the UK accedes to the 2007 Lugano Convention in due course; this would be the natural alternative to the Recast Brussels Regulation, and already applies to establish a relatively straightforward route to enforcement between the EU and the EFTA states.