Deutsche Bank v. Comune Di Savona [2017] EWHC 1013 (Comm)

In May 2017, the Commercial Court upheld a jurisdictional challenge by the Italian local authority Comune di Savona (Savona) in the proceedings brought against it by Deutsche Bank.

The dispute concerns two interest rate swaps entered into by the defendant with Deutsche Bank pursuant to an ISDA Master Agreement which, in the standard form, was governed by English law and contained an exclusive jurisdiction clause in favour of the English court (the ISDA). However, prior to entering into the ISDA, the parties had entered into another agreement, pursuant to which Deutsche Bank agreed to provide advice in respect of Savona’s existing derivative commitments, and in relation to restructuring its debts (the Convention). The Convention was governed by Italian law and contained an exclusive jurisdiction clause in favour of the Italian court.

Deutsche Bank commenced proceedings in England for various negative declarations in June 2016, and Italian proceedings were subsequently issued by Savona in February 2017. The focus of the Italian claim was the advice given by Deutsche Bank, and its role as adviser pursuant to the terms of the Convention. Accordingly, Savona sought to challenge the jurisdiction of the English court in respect of various declarations including, amongst others, that Savona had made its own independent decisions to enter into the swaps and that it did not rely on any communication from the bank as advice or a recommendation to enter into the swaps.

The court upheld Savona’s challenge in respect of the five declarations in question. The first four of the declarations were founded upon various contractual estoppels in the ISDA, but the court did not consider that this necessarily meant that the dispute as to the declarations must be caught by the English clause. The court considered that an investigation into those issues could not be limited to narrow technical points but would inevitably stray into wider questions regarding the underlying advice given by Deutsche Bank, and whether it was acted upon. However, on the facts, this would have required incursion into the territory of the Italian clause. The final declaration, meanwhile, concerned any pre-swap obligation, howsoever it arose, and which caused Savona to enter into the swap. The court considered that this trespassed directly on the obligations which were the subject of the Italian claim and outside the scope of the English clause.

Deutsche Bank sought to contend that the English jurisdiction clause contained in the standard terms of the ISDA should be given universal and consistent application across different cases. However, the judge concluded that, whilst this approach might be appropriate if no other jurisdiction clause was involved, where there were different clauses, the relevant context should not be ignored. Here, it was necessary to construe the English clause in light of the Convention and the pre-existing Italian clause. If this meant giving the English jurisdiction a narrower scope than it might otherwise have, there was no rule of English law to prevent that approach.

The court also considered the wording of the English jurisdiction clause itself, which covered “any suit, action or proceeding relating to this Agreement”. It was common ground this would cover any dispute as to the performance of the parties’ obligations under the swap. However, the court concluded that, whilst it was possible that this wording could also cover a wider range of disputes (including, for example, misrepresentation), that approach would ignore the relevant context. The Convention was concerned with Deutsche Bank as adviser, and the swaps were merely concerned with Deutsche Bank as counterparty.

Therefore, a dispute which was essentially concerned with Deutsche Bank’s role as adviser was more naturally within the scope of the Italian jurisdiction clause.

Interestingly, the judge considered that the court should not strive to construe the two clauses as overlapping but mutually exclusive in scope – even if this caused jurisdictional fragmentation of a particular claim. The fact that some declarations might fall within the English clause and others within the Italian clause was not a consequence which must be avoided at all costs.

In addition, there was no presumption that the later clause was intended to cut down the earlier clause – again, even if that led to fragmentation. Whilst the ISDA was silent as to the earlier Convention, that did not mean the Italian clause was impliedly cut down as a matter of substance.

This is one of a number of similar cases currently going through the courts involving claims by municipal authorities against financial institutions in connection with interest rate swaps, and it will be interesting to see whether or not the jurisdictional points raised here will also be raised in the context of those claims. Further, judgment is an important reminder of the caution with which claimants should approach the issue of jurisdiction; clear wording in an ISDA will not be sufficient to ensure the jurisdiction of the English courts if there is a conflicting clause and the relevant context dictates otherwise.